In the spotlight today is the Western European market leader in the frozen food industry. With a portfolio of multiple brands, the company’s roots span over a century. The current setup was formed in 2015, when the brands Iglo and Findus were acquired. Since the IPO, a decade has passed, yet the stock is trading (again) where it had started. Are a near 5% dividend yield and a PE ratio of 7 enough to spark appetite, or is something fishy?
Summary and key takeaways from today’s Weekly
– Nomad Foods is Western Europe’s market leader in frozen foods.
– However, a closer look reveals that even a strong market position and supposedly strong brands do not guarantee a strong stock performance.
– Even despite its low-looking valuation parameters, the stock is not interesting for me.
You can find my series of food, and beverage and alcohol stocks here and here, but I have also discussed multiple individual names in separate Weeklies.
In the past, I have criticized many consumer-staples stocks.
Despite their popularity – perhaps because of it I shall say – their defensive business models, perceived competitive advantages from “strong brands”, and of course reliable dividends, I’ve struggled to find enough value until this day.
After for many observers unexpectedly big drawdowns of even more than 50% from the highs (financial-engineering readers were warned to be cautious), at least some optical valuation parameters have started to improve.
Honestly, my appetite is still not big enough.
The problem is most of these companies often suffer from a lack of growth, high debt, and more and more questionable brand and asset values on their balance sheets. Only because they have done well in the past, does not mean this will continue forever.
Over the last months, I at least managed to find a consumer staples idea that covers the cleaning and household sector for my members (see here). What I am still on the hunt for is a food and / or beverage idea. Today, I am going to discuss a company with a PE ratio of 7x and a dividend approaching 5%.
A tasty deal?
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both as per 10 September 2025 market close – since August 2022
Even a single-digit PE ratio can be too much
Nomad Foods (ISIN: VGG6564A1057, Ticker: NOMD) is the #1 player in Western Europe’s 22 bn. EUR frozen food market with an 18% share. According to the company’s website (see here), this is more than twice the size of its nearest competitor.
Note: The stock is trading on the New York Stock Exchange, however, the accounting currency is EUR.
40% of revenues are generated from frozen fish, 20% from frozen vegetables, and other categories like ready meals, frozen poultry and pizza represent the remaining 40%. The latter group tends to be more local in nature. Nomad has many brands, but not all of them are sold in all their markets.
Birds Eye is the UK and Ireland’s leading frozen food brand and prides itself on producing freshly frozen food, from deliciously tender garden peas, to the nations tea time favorite, fish fingers.
iglo is the largest and best-known frozen food brand in Germany, Austria, Netherlands, Belgium and Portugal where generations of children have grown up with iglo’s iconic Captain iglo and Blubb cream spinach products. Personally, I can confirm that the supermarkets here also have frozen vegetables and herbs.
Findus, sold in Switzerland, the Nordics, France, Italy, and Spain, offers a range of frozen food products including fish (like battered and crumbed fillets, fish fingers, and haddock), ready meals, peas, crispy pancakes, and cooked vegetables.
Being a defensive consumer staple with the focus on food, owning what it looks like strong brands, and being the clear market leader, should result in a richly valued stock.
At least that’s what I thought.
It couldn’t be further from the truth.
After a run into 2021 – the all-time high that’s still in place – unfortunately, the story started to get a bad smell. Shares are trading now practically where they started their public journey.
This bifurcated development can be explained as follows.
First due to more staying and cooking at home, organic demand surged, leading to the all-time high. This pace was obviously not sustainable, like was the case for most staying-at-home beneficiaries.
Then, inflation hit, enforcing hefty price increases to protect margins (price increases also affect the cost base of companies) which turbocharged sales, leading to record-high growth rates even.
What followed was a quick and strong drop of growth rates.
So strong that growth is non-existent as of late.
The company simply overdid it with pricing.
At least when it comes to growth. Management had to make a decision between margins and profitability on one side, and sales on the other.
Despite the strong price hikes, margins fell slightly. But not into the basement.
As of late, gross and operating margins have reverted back a little bit, but they haven’t reached their highs, yet.
The cost-of-living crisis is absolutely not solved.
While price increases depend on individual products, the overall pace seems to have slowed from the decade-high jumps in 2021 and especially 2022. But it is no secret that many food products have seen price increases of 50% or more even.
The majority of consumers cannot claim to have received higher salaries in the same proportion. This is why I have been saying ad nauseam that people stopped caring about “brand values” in the way they did before. Too many consumers simply have been priced out. No wonder that private-label brands and products grow faster than their branded competitors.
Nowadays, spoken from personal experience, often there is not even a big difference, if any, between branded and private-label brands. The latter often has even bigger-sized packs in addition to a lower total price tag, resulting in huge savings potential.
Pricing and pricing power due to “strong” brands has become a dull tool.
During a recent consumer conference (see here), management explained they did not have much time during the inflation boom and had to make a quick decision. Private-label brands of the supermarkets aren’t that quick. Their tool is first and foremost price. They follow later, but try to keep prices as low as possible for as long as possible.
