Nomad Meals ($NOMD) is Europe’s main frozen meals firm. Its ERP backdrop may very well be a yummy alternative to get publicity to some family names in a sturdy and rising trade.
Key Highlights
Nomad Meals is a portfolio firm with sturdy manufacturers within the frozen meals trade
Regardless of its transitionary ERP issues the corporate reveals a powerful development trajectory
Nomad Meals at the moment trades at a reduction making use of a conservative valuation mannequin
The Enterprise and the Business
As Warren Buffett famously stated, “Firms which have the highest share of shoppers’ minds have each pricing energy and model loyalty, which end in wealth creation for shareholders.” Nomad Meals is an ideal instance. Rising up in an Italian family, Captain Findus fish sticks have been all the time a staple in our eating regimen—a outstanding achievement, contemplating how specific Italians are about meals. This exemplifies the energy of Nomad Meals: an organization that, by way of a collection of strategic acquisitions, has constructed a compelling portfolio of family manufacturers, now commanding 20% of the European frozen meals market.
On high of Findus, shaped in 1941 and marketed in Italy, France, Spain, Sweden, Switzerland and Norway, the opposite manufacturers are family names with lengthy histories and native heritage of their respective markets. The Birds Eye model was established in 1922 and is primarily marketed within the UK and Eire. The iglo model, based in 1956, has a longstanding historical past and is marketed in Germany and different continental European international locations. Ledo (established in 1958) and Frikom (established in 1975) are the lead manufacturers with sturdy heritage in south-eastern Europe.
Frozen meals merchandise are significantly enticing as a result of they tackle necessary international meals developments. Customers more and more want merchandise that permit them to organize meals shortly and with confidence and anticipate merchandise to be wholesome and good worth for cash. As well as, shoppers are more and more centered on decreasing meals waste. Frozen meals merchandise can have all of those traits. They’re simple to organize, they cut back the necessity for synthetic preservatives, they’re typically higher worth for cash than chilled alternate options they usually cut back waste in any respect factors within the provide chain and in addition in-home (because of the lengthy shelf life, and the convenience of portionability).
Nomad Meals – Investor Presentation
Competitors
The principle frozen meals producers in Europe are Nomad Meals, Unilever, Dr Oetker and McCain. Unilever instructions the ice cream market with manufacturers like Magnum, Ben & Jerry’s and Wall’s. Dr Oetker is known for its frozen pizzas, whereas McCain is the most well-liked model for frozen potatoes. There are additionally quite a few non-public labels, just like the grocery store chains, that supply low price frozen merchandise below their very own manufacturers.
Regardless of a aggressive surroundings, Nomad Meals is lively in segments totally different from its branded opponents, the place it will probably command a superior market share. Nomad Meals product combine is closely skewed in direction of protein and greens which account for 75% of its revenues. Its market share has laid the foundations of its aggressive benefit. Certainly, Nomad Meals advantages from economies of scale, long-term retail relationships, and a various product and geographic combine. Its well-established manufacturers give the corporate a powerful model fairness technique, with main spontaneous model consciousness in a number of areas.
Furthermore, the corporate has optimized its sourcing technique. By working a centralized procurement and provide chain aligned with its geographic footprint, Nomad Meals successfully reduces distribution prices. It sources merchandise globally from a large community of suppliers, minimizing the chance of over-reliance on any single provider. Moreover, the corporate operates 18 manufacturing amenities strategically positioned close to its major markets. This diversified manufacturing setup permits for higher logistics administration, balancing manufacturing prices with excessive customer support ranges.
Nomad Meals – Investor Presentation
Market
The consumption of frozen meals is backed by clear secular developments. The consumption of frozen meals cuts down meal preparation, giving households again extra time for what issues most. Frozen meals is inexpensive in comparison with their chilled equivalents. This issues for 93% of European shoppers, who modified their method to store to handle expenditures in a price of residing disaster. Lastly, frozen meals are considerably extra sustainable each for retailers and remaining shoppers. Certainly, they permit to cut back waste for his or her important longer shelf life.
During the last ten years the European savory frozen meals market has grown round 3% whereas experiencing an enormous spike in class demand all through the COVID pandemic, pushed by the aforementioned skill to deal with international meals consumption developments. Moreover, the quantity of house that frozen meals as a class occupies throughout the grocery retail surroundings is comparatively steady because of the fastened quantity of freezer house on the retailer that isn’t uncovered to reductions in shelf house in favor of different classes or codecs, as could be the case in shelf-stable elements of the retailer. Anyway, these different meals classes grew solely 2% in the identical time frame.
