MIDAS SHARE TIPS: Gain pounds from the obesity war

Even  in normal years, January is a time for new resolutions – drink less, eat better, exercise more. This January is far from normal, however. Covid-19 has put health in the spotlight like never before, including an intense focus on weight. 

According to Government statistics, two-thirds of the UK population are overweight or obese. The situation is even worse in America and it is deteriorating rapidly in other parts of the world as well. Not only does this affect people’s quality of life; it has huge ramifications for health services too, costing an estimated £1.5billion a year to manage and treat. 

Yet there are signs of change. As the dangers associated with those excess pounds become increasingly apparent, consumers are trying to alter their habits and certain businesses are helping them. 

Weighty issues: Prime Minister Boris Johnson hones his muscles at the gym

For investors, this presents a number of opportunities. Some companies are helping people to manage conditions associated with being overweight. Some are developing ingredients that actively encourage healthy eating or weight loss. Some are making it simple and easy to exercise more. And some are focusing on plus-size customers so they can wear clothes that both look good and feel good. 

Several of these firms offer long-term growth potential, as governments, medics and individuals wage the battle of the bulge.

N BROWN – Larger clothes retailer 

Look at virtually any clothing group and they will offer options for the more rounded consumer. Invariably however, these are the same garments as those on sale to skinnier customers, only larger. 

N Brown takes a different approach, producing clothes specifically tailored to fuller-figured individuals. The company differs from most clothing retailers in one other important way too – it has always been geared towards home delivery, even though it was founded in the 1800s. For decades, the group focused on catalogue retailing. In line with consumer trends, however, N Brown has shifted towards e-commerce and now makes more than 90 per cent of its money from online sales. 

Big business: N Brown brand Simply Be

With brands such as Simply Be and Jacamo, the group prides itself on designing, making and selling ‘size-inclusive’ clothes for men and women including younger, fashion-conscious shoppers. 

Yet life has not been easy for this Manchester-based firm in recent years and investors have suffered. The group has struggled on several fronts and Covid-19 has not helped. A trading update last week warned that earnings for the year to February would be around 20 per cent lower than last year and admitted to problems with stock availability. 

Looking ahead, however, prospects should be considerably brighter, as the person most closely associated with this business in its heyday, Lord Alliance, has taken back control (at least in a financial sense). Alliance chaired N Brown from 1968 until 2012, building the group into one of Britain’s foremost retailers. A major shareholder for decades, he and his family have just increased their interest in the business, following a £100million fundraising last month, where they subscribed to a majority of the shares. 

Now they collectively own 52 per cent. Alliance’s son, Joshua, has joined the board as a non-executive director and the group has moved from the main market to AIM, with the ticker BWNG. Contact: nbrown. co.uk or 0161 238 2208.

Midas verdict: N Brown shares were more than £3 in 2017. Now they are 64p, having been even lower before the Alliance clan stepped in. They should move higher over the coming years. N Brown’s wares are targeted at customers who are underserved by traditional retailers, the fundraising will be used to strengthen the group’s online offer and the Alliances are clearly determined to help this business build back better. Join them.

TREATT –  Healthy ingredients maker 

Sugar-laden snacks, fast food and fizzy drinks are thought to be the main culprits behind growing obesity worldwide. Faced with Government pressure and shifting consumer tastes, big food and drink makers are starting to introduce healthier options – but they need help from smart suppliers, such as Treatt and OptiBiotix Health. Treatt develops natural ingredients, used in drinks ranging from iced tea to hard seltzers – low-sugar, low-calorie alcoholic drinks that are all the rage in America and have started to become popular here as well. 

Treatt has already made huge strides under chief executive Daemon Reeve but there should be more to come. The group specialises in providing flavours and fragrances derived from fruit, herbs and spices and its customers include some of the biggest food and drink groups in the world. The shares are traded on AIM, with the ticker TET. Contact: treatt.com or 01284 702500. 

Midas verdict: Annual results to last September showed an 11 per cent rise in profits to £14.8 million, while the dividend rose 9 per cent to 6p, marking 31 years of unbroken growth in payouts. Further growth is expected in the current year, as interest in natural flavourings increases. Reeve also hopes to open a new site in Bury St Edmunds over the next few months, which should bolster production and help sales efforts with multinationals. The shares were £1.59 when Midas recommended them in 2014. Today they are £7.50. Despite the good run, this stock should continue to gain ground and dividends are set to increase, too. 

OPTIBIOTIX – Food ingredients supplier 

This supplier is a very different beast. Founded by former microbiologist Stephen O’Hara, the group is behind brands such as SlimBiome and Go Figure, which change the way microbes behave in the gut to make people feel full and lose weight. The group also produces supplements that reduce cholesterol, available in more than 60 countries worldwide. 

Once a stock market darling, OptiBiotix shares have see-sawed over the past few years, as the company has taken longer than expected to translate great ideas and clever science into sales and profits. 

Supporters point out that OptiBiotix is operating in a new field – working with good bacteria in the gut to make people healthier – and new ideas take time to become accepted. O’Hara has also developed partnerships with pharmacies, drug companies and retailers, including Holland & Barrett, and results for 2020 should show the firm finally moving into profit. It is traded on AIM, with the ticker OPTI. Contact optibiotix.com or 07876 741001.

Midas verdict: OptiBiotix was 33.5p when Midas looked at the stock in 2015. It is now 55p, having risen to more than £1 two years ago. Investors who have hung on should probably stick with it a little longer. Gut health is a hot topic, better understanding could have a significant impact on waistlines and wellbeing and OptiBiotix is one of the few UK-listed firms in this area.

