Snack on the small-cap morsels

05/07/2010 Ben Jaglom


London’s listed food producers have proved more resistant to the effects of the downturn than companies across other sectors, since to state the obvious, people will always prioritise their need to eat while paring spending in other discretionary areas.

In the main, since they operate in such a defensive space, food producers tend to be good cash generators, and dependable dividend payers to boot. In spite of these attractions, the food production sector accounts for a relatively small portion of the overall AIM market. Yet among them are a number of attractive investment morsels, and there is a good degree of diversity on offer, too.

AIM businesses offering the prospect of salivating returns range from the world’s oldest fruit brand to a Chinese orange grower and a Liberian palm oil producer. However, it would be remiss not to mention that the sector does contain its fair share of highly speculative shells, and even some companies with rather questionable business practices. As ever, it is essential for investors to do their homework.

A fruitful investment

Scottish sweets and cake maker Lees Foods, which grew revenue by 13 per cent to £18.2 million in 2009 and pre-tax profits by more than 60 per cent to £612,000 – earnings per share fattened up by 68 per cent to almost 18p.

AIM-quoted Lees has a broad range of products, being behind the ‘Macaroon Bar’, a chocolate-covered coconut confectionery, as well as a series of seasonal products for Easter and Halloween.

Its robust recent growth reflects the breadth of its range, as well as the fact that cash-strapped consumers continue to purchase cheap and cheerful edible luxuries during the economic doom and gloom.

Expanding its brand and exporting products to the US, France, Australia, Kuwait and elsewhere, analysts at Shore Capital see Lees growing profits by 28 per cent to £780,000 and earnings by 31 per cent to 23.6p this year. Debt free, Lees should also serve up a 6.7p dividend


02 August, 2010

A statement by the firm said: “The company remains cautiously optimistic in respect of the second half of the year and expects that both sales and pre-tax profits will be ahead of market forecasts for the full year.”





For investors looking for exposure to more natural treats, there is always China-based Asian Citrus, the orange grower and seller that grew sales by 36 per cent to RMB 398 million (£40.2 million) in the six months to December and pre-tax profits by 65 per cent to RMB 248 million. This is a business with fearsome growth prospects, selling to China’s ever-expanding middle class, which is increasingly consuming items that were once considered luxuries, such as oranges and bananas. Significantly, orange consumption in China rose by 13 per cent to 5.8 million tonnes last year, driven by an increase in disposable income for millions of Chinese as well as the spread of supermarkets across the People’s Republic and into more remote locations.

For the current year to June, analysts will be looking for Asian Citrus to harvest RMB 330.4 million of pre-tax profit, producing earnings of circa 4.2p and placing the 51.5p shares on a palatable prospective multiple of 12.3.
PureCircle – phenomenal possibilities

PureCircle, the specialist developer and refiner of products made from a plant called stevia rebaudiana, also known as ‘sugarleaf’ and native to South and Central America, could prove another sweet punt. Sugarleaf has attracted a great deal of attention, since it can be used as a substitute for sugar, being very sweet, but without any of the calories associated with sugar intake.

Founded in 2002 by Russian magnate Magomet Malsagov, PureCircle is tempting the taste buds of investors, since stevia has been approved as a food ingredient in a number of countries including the USA, France and Switzerland. PureCircle has also built a refining plant in China and has already worked with PepsiCo to produce PureVia, used in drinks in PepsiCo’s flavoured water, tea and smoothies subsidiary, SoBe.

PureCircle is on a strong growth path, having generated a 74 per cent surge in sales to $37.5 million (£25.3 million) and profits up 7 per cent to the equivalent of £1.47 million in the half to December, driven by increased sales of stevia products to companies including Nestlé, Pepsi and Danone.

Mirabaud forecasts a more than doubling of PBT to $20 million for the year to June, giving increased earnings of 8.4p and leaving the shares selling for a rather pricey 33 times earnings. Having said that, this rating reflects the fact that investors are expecting such phenomenal returns from PureCircle should the stevia market become a viable global alternative to sugar.