Zetar Share Discussion Threads

[che7win] 19/7/2012 08:29

Jeff,
Thanks foe posting, this one is definitely under the radar, a good recovery and growth expected this year.

[jeff h] 18/7/2012 21:04

Good article:-

UK confectioner and snack firm Zetar today (18 July) indicated it sees its sales increasing by 20% of the next three years on the back of NPD at home and expansion in Europe.

The company, which makes private-label lines for retailers and sells licensed products under brands including Tango and Guinness, reported sales of GBP128m for the year to 30 April. The figure was a 5% fall on the previous year but CEO Ian Blackburn told just-food Zetar believed it could generate growth in the years ahead.

"Looking at 20% over the next three years is what the analysts have focused on and I think we're comfortable with that," Blackburn said.

"On margins, it is difficult to say within the group because of the mix but I would expect to see a recovery in the confectionery margins nearer to what we did last year, which was about 6.5% compared to 5.9% this year and snacks should be a significant improvement on where we were this year."

Blackburn acknowledged Zetar had to live up to those targets but insisted it could offer retailers attractive products that could help them compete against their own rivals.

"They are targets and they have yet to be delivered [but] we are offering product innovation and we're offering new brands that help them with margin. In a lower volume environment, they have to differentiate themselves in the marketplace and we do have very strong relationships with all of them," he said.

Blackburn also said he thinks retailers will look to premium own-label lines to bolster their ranges. "They've got to rebuild margins and premium private label is one of those opportunities," he said.

Underlying sales in the first 11 weeks of Zetar's new financial year are up 7%, it said today. The company is expecting a "strong uplift" in sales and profits this year. Blackburn said Zetar, which had seen lower orders last Easter hit its annual sales, had budgeted on next Easter to be flat year-on-year. He said the growth would come from new contracts and not just sales from new products.

"The forecasts are not dependent on the recovery at Easter," he said. "Analysts expecting us to go from GBP128m to GBP140 or even more and that is under-pinned by new contracted business, not just dependent on the success of our new launches," he said. "The snacks division hasn't really started. That is only going to be phased in between now and January."

Zetar's snacks business, which includes selling products under brands like Branston and Vimto, saw sales and profits fall last year. Over the last 12 months, Zetar reduced its presence in low-margin commodity snacks to focus on more profitable products. It saw sales of its licensed snacks increase 25%, although the company admitted it did not meet its target for growth in that category, which led to the drop in profits.

Blackburn, however, was upbeat about the year ahead for Zetar's snacks business. He said the company expected its licensed snack brands to increase their sales at a "double-digit" rate and revealed it had regained some of the "commodity private-label" contracts on different terms.

"There is going to be a turnaround in the division because we've regained some of the commodity private-label business. We're taking on a different structure, it's now more of a cost-plus. We've agreed what the profit margins should be, we work in conjunction with the customer and agree on the cover and agree on how long and where we buy the raw material from. The price will move with that and we make a fixed profit margin," he said.

Blackburn, meanwhile, revealed Zetar had secured listings for Christmas products with five retailers in France. In January, Zetar announced the opening of an office in Lille to run its fledgling business in France and Belgium. Blackburn told just-food then Zetar wanted the office to add GBP5-10m to its sales in Europe over three years and today he said the listings made him "more comfortable" about that target.

Analysts at Liberum Capital and Merchant Securities were upbeat about the year ahead for Zetar.

"Zetar still trades on an unwarranted discount to the peer group. [It] is undeserved given a turnaround in the Natural Snacks division, the focus on reducing exposure to seasonal sales - currently circa 35% - and the longer-term growth opportunities that Zetar France offers," Liberum Capital analyst Patrick Coffey wrote.

Amisha Chohan, an analyst at Merchant Securities, like Coffey holds a 'buy' rating on Zetar's stock. Chohan said: "The launch and development of new everyday products combined with the scope for new licenses and cross-selling opportunities in Europe should enable stronger momentum."

[aleman] 18/7/2012 10:19

I've been monitoring and will continue. Add £3.4m back to cashflow and debt to account for Easter moving and the improvement is only modest. I make capex adjusted underlying free cashflow of around £2.8m, leaving about £2.3m after the dividend. THat means debt can fall and dividends rise so the share price look okay but leaves little spare to fight off any more commodities price spikes. They could do with thicker margins and a bit of growth. I don't think they're bad value, just not enough to tempt me yet.