EKF Diagnostics – Diabetes test maker

Soaring rates of diabetes have been directly attributed to growing girths in recent decades. At least 450 million people now suffer from the condition globally, a more than fourfold increase over 40 years. 

Early diagnosis, combined with regular monitoring, can ease and even overcome some of diabetes’ most pernicious side-effects. Here, EKF Diagnostics and Renalytix AI are well-placed to help. Cardiff-based EKF has recently been associated with the fight against coronavirus, providing testing equipment to laboratories. 

The group’s real strength however, lies in the production of sophisticated kit that tests for diabetes and monitors those with the condition. Unlike home tests, which give instant blood sugar readings, EKF’s equipment provide more detailed and longer-term assessments of glucose levels, allowing doctors to prescribe effective treatment for diabetes, including lifestyle changes that can help people avoid medication completely. 

Chief executive Julian Baines said last week that results for 2020 would be ahead of expectations. Trading in the core diabetics business and the Covid testing division has been robust and forward orders are encouraging. The group started to pay dividends last year and expects to continue in that vein. Renalytix was spun out of EKF and listed in 2018. It has developed a way of assessing whether diabetes sufferers are likely to develop acute kidney disease in later life. 

Kidney issues are widely associated with diabetes but acute conditions can lead to frequent dialysis and may even prove fatal, if left undiagnosed. Renalytix uses a combination of blood tests and data to calculate who is most at risk so doctors can help those patients before they reach a critical stage. 

Boss James McCullough has focused initial efforts on the US and his service has received an enthusiastic reception from the US medical establishment, even though it has yet to be approved by regulators there. Most observers believe approval will come this year, paving the way for soaring sales and profits. 

EKF and Renalytix are traded on AIM with the tickers EKF and RENX. Contact: ekfdiagnostics. com or 029 2071 0570 or for Renalytix AI: 001 801 447 2698.

Midas verdict: Midas recommended EKF in 2012 when they were 28.5p. Today they are 74p and should continue to rise. Renalytix was recommended at £2.40 in 2019 and has since more than tripled to £8.00. Shareholders would be wise to take some profits after such a good run but retain a good chunk, as the business has long-term potential, provided that approval comes good. 

THE GYM GROUP – Low-cost fitness clubs 

Gyms have had a rough ride since lockdowns were first introduced. Closing and opening for much of last year, they are now closed again. This is particularly galling for clubs, as January is the month when most people join gyms. The Gym Group has suffered along with its peers. The firm specialises in low-cost gyms, where membership averages just £18.50 a month and business was booming until coronavirus struck. 

Now the firm is expected to fall into loss for 2020 and 2021 figures are likely to disappoint too. 

A trading update issued last Friday showed that membership numbers have fallen from a peak of 900,000 last February to 578,000 by the end of December. And the next few months are likely to remain challenging.

But it is not all doom and gloom. At the trading update, chief executive Richard Darwin revealed that former England football star turned TV pundit Rio Ferdinand is joining the board. Ferdinand is passionate about fitness and could do wonders for membership. 

Exercise is also moving up the agenda in lockdown, as people realise the importance of keeping fit. Some are happy to work out at home, but gyms offer better equipment and a chance to socialise, which may prove attractive after months of being stuck at home. 

There are other grounds for optimism. Gym Group still has more than 180 clubs and Darwin is being offered cut-price sites across the country as property firms try to fill vacant lots, often in prime locations. The firm is traded on AIM with the ticker: GYM. Contact: tggplc.com or Instinctif Partners on 020 7457 2020. 

Midas verdict: Midas recommended the shares in 2015 at £2.02, they had risen to more than £3 by 2018 but are now down at £2.11. This is not the time to sell. The Government is keen to promote exercise, the Gym Group offers cut-price access to equipment and classes and its finances are sound. Hold. 

TRY FUND BACKING HEALTHY FARMING 

Healthy eating can be a minefield – trying to find food that is genuinely good for you and genuinely fresh. Apples, for example, can be up to a year old when they hit the supermarket shelf. 

Other fruit and vegetables can also spend months in storage before they are sold. They are not bad or off – but they have almost certainly lost some of their goodness along the way. 

Reaping rewards: Pictet Nutrition strives to promote better practices among big businesses by investing in firms that promote sustainable farming

Pictet Nutrition strives to promote better practices among big businesses by investing in firms that promote sustainable farming and improve access to healthy, high-quality food. 

The fund is run by Swiss investment house Pictet Asset Management, which specialises in so-called thematic investing, building funds around themes and trends that should generate returns over the long term. 

Born out of an agriculture fund, Pictet Nutrition was launched in 2017. 

Investments range from multinational groups, such as Nestle and Danone, to American free-range egg producer Vital Farms to the UK’s Ocado because the online delivery firm has put money into vertical farms, where produce is grown indoors, close to the end-consumer. Nestle may seem an unusual investment choice as the company makes KitKat, Nesquik and all kinds of sugar-laden confectionery. But the group is shifting towards healthier products, such as bottled water and whole-grain cereals, while even KitKat uses sustainable cocoa. Pictet Nutrition also invests in companies pioneering ways to grow crops using less water and fertiliser, as well as firms that make ingredients from natural sources. 

Pictet Nutrition is designed to be a long-term investment but recent performance is encouraging, with returns of more than 29 per cent over the past three years and 17 per cent in 2020 alone. For investors looking to promote good food and make money along the way, the fund is worth a closer look. It is traded on the main market. 

To invest use the stock market code: LU0366534856:Gbp.