Healthy returns available as Britons get fitter

Snacks and fizzy drinks are out, while more nutritious foods generate profits

As Premier Foods prepared to announce its latest set of interim results on Monday, few analysts expected it to unveil bumper profits generated by Britons' growing desire to eat more healthily. While the company's best-known products, Ambrosia Custard and Branston Pickle, are hardly in the same league as Turkey Twizzlers, nor are they top of the shopping lists of health-conscious consumers.

But Premier had a secret weapon up its sleeve. Last year, it bought Quorn, the company that makes the eponymous processed vegetarian alternative to meat. Since the acquisition, it has worked hard on Quorn's branding, presenting the product as a healthy-eating option in its own right - low in salt and fat but high in protein and fibre - rather than simply as a meat replacement.

The results have been spectacular. Premier's profits for the first six months of this year more than doubled compared to 2005, with most of the extra cash generated by Quorn. One in five households now regularly buys Quorn, the company says, with the product popular among calorie-counting younger women. The huge increase in its popularity over the past 12 months alone reflects Britain's sudden conversion to all things wholesome. Call it the Jamie Oliver effect or ascribe it to publicity about the obesity epidemic, but there's no doubt increasing numbers of Britons are shaping up.

As a result, sales of snacks and fizzy drinks are declining, while healthier products are booming: market research specialist Mintel estimates sales of the latter rose from £3.7bn in 2003 to £3.9bn last year.

Some analysts believe the trend is part of a wider movement towards more ethical consumerism - that healthy eating goes hand in hand with greater environmental awareness, for example, or an enhanced sense of social responsibility. Alternatively, this could just be the latest fad, in which case it won't last.

Either way, companies such as Premier, which successfully tap into the health trend, stand to continue reaping a financial reward. "Investors should be trying to identify companies that are market aware on this issue," says Justin Urquhart-Stewart, of Seven Investment Management. "You're looking for companies that have changed and have a history of being able to adapt."

Peter Michaelis, manager of the Norwich Union UK Ethical fund, believes that this area is a serious investment opportunity - not least because consumers' desire for a healthier lifestyle is likely to go hand in hand with more legislation designed to tackle obesity and other lifestyle-related problems.

"In December last year the European Commission adopted its Green Paper on obesity, which promotes an active lifestyle and a healthy diet," says Michaelis. "Self-regulation of advertising of food high in salt, fat and sugar is preferred, but the Institute of Medicine in the US found a link between children's appetite for junk food and marketing, and we believe legislation will follow if self-regulation fails."

The UK Government already bans junk food from schools, Michaelis points out, and is also looking at bans on vending machines selling unhealthy snacks and drinks.

Investors in some of the most unlikely companies are already benefiting from this movement. McDonald's, for example, recently announced a bumper set of results, following strong sales of the salad and fruit-based products it introduced two years ago in response to criticism of its ranges.

On the other hand, spotting winners is not an exact science. While concern about obesity might have been expected to boost diet-related products, Unilever has this month warned that sales of its Slim Fast products are slowing. It seems that people want to lose weight by eating more healthily, rather than by buying diet products.

Richard Hunter, of Hargreaves Lansdown Stockbrokers, thinks marketing is a key issue for investors to consider. "Cadbury's, for example, has been very careful to keep the organic chocolate maker it bought last year, Green & Blacks, very separate."

As a result, the latter's sales have continued growing healthily, despite general concern about chocolate snacks and the specific scandal of Cadbury's admission earlier this year that a factory problem had led to some of its customers being poisoned by the salmonella virus.

Michaelis says the Sustainable Futures socially responsible investment team at Norwich Union has identified the move to a healthier lifestyle as a particular theme on which to focus. In particular, they look for companies with good research and development facilities, and a track record of innovation. Potential shareholdings are more likely to be companies that have modified their product ranges to reduce fat, salt and sugar, particularly if they have a portfolio of healthy products.

"These equal high growth categories, whereas unhealthy categories are declining - take, for instance, soft drinks versus smoothies," Michaelis says. "We're also interested in nutritional labelling that helps the consumer make healthy choices, because we have seen some good data that clearly demonstrates that customers really do choose healthier options as nutrition labels are put on the packaging."

Above all, Michaelis believes "companies offering products with real health benefits and honest marketing will win, because consumers will pay a premium for products that they think are healthy".

Even so, investment in the healthier lifestyle theme is just one way to benefit from the idea of ethical consumerism. There will be other opportunities, too. Henk Potts, of Barclays Stockbrokers, points out, for example, that Currys has recently begun trial sales of solar panels for the home. Companies with investments in green products are likely to be beneficiaries of the parallel trend of healthier eating.

Companies to back as a bet on health

Center Parcs: Eating more sensibly is just one part of the trend towards a healthier lifestyle, points out Richard Hunter of Hargreaves Lansdon Stockbrokers. Exercise is important too. "Center Parcs is an absolute temple for people who want to take an active holiday," Hunter says. It could also benefit if people begin taking more holidays in the UK, as concern about the environmental impact of air travel continues to grow.

Danone: Norwich Union's Peter Michaelis says the French food manufacturer is one of his team's long-term holdings. "Products such as Actimel have been well positioned to benefit from growing demand for functional foods - Actimel contains probiotics that help bodies' immune systems," he says. "We also like the fact the company has a good track record on research and development, and innovation."

Danone:As consumers become more interested in health issues, demand for information about food, diet and exercise will increase. Emap, the consumer and business magazines publisher, has a number of publications that will benefit, Hunter says. They include titles such as Here's Health and Slimming & Health.

Goals Soccer Centres: When Keith Rogers launched this small company which hires out five-a-side soccer pitches, few analysts expected it to prosper. However, the company has performed increasingly strongly - pre-tax profits rose 355 per cent to £2.8m in the last financial year and the company has begun paying dividends.

JJB Sports: Similarly, if people are to take more exercise and play more sport, Hunter points out that they will need to buy more sporting equipment and clothing. JJB is one of very few large retail chains in this market, and the only pure stock market player in this industry.

Marks & Spencer: Even during the troubled times of the past few years, M&S's food sales have continued to perform very strongly and its healthy-eating products have been a particular highlight. Michaelis backs the retailer on the grounds that its "Eat Well range is doing so well".

Sainsbury's: Michaelis tips Sainsbury's on a similar basis - of the major supermarket groups, he believes it has been the most successful at positioning itself in the healthier-living campaign. "The 'Active Kids' initiative - trying to get children to take more exercise - has been a success," Michaelis says. "Sales of organic products grew 17 per cent in the first quarter of the year alone."

Whitbread: A company associated with alcoholic drinks might not be the obvious way to invest in healthy living, but Whitbread is these days a hospitality company, with a range of hotels and restaurants. Hunter likes the shares because Whitbread owns the David Lloyd Leisure chain of health clubs, an obvious beneficiary of any increase in the exercise Britons take.

Innocent: Finally, Henk Potts, of Barclays Stockbrokers, tips a company to watch. Innocent, the company behind the range of fruit smoothies, is not currently listed on the stock market, so it is not a possible investment. However, the company's founders, praised for producing a healthy product range and also for their progressive employment policies, have talked about floating the company, "to democratise the ownership".