[blobby] 18/7/2012 09:47

Maybe June is better than December, but at least Christmas does not move around by up to 4 weeks each year. It's all to do with the cycles of the moon I believe.

[davidosh] 18/7/2012 09:44

If you change the year end then surely the Christmas effect will then cause a problem to the December figures??

[blobby] 18/7/2012 09:35

ZTR seem to be weathering the storm successfully. I'd like to see the accounting period changed so that the year ended on 30th June or 31 December as the Easter effect is not helping the market (or me) analyse the figures.

EPS of 33.8p and a positive outlook means this is still a bargain.

[horndean eagle] 18/7/2012 09:15

I thought the results were so so personally. The debt reduction isn't that great because the comparison figure last year was inflated due to timing. On a 2 year basis debt reduction is pretty poor. In 2010 debt was was 11.1m and 2 years on debt is only 0.3m lower. I brought around 2 years ago around current levels on the basis I expect debt reduction to kick in aggressively. That would then allow large dividends to flow through to shareholders. It hasn't worked out because the company has to keep on spending a lot on capex to launch new products. Restructuring costs and acquisitions don't help either. Perhaps the company needs to prove to the market that it can generate healthy cashflow before it gets a re-rating. I think that might be a while off yet.

[che7win] 18/7/2012 08:56

Have to say, having read through these results more fully, these are an absolute bargain to me, I would expect A share price of 275p to be achievable this year, if I had spare cash I would be buying more.

[che7win] 18/7/2012 08:09

The outlook is very positive, results this year will also be flattered when compared to the poor second half:


"The new financial year has commenced well. A combination of new private label business already secured, the launch of new licensed brands and a growing revenue from everyday confectionery products, along with a good balance of third party business, gives us confidence that financial year 2013 will yield a strong uplift on 2012."

[valhamos] 18/7/2012 07:49

Sounds like they are optimistic that they will be back on track this year.

Reduced net debt - makes you wonder what all the fuss from one or two poster here was about a few months ago on this issue.

[spob] 18/7/2012 07:47

i don't really mind about the 3p dividend, as long as they focus on clearing the debt that's fine

they can pay some decent dividends in a few years time

[che7win] 18/7/2012 07:39

Results look fine on initial scan, cash flow looks good.

A 33% increase in the dividend :-)

[che7win] 13/7/2012 15:33

Nice recovery here ahead of results.

[gingerplant] 23/6/2012 13:34

AIM-listed confectionery and snack foods group Zetar (LSE: ZTR) looks good value to me at 195.5p. I don't expect fireworks, which is almost always the way with defensives. But I am hoping for steady growth from a company on a prospective P/E of just 4.7 for no good reason that I can see.

[che7win] 19/6/2012 16:06

Up we go :-)

[che7win] 15/5/2012 08:54

Not a bad update. Loads of Kinnerton eggs sitting in my local Dunnes Store, not even a price on them so quite happy to see most retailers sold out of them.

They were also selling in the Pound shops this year.

[aleman] 07/3/2012 20:07

I wasn't saying the accountants have any leeway, either. I was classing goodwill and intangibles together (as opposed to tangibles which have assumptions of their own which I think most would concede are generally less arbitrary) and saying director assumptions on intangibles (which the accountants have to implement in reporting within reason) can vary in timing and magnitude in a way as to cause reported earnings to vary from the underlying business trend. I'm saying different directors would often use and change different assumptions at different times, much like different pensions' trustees do about future inflation, discount and investment return rates so that different trustees would report different surpluses/deficits at different times on the same pension fund.

I was trying to suggest that cashflows also vary from the underlying trend of trading but comparing them to earnings and other information in the accounts makes these easier to adjust to find the underlying trend. I was really just making the general point about the cashflows being easier to determine and harder to influence so the underlying trend of the business is usually - though not always - easier to find. In practice, you assess both together to determine trends. I only made this point after seeing the small change in amortisation in Zetar's accounts for which I could find no explanation but I wasn't trying to make any criticism of Zetar, its directors or accountants. I was only saying that there didn't seem to be any scares in the cashflows as I interpreted them so it wouldn't put me off investing and I continue to monitor.

