Nordrest Holdings AB – ‘MM..FOOD’

Guest Article

Hello all, here is a second and last guest post from a writer with a small number of subscribers and followers, Javen from the UK. As for me, I will prepare my annual review, as I had few time for it this week.

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Hi. My name is Javen Turner and I am a Value Investor from the UK. I have been writing more seriously about investing for the past year, focussing on understanding the nuances of businesse that others miss or don't understand. I have a bias towards small companies as this is often where these misunderstandings are most common. The thing that drives my interest in investing is understanding how businesses work and learning and interacting with other investors, particularly specialist investors who focus on a particular style or industry.

A few months ago I began going through recent Nordic Market IPOs. There is a lot of crap and unprofitable companies but eventually I came across Nordrest which peaked my interest as a high quality company with a long growth runway, trading at a reasonable valuation. As usual, this is not to be taken as financial advice, please do your own research.

Intro

Nordrest are a founder led Swedish food provider valued at around $120 Million who provide catering services for both the public and private sectors. This includes cafeteria food for industrial companies like Volvo, Hospitals, Care Homes and Schools. They also provide catering for the Swedish Military and are one of 5 members of NATO’s MRE (Meals Ready to Eat) program. Over the last few years since the start of the Russia-Ukraine conflict, Nordrest have experienced a marked growth in their orders from this MRE sector, with 60% of net income at its peak coming from the MRE business (24% of revenue), on top of an already strong defense presence with its native armed forces. Sweden itself is also planning on increasing its military spending over the next few years to a greater percentage of its GDP, possibly increasing its army’s size by 40%. Nordrest logically see a significant amount of revenue coming from this segment as it grows and have guided for 10% a year growth across all their service segments, including Defense and MRE.

On the flip side, the end of the Russia-Ukraine crisis would make continued revenues from the MRE segment uncertain. With demand sharply falling in the last quarter, this may be a sign of things to come. However, there is a possibility (even a likelihood) this will be offset in the long term from increased contracts (new NATO deal signed in August 2024) and the possible business gained from other countries around Europe, thanks to their successful supply of MRE to NATO since 2017, proving their reliability to other nations and a wider range of clients in this segment. This write up will explain the different business segments and their competitive advantages over both larger and smaller players. I will also spend a significant amount of time evaluating the risks of the MRE business which the market seems very concerned about and led to a large sell off after the last earnings report.

Core Business

Nordrest are a food service business who serve a variety of different sectors. The phrase that constantly comes up in their investor materials is that they focus on areas with ‘natural guest flows.’ To put it simply, Nordrest are looking to provide food in areas where people will always be, which reduces the need for them to attract people to their restaurants, unlike a traditional restaurant business where you rely on attracting customers and advertising. This therefore puts an emphasis on areas where there are 1) few alternatives or 2) a very high concentration of people.

To give you an example of both, example 1 would be something such as a factory cafeteria. Large factories are likely to be slightly isolated from outside restaurants or perhaps set up in a way that is inconvenient for employees to leave the site during the working day. Most employees therefore either bring their own lunch or buy from the company cafeteria as there are no other alternatives. This means you have a stable customer base and one that cannot be taken away, unless you lose the contract to provide food for the company.

An example of scenario 2 would be ‘Taste by Nordrest,’ a chain restaurant they own and operate, one branch of which is located in Arlanda Airport, Stockholm. Nordrest have also partnered recently with Swedish restaurateur, Pontus Frithiof on a second restaurant concept in Arlanda Airport named ‘Little Italy.’ This seems to be a more upmarket offering serving Italian-American dishes. This illustrates the versatility of the business allowing them to implement different kinds of restaurant concepts through their relationships in the industry. In the case of Little Italy, they are responsible for the running of the restaurant with the concept and menu designed by Pontus and his team. So why airports? If you have ever been to a busy airport, especially around mealtimes, you know that basically every restaurant will have a good amount of people inside. People are hungry and there are only so many places you can go to eat. Once again, this creates a stable business due to a large amount of people and limited restaurants. But, in a distinct difference from scenario 1, it is not reliant on repeat customers like factory workers, but rather the constant flow of travellers. Hospitals and Schools also fit within these criteria, with various barriers preventing their customer base from getting food offsite. This again ensures a stable consumer demand. The main idea is to reduce risk and ensure constantly profitable food service units.

