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.
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
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)
-
Adidas, Nike or Jordans - could collectable trainers make you rich?The right pair of trainers can fetch six figures. Here's how you can start collecting vintage Adidas, Nike or Jordans now
-
Early bird ISA investors flock to global funds, India and the USThere’s been an increase in investors maxing out their ISA at the start of the new tax year. But where are they putting their cash and why does it make sense to be an early bird investor?
-
Somero: trading this overlooked bargainFeatures Mechanical-screed maker Somero dominates its niche and is attractively valued. Matthew Partridge picks the best way to trade it.
-
How to find big profits in small companiesCover Story The small- and micro-cap sectors are risky and volatile. But with careful research and patience, investors could make huge gains. Matthew Partridge explains how to find the market’s top tiddlers.
-
The hidden gems on Aim, London's junior marketFeatures Aim, London’s junior market, is risky – but you can find solid stocks at low prices. Scott Longley reports.
-
Is Aim finally coming of age?Features The Aim market of mostly smaller companies has traditionally been seen as a bit of a backwater. Is it time to change that view? Matthew Partridge talks to Paul Latham and Richard Power of fund management company Octopus.
-
Three Aim-listed firms that will thrive in a post-Brexit worldOpinion Matt Tonge and Victoria Stevens of the Liontrust UK Smaller Companies Fund pick three Aim-listed firms that will survive Brexit turmoil.
-
Fetch! The Chinese small-cap stocks to buy in the Year of the Dog
Opinion Each week, a professional investor tells us where she’d put her money. This week: Tiffany Hsiao of Matthews Asia selects three Chinese small-cap stocks with exciting potential.
-
Small and mid-cap stocks with big potential
Opinion Professional investor Guy Anderson of the Mercantile Investment Trust selects three small and medium-sized firms with promising prospects that the market has missed.
-
Get cheap, reliable growth from smaller companiesFeatures One of the most reliable long-term investment trends is the long-term outperformance of smaller companies over blue chips. Max King picks some of the best ways to buy into this growth.
