Tuesday, December 24, 2019

A Current AIM International Equity Holding: Nomad Foods Ltd. (NOMD, $20.71): “NO Getting MAD, This is Rad”

 Nomad Foods Ltd. (NOMD, $20.71): “NO Getting MAD, This is Rad”
By: Katherine Nozel, AIM Student at Marquette University

Disclosure: The AIM 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) manufactures and distributes frozen foods, including fish, vegetables, poultry, side dishes, ready meals, and desserts through large grocery retailers and supermarkets. The firm operates under one business segment, yet continues to build a global portfolio, primarily in Western Europe, through their several integrated acquisition brands.

• NOMD’s sources of revenue stem from markets including the United Kingdom (26.9% FY19), Italy (17.7%), Germany (14.3%), France (8.9%), all of which grew organically in Q3. Other European countries generate the remaining 32.3% of revenue. Since Q1 FY18, revenue has increased 8.9% to $1,883MM.

• NOMD expected an adjusted EBITDA between $466MM-$477MM in FY19, and after Q3, confidently narrowed its previous range to a $471MM-$477MM projection.

• Management is satisfied with the performance of FY19 thus far, and expects to heighten long-term shareholder value through NOMD’s strong balance sheet position with over $777MM of cash and 2.8x leverage as of Q3.

• NOMD could be heading to new 52-week highs as management excitedly evaluates several potential acquisition targets that have low risk and high accretion, looking to expand geographic footprint across Europe.

Key points:

Analysts were sensitive towards Nomad Foods Ltd. as Q3 FY19 approached due to recently lumpy trends. However, NOMD exceeded expectations with +2.5% YOY organic sales growth, from the core portfolio for the 11th consecutive quarter. Sales are forecasted to increase as the newly acquired Green Cuisine, a plant-based brand, plans to expand beyond the United Kingdom in FY20, while enhancing the brand’s quality and taste.

Additionally, NOMD continues to prioritize meaningful cost savings and synergies across all brands; SG&A expenses decreased 80 bps from the prior year. Further, gross margin increased 110 bps to 29.5% as a result of improved pea supplies, operational improvement in the Goodfellas brand, and pricing adjustments to fish prices. According to Wells Fargo Securities, the integration of Aunt Bessie’s and Goodfellas Pizza, two FY18 acquisitions, will trigger an EBITDA margin target of 20% in FY21. NOMD strategically aims for double-digit YOY EBITDA growth with 14% growth last quarter.

NOMD maintains a strong cash flow position in which robust growth opportunities via additional acquisitions will provoke an increased stock price. Management’s tone during a Q3 press release and earnings call suggests an upcoming acquisition. The CEO revealed that he and management are currently evaluating several potential targets to blend into the core business that will not be effected by risks of Brexit. NOMD intends to continue investing heavily in “Must Win Battles,” strengthening core icons to develop distinctive brands within the portfolio.

What has the stock done lately?

Although NOMD dipped to $18.89 in October FY19, prices since, have grown steadily to a current price of $20.71. Although the 52 Week Range of $15.87-$23.06 is slightly volatile, management’s strong grasp on cost savings, alongside future acquisition intentions, will improve stock performance moving forward.

1 Month Stock Price Chart
Source: FactSet
Past Year Performance:

Over the course of FY19, NOMD increased 23.89% YTD, outperforming the market in Q2 and Q3. EPS was $0.13 in Q1, rising to $0.24 in Q2, and slumping back down to $0.20 in Q3. Based on FY19’s performance and recent management’s proposed initiatives, NOMD’s performance will likely exceed expectations in FY20.   

1 Year Price Chart vs. Benchmark
Source: FactSet

My Takeaway

NOMD was pitched and added to the AIM International Fund in January 2018 at a price of $17.15, with a price target of $20.55. NOMD’s current price has surpassed the initial analyst’s price target with a current price of $20.71. In January FY18, the frozen food market in Europe was forecasted to grow at a CAGR of 4%. As demand increases for convenient food options in a similar fashion to FY18, NOMD will continue to dominate market share through their strategic initiatives of geographic expansion and M&A. Over the course of the past year, NOMD has been advantageous to the AIM International Fund and based on future projections, will continue to add value. Therefore, I believe we should buy additional shares of Nomad Foods Ltd. So, NO getting MAD, this is rad!