When it comes to large contracts such as factory catering, Nordrest work with clients to tailor meals to the markets they operate in. This might seem very simple and logical but is apparently not often done by the huge food service conglomerates they compete with such as Compass PLC. Most of the big catering companies offer a set menu to choose from and there is little to accommodate the particular tastes of the staff at that location. In addition to this, many big clients also have historically used generalised site management companies who not only provide catering but also cleaning and management services. These generalised site management companies offer even less choice to their customers as their resources are spread across multiple priorities. This is what has allowed Nordrest to differentiate themselves. An example I came across is the matching of meals to the ethnic groups working at a particular factory. Nordrest do not just offer Swedish food to the factory workers at Volvo or other industrial plants as their competitors might. Some of these businesses may have a large amount of their workforce from South Asian countries. Nordrest therefore tailor their menus to also offer meal options such as vegetarian curries, matching the tastes of the workforce and their dietary habits, greatly improving customer satisfaction and helping with renewal rates, keeping clients over the long term. This very simple but thoughtful adjustment has made Nordrest’s reputation second to none, actually able to retain clients who had a reputation of frequently changing their food providers. Their cafeteria business is also capital light as it does not include the ownership of cafeterias themselves and is very low churn.

How do they tailor meals? Well unlike other food service companies. Nordrest encourage their staff and unit managers to take ownership of their own menu’s and really make their offering individual. This means they have the freedom to create menus that will most appeal to their customer base. This has a number of positive effects. For one, this makes the staff feel more involved in the business and also logically work harder as they are responsible for the delivery of something they themselves have created or influenced, not just following a set menu sent over from the corporate office. As well as this, customers are far more likely to be pleased with the catering services as they will no doubt have been consulted with by the unit manager to understand what their needs are desires for meals are. This makes it both attractive for a company to hire Nordrest for their catering needs, as they are able to heavily feed (I promise these food puns are unintentional) into the delivery of the product and also it is hard for a company to leave Nordrest as they are unable to get the same level of service elsewhere, risking upsetting your workforce.

Nordrest are not afraid to innovate to try and better serve their target markets which is something that truly sets them apart from many food service companies. One such recent development is a collaboration between Nordrest and Volvo for a pilot scheme of a new meal delivery system called Lunchbox. At a particular Volvo factory in Torslanda, employees were reportedly finding it hard to wait in line for lunch or go off site to a local restaurant for a hot meal. You can imagine that long lines create a negative experience for these employees who are tired after a hard morning’s work and just want to relax and have a hot meal, especially in the winter months. What Nordrest did is create a locker like meal delivery system which employees can order in advance via an app and pick up their meal hot and ready when they have their lunch break. Let’s say you planned to meet your workmates for lunch but are running late. Instead of having to line up while they are already sat down eating, you can order your food in advance, pick it up and sit straight down with your friends. Although the pilot is fairly new, it has reportedly been very successful and had good feedback.

"I love it! Good food at a good price, no long walk and I don't have to wait."

"So good! Finally I don't have to lug around lunch boxes."

This feedback just goes to show the tremendous impact that Nordrest’s innovation can have on their customers and in ensuring ongoing business as employers see the impact of their efforts to put consumers first. As explained earlier, Nordrest targeting a factory cafeteria makes sense due to the stable flow of employees to sell to. But this pilot builds on this by actually working to increase the penetration rate of meals sold by removing barriers that people have in ordering from Nordrest’s units. If your business is coming from having a non-catering specific company as its main supplier, this is a complete contrast.

