Vitamins are big business: here's one share to watch

Despite recent scare stories, the vitamins sector is growing fast. Tom Bulford looks beyond the headlines at one UK company doing its best to ride the trend.

A couple of weeks ago there was, you may recall, a story on the front page of the Daily Mail concerning vitamin A and vitamin E.

The headline was Can Vitamins Do You Harm?' and it claimed that a group of international scientists found no evidence that vitamin pills can extend life or improve people's health in fact, they claim that beta-carotene, vitamin A and vitamin E supplements can actually increase mortality.'

This story originated from the fact that patients who are already on medication for heart disease cannot, in some instances, absorb these vitamins. But it was presented, through the good offices of PR and lazy newspaper editors, as if we might all suffer from taking them - and it conveniently diverted attention from another story hidden away on an inside page.

Subscribe to MoneyWeek

Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE

Get 6 issues 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

Sign up

This concerned pharmaceutical giant Merck which had agreed to pay $5bn in compensation to users of its arthritis drug Vioxx, which had been shown to increase the likelihood of a stroke or heart attack.

So this episode was in fact just another shot in the long-running war between the pharmaceutical industry, which reckons to be able to cure illness, and the vitamin supplements industry which reckons to be able to prevent them from occurring in the first place.

Despite the best efforts of the pharmaceutical industry the vitamin supplements industry is growing fast, and one small AIM-listed company is doing its best to cash in upon this trend. It is backed by one of the UK's most successful businessmen. He is Sir Gulam Noon, better known for introducing Asian ready meals onto supermarket shelves headed by what I gather is the UK's most popular dish, Chicken Tikka Masala.

Sir Gulam is a non-executive director of NeutraHealth (NUT), but it was thirty-two year old chief executive Michael Toxvaerd whom I spoke to over a suitably healthy lunch of salad and bottled water. And in case you are wondering, he looked the picture of health and swore by his company's products.

Yes, he does take vitamin supplements, and he waxed especially lyrical about something called Co-enzyme Q10. This is an antioxidant that we can derive from eating beef, spinach, sardines, tuna and peanuts but can also buy as a vitamin supplement. Amongst other things it boosts our energy levels, and this makes it especially attractive to anyone trying to reduce their cholesterol through taking statins as these tend to make one feel tired.

NeutraHealth's 'buy and build' strategy in the vitamins sector

Toxvaerd had already worked in the shipping and electronics industry in his native Denmark, before coming to the UK to do an MBA at Cranfield University. It was while he was there that he met Sir Gulam Noon who with another very experienced businessman, Anthony Good, had spotted the opportunity offered by an ageing and increasingly health conscious population. They had started a vitamins supplements company but were finding that the high cost of marketing was making it difficult to break through.

So instead they installed Toxvaerd as chief executive and embarked upon a buy and build' strategy, aiming to acquire some of the three hundred and fifty or so small suppliers of vitamin supplements, many of which were set up in the 1960s and 70s by owners now ready to retire.

Neutrahealth was formed in November 2004 and raised £10.3m on AIM the following year. It has so far acquired four companies, Brunel Healthcare, BioCare, Nutrigold and Health Products For Life, giving it a foothold in each of the major distribution channels. These are the big chains of chemists and supermarkets, independent retailers, practicing nutritionists and the direct to consumer' sector which is increasingly going on-line.

Health Products For Life was bought from Patrick Holford, a health food guru whose books such as the Optimum Nutrition Bible' have sold over 1.5m copies all over the world, and with his help Neutrahealth has started to launch new products including a range co-branded with the Biocare and Patrick Holford names, and another with the name of the renowned health spa, Champneys.

So far, and despite a few setbacks about which Neutrahealth has been commendably honest in its annual report, it has performed well. Sales that were just £2.4m in 2005 hit £21.3m last year when it recorded a profit of £1.9m and earnings per share of 1p.

Despite this and a good start to 2008 helped by strong sales during the important flu season, the share price has slipped back below the original AIM issue price of 10p and well below the 16p at which the Indian company Elder Pharmaceuticals subscribed for a 21% stake last summer.

So the share price could do with an energy boost itself, especially as Toxvaerd would like to issue new shares to acquire some of the companies that are now approaching him. This is a common problem on AIM at the moment, but Neutrahealth should at least prove recession proof. Because, as we all know as we get older if we have our health, we have everything

This article is taken from Tom Bulford's free daily email, Penny Sleuth'.

Tom worked as a fund manager in the City of London and in Hong Kong for over 20 years. As a director with Schroder Investment Management International he was responsible for £2 billion of foreign clients' money, and launched what became Argentina's largest mutual fund.

Now working from his home in Oxfordshire, Tom Bulford helps private investors with his premium tipping newsletter, Red Hot Biotech Alert.

Follow Tom on Google+.