(As an aside, I used to work for a company in an industry with high waste levels, some of which could be recycled, that consistently underestimated stocks in monthly management accounts and then uuuuusually made a profit at audited finals (but not the interims). The finance director was proud that we made a notable profit on stock at the year end but he never knew how big it was going to be. This meant the board didn't actually know what was going on from month to month because the monthly stock assumptions were not realistic so they didn't have as clear an idea what the year end figures would be from the monthly accounts! They also valued property conservatively, eventually taking the company private and subsequently making a very big profit on a land sale to a housing developer. I dare say this colours my views of directors' assumptions.)

Anyone remember current and historic cost reporting back in times of higher inflation? I was young then and struggled to reconcile the differing results they gave.

[valhamos] 07/3/2012 18:24

Aleman

"Directors someitimes reckon goodwill of a subsidiary is a large value one year and suddenly zero 6 or 12 months later. This clearly shows it on occasion to be an unrealistic valuation at at least one of those points."

Well that would be impairment of goodwill not amortisation of intangibles which was your original point.

And I would agree that I would add back impairment to get underlying profits ( but not amortisation of other intangibles). But rather than being a "political decision on the part of directors" such an impairment is a consequence of a considered assessment following a deterioration in expected future cashflows from subsidiary.

[aleman] 07/3/2012 13:51

Why? Because amortisation of the useful life of intangibles (and impairment of goodwill) can be quite arbitrary, unlike most other assets which generally have more consensual depreciation value ranges that better reflect resaleable values. Directors someitimes reckon goodwill of a subsidiary is a large value one year and suddenly zero 6 or 12 months later. This clearly shows it on occasion to be an unrealistic valuation at at least one of those points. The timing of the change and magnitude thus becomes a political decision on the part of directors and distorts the underlying earnings trend of the business as displayed by unadjusted earnings. I'm not saying all directors are fiddling, just that goodwill and amortisation assumptions distort the underlying trading trend and some directors will decide to make changes at times that suit their purposes more than shareholders.

[valhamos] 07/3/2012 13:49

Blobby

"So are you both saying that by changing "goodwill" and "intangible assets" the accountants can do anything they like to the profit and loss / earnings figures."

No I said the exact opposite. Please re-read carefully what I wrote.
According to accounting standards, goodwill is not amortised (but is subject to impairment review), whereas other intangibles are amortised over their useful lives.

[blobby] 07/3/2012 13:27

So are you both saying that by changing "goodwill" and "intangible assets" the accountants can do anything they like to the profit and loss / earnings figures. If their bonuses depend on a particular outcome they are incentivised to change in particular directions, but yet as shareholders we may never know what those performance targets are as they are set but other directors who have no interest in them being made public.

[valhamos] 07/3/2012 13:13

"who should add back amortisation of intangible assets when assessing underlying earnings." Why?? Intangible assets are amortised over their useful lives according to accounting standards. If companies are writing them off faster thereby necessitating some adjustment to arrive at "underlying earnings" doesn't this show they are fiddling their numbers for some reason?

As it happens the reason Zetar has only a small amortisation charge is that it only has a small amount of "other intangible assets" on its balance sheet. The £30m is for goodwill which of course is not amortised, but subject to an annual impairment test.

[aleman] 07/3/2012 11:44

They had about £300k amortisation in 2010. Not many companies have no amortisation but it shouldn't make much difference to investors who should add back amortisation of intangible assets when assessing underlying earnings. The odd thing about Zetar is that they had very little amortisation but it has reduced and I can;t find an explanation. It doesn't affect the underlying cashflow of the business which suggests the company is good value if it holds up but normal amortisation would have this company reporting seriously lower earnings. Directors have a short-term bonus plan and Long Term Incentive PLan which are linked to earnings per share so is it tempting to adjust accounting techniques to flatter these. (This is why I'm dead against such schemes - I've suspected some significant fiddling of earnings over the years which is also why investors should assess cashflows to judge value.) THe notes to the accounts don't elaborate on amortisation and I don't see that the minor adjustment involved would make much difference. If the company keeps generating cash like recently, it should be a decent investment but that remains to be seen, given the Easter blip.

Again, I'm monitoring but do not hold.

[cb7] 07/3/2012 10:33

One thing I am not keen on is the 30m of goodwill on the books. Now I know they have some well known brands, but worth 30m? And they only wrote off 15k at the ints compared to 127k the previous, which makes the figures look better. Any thoughts?

[cockerhoop] 07/3/2012 09:36

CEO topping his pension up - putting his eggs in the Zetar basket (i'll get me coat!!)