These are things that the large corporate food providers do not have the ability to do due to their corporate structures. Their main tool to outcompete Nordrest will always be price. However as Volvo has shown with their frequent changing of foodservice providers until renewing with Nordrest, price alone will not stop clients leaving if they are not happy with the quality of food. Nordrest have adopted these innovative strategies from the start, meaning as the company grow, they strive to continue prioritising what has made them successful. It does not seem likely to me that the huge food companies will adjust their strategy to match what Nordrest do, giving them a unique edge. Compass do offer temperate controlled lockers for hot food and ‘Micro Market’ solutions (which are basically small shops where staff can buy cold food) but again, these solutions fall back on the quality of the food provided and this is within the limits of the menu’s offered by these companies. Nordrest’s staff and unit managers being so involved in the menu creation process is what makes these additional services powerful. Compass investing in this technology alone is not nearly as damaging to Nordrest, as their menu will remain a generalised offering which will be less popular that those produced by Nordrest.

As of the last earnings report, their revenue is broken down into the following segments,

Defense – 19%

MRE – 24%

Companies – 16%

Universities – 12%

Schools – 12%

Hospitals and Elderly Care – 9%

Travel – 7%

This brings us on to discuss MRE.

What is MRE? – Is It a Risk?

So what actually is MRE? Meals Ready to Eat are pre-prepared meals which broadly speaking cover 2 main criteria. That the meal packs have a long shelf life that can be stored for later use and they are easy to eat and prepare without adequate facilities to warm up food. MRE comes in both dry and wet configurations, with dry kits requiring water be added to rehydrate the food (saving weight) and wet kits only needing reheating. The kits will include chemical heating elements so the user can heat up their meal without a stove. As you might expect, the vast majority of these orders come from the military who use MRE as a means to feed soldiers both in training and active settings. But, MRE does get orders from other organisations and also has quite a big popularity among average people - there is a reddit community as well as YouTube videos with thousands of views reviewing MRE from various nations. Sweden, broadly, has quite a good reputation for their MRE compared with other nations, with reviews being done for both Outmeals (Nordrest MRE subsidiary) and 24Hourmeals, a company which interestingly was bought by Compass Group. Both companies supply the Swedish Military. I managed to find a forum post from 2018 that seems to be from a Swedish soldier who was advertising re-selling Outmeals MRE kits that he had. The post says the following – ‘The meals are from the Outmeals company, which have been selected to be the second supplier of field rations to the Swedish army. I'm unsure of when they started to deliver, but the rations began to pop up on domestic auction sites last year. The contents differs somewhat as to the main suppliers (which is the 24hourmeals company). Most notably are that some of the meal retort pouches are made by the company themselves.’

The two takeaways here are that Outmeals began to take off right around the 2017/2018 mark which lines up with when they won their first NATO procurement contract. The second takeaway is that although now 24hourmeals now make they own ‘meal retort pouches’ as he calls them, when this post was made, Outmeals were unique in doing this in Sweden. From the outside looking in, this seems to suggest better control of food quality and menu control which is likely why they were successful despite being the secondary supplier. Again, I have no idea who is the bigger supplier today out of the two companies, but it is positive in either sense. If Outmeals remain the secondary player in the market for the Swedish Military and have been as successful as they have been, this suggests that there is more than enough of a market to support 2 players with a low risk of one taking out the other. If they are now in fact the largest player, this shows that they have gone from being the secondary supplier to the main supplier over just a few years. In either case, this suggests the business is a lot safer than the market has been accounting for. Once again, this falls on the backdrop of the Swedish government wanting to expand its armed forces, likely increasing domestic MRE demand.

