Companies: ZTR   

Confectioner Zetar is becoming a more wholesome investment after picking up profitable dried fruits supplier Humdinger to augment its nascent healthy snacks division.

The confectionary company raised £11m at 400p to fund the £13m purchase. Chief executive Ian Blackburn is eyeing up two or three further additions to the 'Natural Snacks' division, which will be funded by bank debt. This division was formed following the £4.2m March acquisition of Readifoods, a preparer and supplier of nuts and some dried fruits to supermarkets. Blackburn adduces that 'nut consumption has doubled in the last three years'.

Humdinger supplies mainly dried fruits and nuts, with an increasing focus on 'healthier' snacking such as fruit crisps and fruit bars to all the major retailers, with Sainsbury’s its biggest customer. It has plenty of healthy, brightly coloured products for kids packed lunches (HumZingers, LunchBox Minis) to benefit from the Jamie Oliver Effect. It also provides packaging, distribution and marketing services for such well-known brands as Ocean Spray cranberries, Sunsweet prunes and Crazy Jacks organic snacks.

Both new businesses have factory facilities and Blackburn is pondering moving Humdinger's nut processing to Readifoods so that it can make a 'nut free' assurance, so important with one in 50 UK children allergic to nuts.

Readifoods grew sales 56% to £13.7 million in 2005 and made an operating profit of £808,000. In the year to September, Humdinger lifted sales 51% to £21.2m and made an operating profit of £1.41m.

The acquisition will apparently be immediately earnings-enhancing and independent broker Investec estimates it will lift Zetar’s 2007 EPS from 38p to 40p, putting the shares on an undemanding p/e ratio of 10.6 times. For this year, the company revealed in May that it expects sales and profits for the year to April 2006 (with one month from Readifoods) to be ‘ahead of current market expectations’.

And consider this: Zetar's existing business turned over £50m last year and these acquisitions add £35m more, yet it is capitalised at just £32m. That can't last long. Strong buy.

Zetar	AIM	£19.16m	166.50p	-11.00p
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