When the gap becomes too big, the brands need to be very careful, otherwise they risk sacrificing too much volume.
This in turn is my explanation for why Nomad Foods, despite its brands and market position, factually has only LITTLE pricing power. They cannot afford to run away too much compared to cheaper competitors, no matter whether branded or not.
The other thing I do not like is their acquisition-heavy strategy.
The chart above shows the company’s equity on the balance sheet with the blue line.
It’s rising, fine.
But what’s more interesting is that the two bars, goodwill in black and other intangibles (primarily brand values) in green, each are reaching almost the entire equity position. In fact, they would need to be put onto each other for total intangible assets – together, they’re significantly more than total equity.
Why is this important?
While not an imminent threat, the logic behind that is a slow-down and challenges in the core business make it harder to justify to keep up the capitalized asset values on the balance sheet. At some point, management will need to write down certain assets, as they likely haven’t been acquired to not grow anymore. This is the first point that makes the balance sheet weak – too much hot air on the equity side.
The second is debt.
Net debt at the end of 2024 was a bit below 1.8 bn. EUR, now per last count it is a bit higher. Anyway, net debt is significantly higher than free cash flow – a factor of about 5x is a level I do not feel comfortable with for this case.
No growth and high debt can turn really ugly.
About two thirds of FCF have been used for buybacks, which at first glance seems to be a good use as the stock has fallen much.
Share count is on the way down, not even by little. About 20% over the last five years.
Management last year initiated a dividend for the first time on top.
It consumes about a quarter of FCF, a very low payout ratio. Especially considering that it is yielding now almost 5%. The dividend looks very safe.
FCF hovers between 300–400 mn. EUR.
So, a shareholder friendly management and a strongly cash generative business?
This is the first impression. However, if we look closer at cash flow, we’ll notice that Nomad has seen a very high uptick in payables – bills it has not payed per the last reporting deadline. As a reminder, cash flow and the P&L show periods, while the balance sheet shows a clear-cut day. So, paying some bills a couple of days later can suddenly and dramatically improve a balance sheet.
At least in the short-term and for a limited time.
Below, we have again in blue FCF, but in addition in black payables outstanding. A real bull market – in a negative sense. Effectively, this means they pushed up their cash flow.
A closer look reveals, over the last twelve month period, payables went vertical to preserve cash. Mostly, it balanced higher receivables (their customers didn’t pay them) and inventories (too little demand?).
But there’s also another ~105 mn. EUR push from “other operating activities” (not framed).
And then, we can see that over the last five years, operating cash flow has not grown. Not even using these accounting gymnastics. In reality or organically, the “true” cash flow seems to be falling.
Not a good sign.
What to make out of that?
The near-term guidance is weak. Really weak.
Looking into the mid-term, there’s a small glimmer of hope.
Free cash flow shall be 15% higher, which would be a new high. Notice that they don’t say “FCF growth”, meaning the total figure is expected to be higher by 15%, not 15% growth per annum.
What about the valuation?
At first glance, a well-covered almost 5% dividend and a PE ratio of 7x look cheap. Dirt-cheap, and almost too cheap.
But that’s only half the story, as the PE ratio leaves out debt. You cannot leave out debt when a company has much of it. With an equity market cap of 2.2 bn. USD and net debt of 1.8 bn. EUR (~2.1 bn. USD), the EV is 4.3 bn. USD.
This is not little.
FCF was 370 mn. EUR (~430 mn. USD) over the last twelve months as reported. This is an EV / FCF of 10x. Not expensive, but not dirt-cheap either, basically pricing in no growth – exactly what the company is delivering. Worse, it’s now up to management to “show me”, else even this multiple could be too high if negative growth prevails.
And then, we have negative business dynamics, not much pricing power left, questionable brand values, and a what it looks like artificially lifted cash flow.
So in essence, the 10x looks cheaper than it likely is. For me this is not enough.
Not only for me. The market seems to think the same. There’s no confidence and the stock was not stopped from falling even by relatively aggressive buybacks.
When a stock falls and share count shrinks, the market cap shrinks dramatically.
Here we have the market cap in USD.
The early part is a distortion from the IPO.
But what I’d like you to notice is that the high was more than 5 bn. USD. Now, we are close to 2 bn. UDS. A hefty fall from grace. Buybacks gave us some cosmetics, but the company as a whole is under heavy fire.
I think I will watch the case. At least for one or two quarters to see whether they repay their debt noticeably. That’s what I’d like to see. What I do not want to see is more acquisitions.
The stock has been falling under strong volume. On the other side, it could become an acquisition target at some point, especially for private equity.
But for now, not interesting for me.
Conclusion
Nomad Foods is Western Europe’s market leader in frozen foods.
However, a closer look reveals that even a strong market position and supposedly strong brands do not guarantee a strong stock performance.
Even despite its low-looking valuation parameters, the stock is not interesting for me.
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