So how do these companies compare in their meal kits? Well they are actually very similar. I will link a few reviews below so you can get an idea of what both Outmeals and 24Hourmeals packs look like. As you can see, both MRE suppliers use elements from other companies within their kits. Basically all the meals seem to follow the same template in terms of what is made by the company and what branded things they add to the kit. Both companies include Bla Band products in their kits as well as branded drinks but generally they make their own protein bars and cookies as well as the main meal pouch. Generally speaking, people have positive things to say about the Outmeals offerings, with the kits being made up of a lot of whole meals rather than calorie dense snacks to bulk them out like many foreign MRE kits. I would say that between both Swedish suppliers, there does not seem to be a ton of differentiation in terms of offering, especially given the crossover with the use of same suppliers for drinks and premade meals. For Outmeals, the differentiation likely comes their expertise in meal creation as they having been creating their own main meals longer than 24Hourmeals, and from having a stable supply for their biggest clients such as NATO, who are not price conscious customers, but rather service quality conscious. They cannot afford for their troops to go without food, and therefore will logically pay more for a stable and secure service which is adequately enjoyable to eat.

Nordrest is pretty well diversified across its different service segments, with the exception of MRE. As mentioned in the intro, MRE at its peak made up 60% of net income despite only being 24% of revenues (still the largest individual segment) and is clearly a very profitable business to have exposure to. Recent price action however seems to show the market is concerned about what happens if this MRE revenue begins to slow down which did happen over the last quarter. MRE was down around 20%, but other business grew at a rate of 17%. The core business growth was therefore hidden by this decline. The way I am choosing to look at this is MRE is a partially cyclical business which will experience inconsistent demand quarter to quarter but one that generates a lot of cash which can be diverted into other service areas if needed. If they did not have exposure here, sure, earnings would probably look less lumpy, but they would miss out on a great margin business which experiences big spikes in demand which they can help to meet. What is a danger, is the company focussing too much on this segment, as MRE demand is not guaranteed and there is a risk that too many MRE products could be produced by the company, only to go unsold for long periods due to a sharp drop in demand. This to me is the biggest risk rather than MRE demand slowing generally. In my conversations with management, they seem to think MRE will grow in line with their other segments at around 10%. Understanding how the company mitigate the risks with this business and decide how much MRE to produce is a key part of understanding how much of a concern this should be.

During my research I asked management a few questions related to MRE, which is the business segment that is the most challenging to understand. Part of this is due to the fragmentation and the sensitivity around the data for those who are supplied with MRE such as NATO and various armed forces in Europe as well as other government agencies – Funnily enough I actually reached out to NATO procurement during my research but they politely declined to comment. Believe it or not, countries don’t really enjoy shouting about who supplies their armed forces with food. Despite this, In my research I found out that the purpose of Nordrest’s partnership with NATO procurement is basically to make it easier for NATO member states to order MRE supplies at a cheaper rate compared with if they ordered their own supply. This makes logical sense if you are a smaller country who makes smaller orders. This benefits Nordrest as they get more certainty with orders and it benefits customers as they don’t have to manage their own orders.

To give you an example of something that I was unable to get an answer to from Nordrest, I asked if they would be able to disclose the revenue split between NATO and non-NATO MRE sales. This is a logical question as if this split was heavily weighted towards NATO, it would suggest this business is not as diversified and vulnerable to unforeseen demand declines due to a decline in demand from NATO. The management team said this was not something they could discuss.

My Questions to Management on MRE

So what were they able to answer? My first question was regarding what normalised MRE demand was prior to the Russia-Ukraine Crisis and what Outmeals’ share of this was. Management explained that before the present geopolitical situation, the MRE market in Europe was ‘not fully investigated’ due to varied supply methods such as local production in some countries and others relying on NATO or independent contracts for their MRE needs. This makes it hard to estimate what normalised demand was prior to the current spike. Additionally, defence contracts are not often in depth when it comes to volumes of purchases, which makes it additionally hard to estimate what the total market size is. What is clear is MRE was sort of a black box, not just for outsiders, but for everyone involved in the supply chain. To this day it is very hard to get much information from outside sources on the size of this market. I would say that this puts a high premium on a company being adaptable with its MRE supply and being able to quickly ramp up your production is an advantage over others. Outmeals increasing their sales over the last few years during this demand spike, suggests they possess this adaptability, especially given they did it during the supply chain crisis of Covid.