Strategic Alternatives
In comparison with their US counterparts, Europeans eat a lot much less frozen meals per capita, favoring contemporary choices as a consequence of misconceptions about their poor high quality. Per capita consumption of frozen meals within the US is eighteen.2 kg, whereas the European common is round 8 kg. Controlling for the dietary variations between European and US shoppers, this development remains to be important and will slender within the close to future. This opens up compelling development alternatives for European producers.
Nomad Meals development initiatives focus round strategic acquisitions, aimed toward figuring out and executing on enticing development alternatives to consolidate their core product combine. Nomad Meals possesses stable acquisition experience, supported by a powerful administration workforce and entry to capital.
The corporate can be centered on its core product classes – fish, greens, and poultry – which account for 67% of its branded retail gross sales. Efforts to reinforce these classes embody bettering product high quality, refreshing packaging, and optimizing in-store execution by way of higher product assortment, show methods, and promotions. Given its present comparatively low penetration at poultry and potato markets in European international locations, Nomad Meals has a lot house for additional development.
Lastly the corporate desires to extend margins and money flows by way of disciplined price administration and provide chain optimization. This contains initiatives like lean manufacturing, manufacturing unit footprint optimization, and enhancing procurement productiveness, in addition to creating stronger promotional packages, value structure, and commerce phrases. Though over the previous a number of quarters Nomad Meals’ profitability has been below stress, margins stay steady and will enhance sooner or later, offering additional cash for distributions to shareholders.
Dangers
Nomad Meals – Investor Presentation
There are some dangers related to a profitable execution of Nomad Meals’ plans. For instance, an elevated consolidation within the frozen meals market would possibly cut back the gross sales of the corporate. On the identical time, an inflationary surroundings may cut back the power of the corporate to move by way of value will increase to shoppers. Anyway, the vertically built-in operations of Nomad Meals give it an edge within the advanced pipelines of chilly provide chains in opposition to its opponents in addition to higher value management capabilities.
Lastly, Nomad Meals depends on gross sales to a restricted variety of massive meals retailers. The meals retail segments are extremely concentrated, with Nomad Meals’ high 10 retail clients accounting for about 32% of its annual income. Ought to these retailers carry out poorly, the corporate’s enterprise may very well be adversely affected. Regardless of this being a severe menace, Nomad Meals managed to extend its revenues annually during the last ten years, that means that its gross sales channels and advertising and marketing capabilities can face varied challenges.
Nomad Meals Valuation
However what’s the worth of Nomad Meals?
I’ll use the Residual Earnings Mannequin to worth the enterprise, detailed in Accounting for Worth by Stephen Penman (Columbia Enterprise College Publishing, 2010). Some main advantages from utilizing this mannequin are the low variety of inputs, low quantity of hypothesis added and strict connection to the fundametals.
I’ll assume EPS of €1.76, €1.91 and €2.09 for FY 2024, FY 2025 and FY 2026. These are probably the most up to date estimates of the monetary analysts following the corporate. Plus, I’ll assume DPS (Dividend per Share) of €0.60, €0.62 and €0.64, in step with the corporate’s dedication. I’ll assume a ten% Value of Capital, that’s affordable contemplating the present risk-free rates of interest. I may even assume a 0% development fee for the RE (Residual Earnings). This strategy has two key advantages: it considerably reduces the chance of overpaying for development and aligns with market principle, which means that residual earnings are inclined to diminish over time. Given a BPS (E-book Worth per Share) in FY 2023 of €17.39, we are actually able to compute the worth per share of the corporate:
The BPS for FY 2024 and FY 2025 is computed including the EPS and subtracting DPS from earlier 12 months BPS. We compute ROCE (Return on Widespread Fairness) because the ratio of EPS and former 12 months BPS. The Residual Earnings are computed subtracting the Value of Capital from the ROCE, permitting us to give attention to the Financial Earnings of the corporate. The result’s then multiplied by the earlier 12 months BPS. Lastly, we low cost future Residual Earnings with a ten% Value of Capital, assuming no development for the longer term durations, and we add it to the bottom BPS.
As we are able to see the ensuing worth per share is €18.32, exhibiting roughly a 17% premium from the present value of Nomad Meals. This valuation is very conservatory, that means that it could be adequate for the corporate to ship their commitments to see this appreciation mirrored within the inventory value.
Conclusion
The present ERP headwinds have led to a downward revision of steerage for the top of 2024. This follows a difficult interval for the frozen meals trade, marked by inflationary pressures and the cost-of-living disaster. Regardless of these difficulties, Nomad Meals not solely maintained its profitability but additionally elevated its revenues—a powerful testomony to the corporate’s resilience and energy.
With its business flywheel gaining momentum and its enterprise mannequin supported by clear secular developments, the transitional challenges confronted by this outstanding firm might current a horny alternative for buyers in search of publicity to a rising trade throughout the European market.
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