Brief Summary
The video discusses the recent portfolio adjustments made by the content creator, specifically adding to their position in Kaspi (KSPI) and initiating a new position in Nomad Foods (ticker NMD). The rationale behind these investment decisions is explained, focusing on the perceived undervaluation and potential for significant returns based on conservative estimates.
- Added to position in Kaspi (KSPI), citing its dominance in Kazakhstan's fintech market, high margins, and low valuation.
- Initiated a new position in Nomad Foods (NMD), attracted by its market leadership in European frozen foods, consistent profitability, and current undervaluation despite some concerns about debt and accounting practices.
Intro
The content creator discusses recent portfolio adjustments, including trimming positions in Alibaba and Lyft. The video focuses on detailing where the proceeds from these sales were allocated, specifically to an existing position and a new stock purchase.
Added to Kaspi Position
The content creator added to their position in Kaspi (KSPI), a dominant fintech business in Kazakhstan with a virtual monopoly. Kaspi has high operating margins (50%) and is expanding into Turkey, has almost no debt, and high insider ownership. Despite these strong fundamentals, the stock trades at less than seven times forward free cash flow and earnings. The content creator acknowledges the country risk but finds the risk-reward compelling, making it a larger position (over 6%) in their portfolio.
New Position: Nomad Foods
The content creator initiated a 1% position in Nomad Foods, a European frozen food market leader. Nomad Foods sells frozen fish and vegetables primarily in Europe. Despite recent earnings setbacks due to weather-related issues, the company has demonstrated steady growth and profitability over the past decade. The stock has sold off significantly, trading at under seven times forward free cash flow, and the company returns capital to shareholders through dividends (5%) and stock buybacks. Insider ownership is also relatively high, aligning management with shareholders.
Nomad Foods: Concerns and Red Flags
The content creator addresses concerns about Nomad Foods, including its high debt level (over $2 billion) relative to free cash flow. The company's debt is roughly five times free cash flow. Most of the debt is due in 2028 and 2029 and may need to be refinanced at higher rates. Additionally, the content creator dislikes how the company treats certain extraordinary items, particularly merger and restructuring charges, which they believe should be classified as operating expenses.
Nomad Foods: Future Return Forecast
The content creator presents base, bear, and bull case scenarios for Nomad Foods' future returns. The base case assumes 2% revenue growth, consistent operating margins, and an 8% free cash flow margin, resulting in a 19% annualized return over five years. The bear case assumes no growth and compressed margins, still yielding a positive return. The bull case projects 5% revenue growth, higher margins, and a 14 times multiple, leading to a 36% annualized return. Despite concerns, the content creator believes Nomad Foods is undervalued at $13 a share.