My next question was related to the issues that Nordrest disclosed in their IPO prospectus when it comes to the risk of producing too many MRE products during a demand decline, resulting in potentially millions of unsold MRE inventory. One of my primary concerns was if this would result in a permanent loss of capital. The management team explained to me that their MRE products have a shelf life of between 3-27 years (Wet kits have a shorter life than dry kits). In addition to this, they obviously take steps to monitor stock levels and produce based on anticipated demand. This means that products can still be sold within their shelf life even if demand declines. This is positive to hear as it means Nordrest are unlikely to need to write off unsold MRE meals as losses due to their long shelf life. During the last earnings report, Tomas, the CEO, also commented that MRE demand often experiences inconsistent demand quarter to quarter. This long shelf life therefore makes it easier to navigate this demand cycle.

I then asked about MRE growth from 2017 (The first NATO contract) to 2021, and the drivers of this growth. I was told that MRE sales remained steady during this period with limited growth. What is interesting is that Outmeals apparently grew their market share during the pandemic when demand was overall decreasing. It is Interesting that the Outmeals CEO was so sure they had grown market share during this period despite earlier saying they were not able to accurately estimate normalised MRE demand during this period. Despite decreasing demand during this period, Outmeals was able to attract more clients, maintaining around the same volume of sales during this period. What this means is orders from clients were going down in terms of volume but they were able to make up for this growth with the addition of more clients, likely as a result of other MRE suppliers being unable to meet demand. This suggests the business might be slightly more resilient than competition. Outmeals therefore have shown an ability to maintain their baseline revenues during difficult periods.

My final question was asking what problem the Outmeals CEO most often thinks about. His response was that he most often thinks about keeping up with demand as the market grows. The company have apparently moved into a new facility which has ‘mitigated most of those issues’ and they are now prepared for future growth. This response is interesting as we can infer a few things. 1. Outmeals have been operating for the last few years from a facility which made it harder to keep up with increased demand, but they were still able to do so. 2. Moving into a new facility means one or multiple of a number of factors are true a) Nordrest expect increased MRE volumes than prior to the Russia-Ukraine Crisis to become the new baseline b) Moving into this new facility will make them more operationally efficient which will provide cost savings, and c) A larger facility will allow them to obtain larger contracts as well as more effectively risk manage their MRE stock for those bigger clients by guaranteeing supply.

I would say that I am feeling slightly better about MRE after getting some clarifications from management. It is still a hard to quantify market, but one that Nordrest are taking adequate steps to account for. The business is one that generates very good returns, albeit on a semi cyclical basis. However, I feel more confident in saying that Nordrest have grown their underlying market share of MRE. During downtrends, it is still profitable and there is not a risk of permanent losses from unsold MRE as I first feared. I am fairly confident that the MRE business will not get in the way of the other business segments and that it is worthwhile to have exposure to it, given its very high contribution to net income. Having had the experience of working with NATO and during a very high demand period will have given them valuable knowledge and a base to build from. The investment in a new facility suggests the first step in ensuring this business remains continually efficient and profitable. Even if the MRE business has been overearning for the last few years, its baseline demand seems very likely to be higher than where it was pre pandemic. The risk of MRE being loss making, to me, is very small. As for competition, 24Hourmeals have clearly also done well during this period, as they were acquired by Compass and have a similar business model. Given that Outmeals performed well during the same period, and my assumption that Sweden’s armed forces will continue to diversify its MRE over multiple suppliers to manage risk, and therefore it does not seem that competition is a massive factor. Although I cannot prove it for certain, Sweden’s native MRE market may even be a Duopoly as I cannot find another supplier online. The fact Nordrest also provide canteen services for the military to me also protects them as the army do not want to upset the company who provide 2 different services for them as opposed to 24Hourmeals who are a pure MRE company.

