Partner Article

Tipster: Zetar shares could deliver tasty returns

Zetar is a food manufacturer with two divisions. The confectionary division is a leading independent manufacturer of chocolate in the UK. This includes producing luxury chocolate under licensing agreements with Baileys and Famous Grouse. The natural snacks division is a leading supplier of dried fruits and nuts to a range of customers including multiple and specialist retailers.

When recently reporting their full year to the 30th April 2011 results to the market, there were a number of positive developments. The company commenced the payment of a dividend, starting with 2.25p per share which was covered 17 times by earnings, thus giving considerable potential for growth in the coming years. Earnings per share came in at 38.7p, which leave the stock trading on a very low multiple which would appear to be very unjustified.

Whilst cash generated from operations looked tame at £750,000, this was significantly depressed by the late Easter, as trade receivables swelled thus sucking working capital out of the business. This will even out over the course of the current trading year, and should highlight the cash generative nature of the business.

The shares trade at a large discount to shareholder funds which totalled £46.2m or 348.7p per share. However, one must remember that only 118.4p is represented by tangible assets, with the bulk of the remainder being goodwill. It could be argued that Zetar has been tarnished by the mismanagement of the debt laden rival Premier Foods, but this is very short sighted. Zetar is a quality operation and its stock could easily trade on a higher valuation.

Zetar

Ticker: ZTR
Price: 226.5p
P/E Ratio: 7.3 x
Dividend Yield: 1.1%
Market Cap: £30m
Sector: Food Producers

This was posted in Bdaily's Members' News section by John Dance .