Gamble of the week: Novelty chocolate maker

Fancy a can of Guinness gourmet nuts, a box of Famous Grouse Truffles or even a Tango Easter egg? These are some of the specialist foods made by Zetar that have been flying off the shelves. The maker of novelty chocolate (68% of sales) and natural snacks (32%) has also struck a deal with Unilever to license Marmite for its new range of flavoured nuts: this comes on top of similar deals with Branston, Vimto and Bailey's.

Zetar wisely doesn't try to bang heads with the gorillas of the industry like Nestl, Cadbury's and PepsiCo. It succeeds by creating niche brands, as well as providing premium private-label products and seasonal items such as advent calendars.

Its own stable of brands ranges from Humdinger and Fruit Factory in snacks, to Kinnerton and Lir in confectionery. Together these brands (including licences) account for 34% of turnover, and probably a much larger share of profits.

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This balanced approach has two big advantages: it helps defend profits during today's hard times, and it allows Zetar to nurture its relationships with the big supermarkets. By offering increasingly differentiated products, and not getting dragged into a brutal price war, Zetar generated solid operating margins of 4.9% in 2011.

Zetar (AIM: ZTR)

Outside the UK, the firm is building up its export arm (9% of sales) with the opening of a sales office in northern France. It has made good progress in obtaining listings with the big French retailers for Christmas 2012 and next Easter.

Edison expects revenues and earnings per share of £144m and 41.5p for the year ending April 2013, rising to £154m and 45p 12 months later. The shares trade on less than 5.5 times earnings, and pay a 1.6% dividend yield. I would value the stock on a seven times EBITA multiple. Adjusting for net debt of £10.8m, that gives a value of 350p per share.

When it comes to risk, this relative minnow is exposed to commodity price movements; the seasonality of the industry (with its dependence on Easter and Christmas); ongoing price pressure; and the harsh consumer backdrop. But the shares are not expensive, and the firm has natural defensive qualities given that many of its products are deemed to be inexpensive treats.

Better still, trading in the new financial year began well. Like-for-like sales in the first 11 weeks were up 7%, partly helped by pre-sales ahead of the Olympics. Chief exective Ian Blackburn added that "a combination of private label business, the launch of new licensed brands and a growing revenue from everyday confectionery products gives us confidence that 2013 will yield a strong uplift on 2012." The next statement is out on 1 October.

Rating: SPECULATIVE BUY at 218p (market cap £28m)