Food companies led gains in the EuroStoxx 600 this morning, with Nestle jumping about 4% on a major share acquisition by activist investor Daniel Loeb. Loeb is probably looking at the Swiss giant’s 13% return on equity and enormous free cash flow.
Nestle is a great company, but revenue growth has disappointed for the past three years. Its reliance on packaged foods is a bit behind the times given shifting consumer tastes. Asia Unhedged thinks that European food processors have a spectacular opportunity in Asia. China will outsource an increasing share of its food production to Southeast Asia and the Philippines, especially as high-speed transport becomes available.
Thailand, Myanmar and Cambodia have gigantic potential to supply food to the Chinese market. A key element missing from the Asian picture is the degree of quality control along the whole supply chain that the European food giants have mastered. A trusted brand like Nestle could make a huge difference to Chinese consumers, for example.