Frozen Food Is Hot and Nomad Is a Big Winner

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When most investors think of frozen foods, they think of the has-been brands they ate growing up. In the U.K., that might bring to mind something like Aunt Bessie’s Toad in the Hole. But the new owner of that brand, Nomad Foods is far more dynamic than mere nostalgia would suggest. Nomad is a buy because it is perfectly positioned to benefit from the resurgence of the frozen-food aisle, which is one of the few bright spots in the otherwise struggling packaged-food industry. Consumers seeking both health and convenience are buying items such as frozen vegetables and meat substitutes, which are boosting growth at Nomad.

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This trend is being recognized by investors in the U.S., who late last year started bidding up shares of frozen-food specialists Conagra Brands and Pinnacle Foods . Conagra agreed in June to acquire Pinnacle for $8.2 billion. The same sales trend is occurring in Europe. Over the 52 weeks through March 25, frozen-food sales rose 2.9% across Europe, according to data provider Nielsen, accelerating from 1% growth the prior annual period. Certain categories such as frozen fish and seafood were especially strong, rising 3.1% and 4.1%, respectively. Nomad was formed in 2014 and quickly began to consolidate the European frozen-food sector. In 2015 it acquired the Iglo and Findus brands, which sell frozen fish sticks, vegetables and so on across the Continent, plus the Birds Eye brand in the U.K. The company has since built up a broad portfolio of frozen brands including two recently acquired U.K. companies—frozen-pizza maker Goodfella’s and Aunt Bessie’s. Last year, Nomad had a 14% share of the savory frozen-food market in Western Europe, nearly triple that of their closest competitor, according to Wells Fargo

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The company initially struggled to stabilize sales of aging frozen brands. Since then, Nomad has updated packaging and marketing and the company now sells trendy, updated products like fish with gluten-free or whole-grain coatings, new pea-based proteins and such. Organic net sales growth has been positive for six straight quarters. nvestors have noticed: Nomad shares are up 33% over the past year, and jumped 5.4% in a single day earlier this month on strong earnings and higher guidance. Nonetheless, Nomad remains cheap. It is trading at just 14.6 times forward earnings according to FactSet, compared with an average of 17.2 times for a dozen other U.S. and European food companies. Its valuation is more in line with growth-challenged giants like General Mills and J.M. Smucker , at 15 and 13.2 times forward earnings, respectively, than rapidly growing frozen players Conagra and Pinnacle, whose merger hasn’t yet closed, at 16.5 and 21.7 times. That means Nomad shares have room to rise as investors come around to its growth story. It isn’t too late to jump onto the frozen-food trend.

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