Magnum Ice Cream Company: The stability of a staple, the durability of a compounder

Source: Trustnet

While AI dominates headlines, consumer goods companies are undergoing their own transformation. Shifting consumer behaviour, persistent cost pressures and a tougher pricing environment are forcing businesses to sharpen their competitive edge and streamline portfolios. Many are divesting non-core assets to refocus on what truly drives long-term growth.

Unilever’s recent spin-off of The Magnum Ice Cream Company (MICC) is a prime example. MICC emerges as a global ice cream leader with durable competitive advantages, the potential for margin expansion and a valuation that appears disconnected from the quality of its underlying franchises.

From misfit to strategic fit

Unilever has long been on our radar as a high-quality business with strong brands across beauty, personal care, home care and nutrition. Yet its ice cream division always sat awkwardly within the group.

The cold chain logistics, capital intensity, and operational distinctiveness made it an outlier. As part of a large conglomerate, the division became somewhat orphaned, receiving less investment than its potential warranted.

Spin-offs from consumer goods giants often benefit from sharper focus and clearer incentives. We believe MICC is no exception.

A high-margin business that isn’t seasonal

It’s easy to assume The Magnum Ice Cream Company is just another steady staples business – or worse, a seasonal one with uneven earnings. But this overlooks its premium positioning, strong brand loyalty and recurring revenue profile.

It owns four out of five leading brands around the world, giving MICC more than 20% global market share, with even higher penetration in many emerging markets.

With a presence in over 90 countries, strong repeat purchase dynamics and a premium identity that supports pricing resilience, MICC’s portfolio – including Magnum, Wall’s, Ben & Jerry’s and several local champions – offers breadth and depth few competitors can match.

Under Unilever, innovation cycles were slow, a common challenge for smaller divisions within large conglomerates. As a standalone business, The Magnum Ice Cream Company can refresh flavours, launch seasonal editions, respond to local trends and scale successful concepts quickly through its freezer network.

MICC’s margins currently lag those of the second-largest player – a notable gap given Magnum’s scale. Spin-offs often see operational uplift once freed from complex corporate structures and The Magnum Ice Cream Company appears poised to follow this pattern.

The company has refreshed its leadership team over the past two years and, when combined with increased investment and a renewed innovation cadence, the path to margin improvement appears achievable.

A unique distribution moat: The freezer network

One of The Magnum Ice Cream Company’s most powerful advantages is its network of roughly 3 million branded freezers worldwide. These freezers act as exclusive distribution points – competitors cannot simply place their products inside and retailers typically have space for only one. This creates a rare, defensible moat built on physical infrastructure rather than marketing spend.

Ice cream requires strict cold chain integrity, making new entry both capital-intensive and operationally complex. In a world where many consumer brands have seen their moats eroded by digital disruption, MICC retains a tangible, durable barrier to entry.

Under Unilever, freezers were treated as a cost rather than a strategic asset, leading to underinvestment – particularly in emerging markets where the growth opportunity is greatest.

Independence allows The Magnum Ice Cream Company to accelerate freezer deployment, strengthen cold-chain efficiency and prioritise innovation. With 35-40% of revenue already coming from emerging markets, this is a meaningful growth lever.

Valuation and the contrarian opportunity

The Magnum Ice Cream Company currently trades at an undemanding valuation – low teens earnings on depressed margins, around 10x free cashflow on normalised margins and roughly 8.2x forward earnings before interest, taxation, depreciation and amortisation (EBITDA). For a global category leader with a proprietary distribution moat, the potential for margin expansion, meaningful emerging market exposure, and a refreshed leadership team, this valuation embeds far more pessimism than the fundamentals justify.

MICC is a resilient, cash-generative franchise with durable moats and multiple operational levers for improvement – exactly the kind of temporarily overlooked opportunity that contrarian value investors seek, with the potential to compound steadily over time.

Nisha Thakrar is a product specialist for the Nedgroup Investments Contrarian Value Equity fund. The views expressed above should not be taken as investment advice.