Nomad (NOMD, Financial) has built the leading branded frozen food business in Europe with its acquisitions of Iglo and the non-UK assets of Findus. The frozen food business is generally stable, and Nomad enjoys high margins and strong cash-flow generation with low capital expenditure requirements and modest cash taxes.
Nomad’s recent results have been disappointing as revenue trends have been weak. The new management team believes this has been caused by legacy strategic decisions to focus on new product development at the expense of the company’s core offerings. As a result, they have redirected their resources behind the company’s core offerings, or Must Win Battles. While this strategy shift will take time to have full effect recent, initial results have been encouraging. Following significant declines in 2015, bottoming in Q3 2015, Nomad’s team has produced four straight quarters of sequential improvement in like-for-like sales declines through Q3 2016. Moreover, the management team has highlighted positive results in the Must Win Battle categories and countries where they have thus far activated their strategy.
While top-line trends are improving, Nomad’s management team continues to control and reduce costs while extracting synergies from its Findus acquisition, allowing it to maintain profitability levels despite negative top-line growth. For 2016, Nomad has provided guidance that EBITDA will be broadly flat with last year at €332 million and levered free cash flow will be approximately €200 million before restructuring and other one-time items. The stock currently trades at about 9.5x times this free cash flow guidance, a valuation we find attractive.
Nomad remains focused on stabilizing its base business, integrating Findus and delivering the significant synergies it has identified. Over time, Nomad intends to create value as a consolidator in the packaged foods sector. Nomad’s share price declined 18.9% in 2016, and currently it is up slightly since our investment in mid-2015.
From Bill Ackman (Trades, Portfolio)'s Pershing Square 2016 annual report.
