COMMENT
Three Tasty Shares

The food industry is a mature one with growth, at best, forecast to be in line with inflation. In fact, spending on food as a proportion of total household spending has been in long-term decline, a trend that's reportedly in line with other advanced economies.

So who would want to invest in food shares?

Well, it seems that beneath the calm exterior there lies a dynamic market as food manufacturers jostle to cater for our rapidly changing lifestyles. These changes include a continuing rise in the number of working women, smaller households and increasing time pressure on our lives. And those that are best able to adapt are more likely to reap the benefits.

One company that may fit the bill is Premier Foods (LSE: PFD). It has sold its Typhoo tea business for £80m to concentrate on faster growing products. These include the recent acquisition of Cauldron Foods, which makes chilled meat-free products, and Quorn maker Marlow Foods. Boosted by acquisitions, profits of £90m have been pencilled in for this year, rising to £97m in 2006. This values the £688m company at around 10 times earnings, which is not too expensive. The 5% yield on its shares, which stand at 280p, is quite tasty too.

RHM (LSE: RHM) is another interesting player. The company, which can trace its roots to miller Joseph Rank, has a pantry-full of products to satisfy time-poor, but cash-rich consumers. These include Nimble low-calorie bread, and Hovis Invisible Crust, the first ever bread to be baked without a crust. Shares in RHM fell recently over concerns of soggy cake sales. But at 270p they are yielding 5.9%, which looks exceedingly tempting. Earnings per share are expected to come in at 26p, rising to 30p in 2007. This values the owner of Mr Kipling at an undemanding 10 times profit.

Finally, Northern Foods (LSE: NFDS) completes the trio of tasty food shares. The company has shut cake and dessert factories to focus on convenience chilled foods, which is one of the fastest growing food sectors. This sub-sector of the vast food market is expanding at around 6% a year, which may account for its higher valuation of 13 times earnings. However, Northern Foods yields 6.1%, covered 1.2 times, which makes it one of the highest yielding shares on the market.

Despite sluggish growth in the food market it important not to forget that we spend over £50b annually on edibles. Consequently, even minor changes to our weekly grocery shopping list can have a disproportionate impact on market players. And those who understand best how demographic changes have influenced what we eat, and where and how we do so, should fare best.