All other areas growing 17% in Q3 2024 illustrates that Nordrest are able to successfully grow their core business at high rates and the runway here is very large with them only just announcing expansion into a second Nordic nation, Finland. The MRE decline in the last quarter basically completely hid this growth and the stock price also took a hit back down to its IPO levels. During my research I initially reached out directly to the Outmeals CEO - Pelle Höckerbo - who explained to me that I would have to go through the official IR channels before he could answer any questions. I will say that the CFO, Mathias Wikell, was notably colder to my questions and actually asked if I would confirm if I was a top 10 shareholder before he would agree to answer anything. When I explained my unwillingness to discuss my exact shareholding due to any bias this might cause, he eventually agreed to pass my questions on to Pelle. I reached out the Outmeals CEO after getting my responses back to thank him. Pelle said he was happy to answer my questions and wished he could have given more detail but it seems like he was not permitted to do so by the CFO and perhaps once again due to the types of clients they supply, his detail has to be limited. I found the CFOs manner slightly strange as I have emailed the CEO, Thomas, directly before and got responses very quickly but Mathias did say in his initial response to my list of questions that management are trying to use their time more effectively by answering questions for large committed shareholders which is understandable.

Considering my interactions with Thomas and Pelle, I feel less worried by this. Both of them seem to be primarily concerned with running their business and are operating almost as if they were not a listed company, which I like. They are both passionate and in the case of Pelle, it is somewhat reassuring to know that he has a lot more information about MRE which I don’t have access to, given one of my worries was getting my head around this business and if MRE suppliers have visibility. This suggests he knows the business well and is confident in its growth and sustainability.

As an additional point, during my research I found that Outmeals currently have an advertisement live for an administration/coordinator post at their new facility. This job is specifically related to MRE supply for non-military clients such as Police Forces and Municipalities. The ad explains that Outmeals have grown significantly in the military sector over the last 3 years but they have also experienced significant growth more recently from civil defence sectors, where they are increasing their share of Municipal, Regional and Government customers. The ad roughly translated from Swedish explains the job is initially for 75% (Im assuming this refers to hours per week) with a view to increasing depending on demand. The team, including this administrator would be 3 people. The ad also mentions that Autumn is a very busy period for the team (unsure as to why). Hiring a 3^rd person to this team, I would take, as a positive sign of predicted demand increasing in these areas. This demand, in theory, should also be less prone to sudden drops compared with NATO demand which is linked to conflicts and increased military spending/activity. Regardless, this provides more diversification of their MRE revenues, lowering risk.

Management

Food companies can be a dangerous business because bad management will make them complete money pits but good management make them excellent businesses that are often hard to disrupt and deeply entrenched in their respective markets. Imagine my surprise when I found out the founder, Thomas Dahlstedt, owns 65% of the company post IPO. A founder of a food company who actually tastes his own cooking? Yes please. Thomas seems like a very smart man who also believes in his company. Following the IPO, one of the long standing management team made the choice to retire. He was granted an exception from his lock up obligations and guess who bought his shares? Thomas.

