By Andrew Nelson

Freedom Foods Group ((FNP)) is a diversified food company producing a number of branded and unbranded products across its three main divisions: Freedom Foods, Specialty Seafood and Pactum. The company's main products are cereals and beverages, salmon and herring and UHT long-life milk via brands that are perceived as being of higher quality.

Analysts at Moelis, who picked up coverage with a Buy call yesterday, have pointed to a number of features that underpin the quality of the stock. Firstly, the company enjoys significant brand strength, plenty of scope for geographic expansion and some fairly high barriers to entry.

The company also holds an 18% strategic stake in New Zealand listed A2 Corporation worth about $60m at current levels. The nice thing about this fact is that A2 is the fastest growing milk brand in the Australian market. The broker notes some 25% of the population in any developed country is dairy intolerant, and A2 is positioned right at this group.

The broker notes international expansion has been made a priority for A2, with a launch of an infant formula product into China expected any time now.

But that's the icing, let's talk about the cake. The company's Freedom Foods division accounted for about 41% of group revenues in 1H13. The differentiator for these products is that they are offered in the "free from allergens" category. 1H growth in cereals volumes ran at 29%, while beverages came in at a respectable 19%. What's more, significant quantities are now being sold in the US.

The latter fact is crucial when trying to paint a picture of longer term upside. While selling a lot of allergen free cereal products in Australia is worthy, the broker estimates on the US west Coast alone there are some 1500 retail outlets with a "gluten free" offering. This adds up to a market that is worth US$3.4bn and one that is still growing at a rate of 15% per year.

Specialty Seafood also kicked in 41% of group revenues last half. The division distributes Alaskan pink salmon and Atlantic herring in Australian and NZ, at the higher end of the market. Operations are well supported by a purchasing deal with North American based Bumble Bee Foods. Moelis points out this partnership not only gives FNP access to quality product, but it also allows the company to sell at very competitive prices.

The Seafood division is not a company maker, but it does provide Freedom Foods with a stable earnings base, steady if low growth and a decent rate of return.

Lastly, there's Pactum, which contributes around 18% of group revenues. The broker notes Pactum is the only Australian east coast manufacturer of UHT long-life products. The company acts as both an independent contract manufacturer of white label and private label customers. Moelis notes the business has been in a growth mode for a while now as it looks to expand to meet both domestic and export related demand. A 50/50 JV was announced back in December, the company now looking to build a new state of the art facility in Shepparton, Victoria, to support and grow these markets.

1H results were recently reported and the company delivered 29% growth over the previous 1H. The highlight for Moelis was a 39% increase for the company's Freedom brand, which was driven by a 29% lift in revenues. The broker cites the upside from increased brand recognition and improved operational efficiencies at the Leeton facility as being the main drivers.

Pactum also performed strongly, although Specialty Seafood booked a 20% decline in operating earnings on the back of softer sales in New Zealand and the rising cost of salmon.

The shares have run more than 130% over the past year and the PE ratio is starting to look stretched, but Moelis continues to predict even more outperformance, with robust EPS growth expected on the back of the company's entrenched niche positioning in the domestic industry and its growing profile internationally.

The shares are not the most liquid in the world given 59% of the register is controlled by the Perich Group. On the other hand, gearing was only running at 28% in 1H, which compares favourably to the 82% posted for FY12, The sale of 40m shares in A2 for around $15m certainly helped. Moelis sees more than enough capital to support expansion plans.

So to sum it up, decent strong share price performance, the stock is still cheap, the broker pointing to an FY14 EV/ EBITDA multiple of 12x. Cheap, says the broker, if you account for the organic robust growth profile and the blue sky offered by ATM.

CIMB also covers the stock and it really liked the 1H dividend, noting not only is the extra cash nice, but it also sends a confident message about the improved balance sheet. The broker called the 1H a solid result and just like Moelis, CIMB also likes the strong growth outlook over the next few years.