Nomad Meals ($NOMD) is Europe’s main frozen meals firm. Its ERP backdrop might 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 exhibits a robust development trajectory
- Nomad Meals at present trades at a reduction making use of a conservative valuation mannequin
The Enterprise and the Business
As Warren Buffett famously mentioned, “Corporations which have the highest share of customers’ minds have each pricing energy and model loyalty, which lead to wealth creation for shareholders.” Nomad Meals is an ideal instance. Rising up in an Italian family, Captain Findus fish sticks had been at all times a staple in our weight-reduction plan—a outstanding achievement, contemplating how explicit Italians are about meals. This exemplifies the power of Nomad Meals: an organization that, by a sequence of strategic acquisitions, has constructed a compelling portfolio of family manufacturers, now commanding 20% of the European frozen meals market.
On prime of Findus, fashioned 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 deal with essential international meals developments. Shoppers more and more favor merchandise that permit them to organize meals shortly and with confidence and count on merchandise to be wholesome and good worth for cash. As well as, customers are more and more centered on lowering meals waste. Frozen meals merchandise can have all of those traits. They’re simple to organize, they scale back the necessity for synthetic preservatives, they’re usually higher worth for cash than chilled options and so they scale 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 primary 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 legendary for its frozen pizzas, whereas McCain is the preferred model for frozen potatoes. There are additionally numerous non-public labels, just like the grocery store chains, that provide low price frozen merchandise underneath their very own manufacturers.
Regardless of a aggressive surroundings, Nomad Meals is energetic in segments totally different from its branded rivals, the place it may command a superior market share. Nomad Meals product combine is closely skewed in the 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 robust 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 situated close to its important 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 customers, who modified their strategy to store to handle expenditures in a value of residing disaster. Lastly, frozen meals are considerably extra sustainable each for retailers and closing customers. Certainly, they permit to scale back waste for his or her vital 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 potential 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 mounted quantity of freezer house on the retailer that’s not uncovered to reductions in shelf house in favor of different classes or codecs, as may be the case in shelf-stable components of the retailer. Anyway, these different meals classes grew solely 2% in the identical time period.
Strategic Alternatives
In comparison with their US counterparts, Europeans eat a lot much less frozen meals per capita, favoring contemporary choices as a result 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 customers, this development remains to be vital 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 robust administration group and entry to capital.
The corporate can also be centered on its core product classes – fish, greens, and poultry – which account for 67% of its branded retail gross sales. Efforts to boost these classes embrace bettering product high quality, refreshing packaging, and optimizing in-store execution by 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 needs to extend margins and money flows by disciplined price administration and provide chain optimization. This consists of initiatives like lean manufacturing, manufacturing unit footprint optimization, and enhancing procurement productiveness, in addition to creating stronger promotional applications, value structure, and commerce phrases. Though over the previous a number of quarters Nomad Meals’ profitability has been underneath stress, margins stay steady and will enhance sooner or later, offering more money 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 may scale back the gross sales of the corporate. On the similar time, an inflationary surroundings might scale back the power of the corporate to cross by value will increase to customers. Anyway, the vertically built-in operations of Nomad Meals give it an edge within the advanced pipelines of chilly provide chains towards its rivals 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’ prime 10 retail prospects accounting for about 32% of its annual income. Ought to these retailers carry out poorly, the corporate’s enterprise might be adversely affected. Regardless of this being a critical menace, Nomad Meals managed to extend its revenues annually during the last ten years, which 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 essentially 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, according to 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 idea, which means that residual earnings are likely to diminish over time. Given a BPS (E-book Worth per Share) in FY 2023 of €17.39, we at the moment are 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 yr BPS. We compute ROCE (Return on Widespread Fairness) because the ratio of EPS and former yr 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 yr 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, displaying roughly a 17% premium from the present value of Nomad Meals. This valuation is very conservatory, which means that it will be ample 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 steering 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 power.
With its industrial flywheel gaining momentum and its enterprise mannequin supported by clear secular developments, the transitional challenges confronted by this outstanding firm could current a lovely alternative for buyers searching for publicity to a rising trade throughout the European market.
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