Monday, May 2, 2022

An International Equity holding: Nomad Foods Ltd (NOMD, $21.27): “No-Madder What, Hold the Line” By: Jake Bernarde, AIM Student at Marquette University


Nomad Foods Ltd (NOMD, $21.27): “No-Madder What, Hold the Line”

By: Jake Bernarde, AIM Student at Marquette University

Disclosure: The AIM International Equity Fund currently holds this position. This article was written by myself, and it expresses my own opinions. I am not receiving compensation for it, and I have no business relationship with any company whose stock is mentioned in this article.


  • Nomad Foods Ltd (NYSE:NOMD) is a frozen foods company engaged in markets around the world. They primarily do business in Western Europe with a portfolio of goods including fish, vegetables, pizza, meats, meals, and more. Founded in 2014, the company is headquartered in Middlesex, the United Kingdom.
  • There is some uncertainty surrounding Russia’s invasion of Ukraine and its potential impact on the company’s fish supply. Over 50% of NOMD’s fish comes from Russia, so alternative sources of supply may become necessary.
  • NOMD must overcome inflationary pressures to drive EBITDA growth, which has grown at a 5Y CAGR of 10.4%.
  • In 2021, NOMD acquired Fortenova, a leading European frozen food company, which combined with its current operations, will add value in the coming years.
  • Down ~29% over the past year, NOMD shares are trading at a key level.

Key points: NOMD has met headwinds since the beginning of 2022, but its impact on sales and profit is not a long-term issue. The reliance on Russia for fish would drive price inflation if the export of fish were banned as other sourcing options are more costly, but this outcome is very unlikely and would affect the entire industry. Management communicated that the company has had no issues with supply coming from Russia, although the firm is beginning to diversify away its reliance on Russian Fisheries. Also, management indicated that the firm could switch to a different species of fish or leverage their plant-based products if the Russian invasion does disrupt supply.

NOMD has successfully created cost savings and leveraged synergies over the past 5 years to create double-digit EBITDA growth. Through the rest of 2022 and into 2023, the company must offset higher costs, through strong pricing power, level SG&A expenses, and an increase in demand for frozen foods. Although, this is not a challenge unique to the company, rather an industry-wide obstacle.

While the benefits of the acquisition of Fortenova are reflected in street expectations, the synergetic upside has been overlooked due to recent concerns surrounding costs and supply chain threats. Even so, Nomad is trading at a discount to its U.S. peers (GIS, KHC, HRL, TSN) based on forward 2022 P/E multiple of 13x versus a peer multiple of 17x. NOMD’s future earning potential is not reflected by its current trading price.

What has the stock done lately?

NOMD’s shares dropped sharply in early March after its Q1 earnings report, falling to 52-week lows and down ~17% YTD. Since the YTD lows of $19.75 shares rallied to over $23.00 and are now pushing to YTD lows once again. There have been numerous negative factors influencing NOMD, including higher costs and supply chain threats, but shares may be oversold.

Past Year Performance: NOMD is trading well below 2021 and all-time highs, currently down ~48% since mid-2021. Nomad’s returns are -29% over the past year compared to the MSCI ex. US benchmark, which returned -9.2% over the same period.

Source: FactSet

My Takeaway

Despite inflationary pressures, potential supply chain challenges, and y/y  EBITDA decline in Q1 FY22, NOMD’s share price has room to run if it can overcome current headwinds. NOMD can offset higher costs and is currently undervalued relative to peers, despite cost and pricing concerns. The growing frozen food market will drive low single-digit organic sales growth over the next 3 years and the acquisition of Fortenova and others will drive market share dominance by NOMD. Given both a lack of visibility surrounding potential headwinds and future growth potential it is recommended that the AIM International fund continues to hold their position in NOMD.

Source: FactSet