Stock pick: Wilson Asset Management

Nomad Foods (NYSE: NOMD) is the leading frozen food company in Western Europe and holds an enviable position in the rapidly growing meat-alternatives market. The company boasts a suite of strong brands including BirdsEye, igloo, Findus and Green Cuisine.

While COVID-19 has hurt most firms, enforced at-home dining has provided NOMD with a major tailwind. While restaurants will begin to re-open, social distancing measures which will remain in place for the foreseeable future means venues will operate well below prior capacity, creating a medium-term demand opportunity for NOMD.

NOMD is under-owned, under-estimated and trading at an attractive valuation. As a European company trading in the US, it is ‘off the radar’ for many investors. Furthermore, NOMD’s sustainable fishing practices and meat-alternatives are impressive from an environment, social and corporate governance (ESG) perspective. After launching its first meat-alternatives label, Green Cuisine, in the United Kingdom in 2019 as a test of product appeal and achieving better-than-expected success, NOMD is rolling out Green Cuisine to other key European markets. With market leader Beyond Meat (NASDAQ: BYND) trading at 17 times sales, relative to NOMD’s 2 times, the potential of this asset is not reflected in the share price today.

While large parts of the market are currently trading at peak valuations, NOMD trades on a price-to-earnings multiple of 15. Consumer food giants Nestle (SWX: NESN) and Campbell Soup (NYSE: CPB) trade at 23 and 18 times earnings respectively.

Potential risks for the business include closure of manufacturing plants due to contamination or outbreak of COVID-19. Alternatively, issues sourcing raw material inputs may drive inflation and hit margins or NOMD could overpay for an acquisition.

Given the uncertainty created by COVID-19, balance sheet discipline is crucial. NOMD performs well in this respect, with debt-to-enterprise-value below 20%, allowing NOMD to weather the downturn and make attractive acquisitions at reduced prices.

We believe NOMD will deliver over the medium-term as earnings beats and the effect of being ‘uncovered’ by the market serve as catalysts to drive the share price higher.

This information has been prepared and provided by Wilson Asset Management. To the extent that includes any financial product advice, the advice is of a general nature only and does not take into account any individual’s objectives, financial situation or particular needs. Before making an investment decision an individual should assess whether it meets their own needs and consult a financial advisor. This stock pick was published on 22 May 2020 and is subject to change.