I did hear a twitter space a few months ago, shortly I first started researching, where Nordrest was pitched. This was the first time I have heard it mentioned in investment circles. The investor who had researched the company mentioned that Thomas was originally from Korea but was adopted by Swedish parents. He theorised that his upbringing had given him a kind of hyperawareness of culture and how this affects others, which seems to have influenced the way that Nordrest try to operate. Thomas’s unique perspective runs all the way through the company. As I said earlier, Nordrest making the effort to provide food which appeals to people of various different cultural backgrounds and not just native Swedes has massively helped their approval ratings. The company also announced they made their first acquisition of a catering company in Finland. Consider this for a moment, if Nordrest had focussed on producing mainly Swedish food, this would make expansion into other nations very difficult as they would need to create brand new menus for a new local market. The fact they have been so versatile and adaptable already, means they are far more likely to succeed in other markets. I spoke to Thomas over email following the announcement and he said the strategy is the same in Finland as it has been in Sweden. They will roll out the same business model and aim to get high approval rates. He said he did not feel the acquisition was particularly cheap on a multiple basis, but the company are small and provide them with a basis to build on. I think it makes sense to expand in another Nordic nation, especially Finland, who’s population is heavily concentrated in urban areas with Helsinki being 30% of the total population. This is significantly higher than the 22% of Swedes who live in Stockholm. This reduces logistical pressure on their expansion into a new country which should make the transition to the Nordrest model smoother. There are currently no cross-selling opportunities from existing clients in Sweden.

Nordrest seem to have gone public for the primary purpose of raising their brand awareness - which is particularly important is winning large contracts - rather than top managers cashing out after a successful decade. I like these sort of IPOs as they simply do not exist in a market like the US.

Valuation

Nordrest trade at a share price of 108 SEK currently valuing them at a market cap of 1.36 Billion SEK (Just under 100 Million Pounds). At this valuation they are at a current PE of just over 12 and a forward PE of 8.5, an EV/EBITDA of 7.2 and a P/S of 0.73 and over the last 3 years, the company have reported an average ROCE of 46.8%. I would say that this alone makes them interesting when compared with larger comps. I would caution that there is a very high likelihood that its ROCE numbers are elevated due to the MRE business being in high demand, but I do think a consistently stable high return on capital is sustainable, with adequate growth pathways both in Sweden and abroad. Compass Group PLC, despite trading in the UK where subdued valuations are common, trade at a PE of well over 30, 1.44 P/S and an EV/EBITDA of 18.7. Yes, clearly this is a massive corporation valued at £45 Billion, but from my perspective, this makes Nordrest’s valuation even more illogical as it is a relatively tiny company growing at double digits in their home market and a far larger runway than compass who are reliant on constant acquisitions for growth. Nordrest, even based on its Jan-Sep earnings per share this year of 7.16 SEK trade at a PE of around 15 with another quarter of earnings to go. There is no reason to think that Nordrest’s strategy cannot continue to work, even extending to other Nordic nations, giving them ample growth pathways and they have a stated goal of EBITDA margins between 8-10% to continue over the long term. For those of you who don’t know me, I don’t really do excel valuation work so I will leave the DCF and spreadsheet work to you. For me, Nordrest are just objectively cheap and generating very high ROCE and will continue generating good returns for long periods of time due to their presently small size. As they continue to scale, economics of scale will also take effect making their existing business more profitable. I think their stated goal of growing 10% a year is conservative and attainable. If successful, the company trades very cheapy.

Conclusion

On paper Nordrest is cheap but I think it is more cheap when you understand the nuance here and appreciate the company and their management. Their history of success with acquisitions in the past also gives me confidence in how they will manage the Finland expansion well and not overextend themselves. Management are guiding for continued double digit growth from the business, including their MRE segment which the market sees as the biggest risk. Hopefully this write up has touched on how the MRE segment is less risky than it is given credit for and also shown that reading between the lines, there is reason to believe that Nordrest have grown their underlying market share over the last few years. The core food service business is easy to understand and also clearly run by excellent people who truly care and are invested in its success at an individual unit level. They have competitive advantages over big players and will continue to benefit from scale and increased awareness of their brand.

Full disclosure, I bought my first shares in December. This article should not be taken as financial advice as I am an idiot on the internet. Please do your own research before buying into a company. I would like to thank Olivier for giving me the opportunity to do this write up and showcase a business I have enjoyed learning about. If you would like to read more of my work, you can find me at javenturner.substack.com and also on twitter @jave_t23.

P.S If you caught the MF DOOM reference in the title, congratulations.