Despite significant headwinds coming from the US Customs and Border Protection (CBP) blocking its products throughout the half year, PureCircle has weathered the storm well. H117 sales outside the US were up 10%, with total sales down 13.4% despite the company being denied access to a market that previously represented one-third of its revenues, and gross margins holding up remarkably well considering there were adverse mix effects. The innovation pipeline is strong and the scope for stevia use in the food and beverage industry continues to increase.
Written by
PureCircle |
Finding the sweet spot?
|
Consumer |
QuickView
13 March 2017 |
Share price graph
Share details
Business description
Bull
Bear
Analysts
|
||||||||||||||||||||||||
Despite significant headwinds coming from the US Customs and Border Protection (CBP) blocking its products throughout the half year, PureCircle has weathered the storm well. H117 sales outside the US were up 10%, with total sales down 13.4% despite the company being denied access to a market that previously represented one-third of its revenues, and gross margins holding up remarkably well considering there were adverse mix effects. The innovation pipeline is strong and the scope for stevia use in the food and beverage industry continues to increase.
Weathering the storm
PureCircle continues to successfully lead industry innovation and unlock the market and this has been particularly apparent in H117 while the US market was closed to the company. Over time, management has diversified the revenue streams away from basic ingredients and further towards value-added ingredient solutions. In addition, the business is well-balanced by geography, although the US will continue to be the largest market by the nature of the size of its food and beverage industry.
Expanding the business
The $42m refinery capacity expansion in Kuala Lumpur was completed on schedule and within budget. This should allow the company to meet future increased demand, and the new technology at the plant will allow increased efficiency and lower manufacturing costs. Stevia remains an attractive sugar substitute due to being a highly efficient source of sweetness and zero calories. PureCircle's stevia product is also 100% natural. While the business is still at a relatively young stage, we expect inventories to remain at high levels to ensure the security of supply for existing applications and to allow customers to reformulate and launch new products without having to worry about supply constraints or bottlenecks.
Valuation: Potential growth not priced in
Trading at consensus FY18e P/E of 36x, PureCircle continues to be valued at a premium to the global ingredients peer group given its strong growth prospects. It is on a strong growth trajectory as stevia gains traction as a sugar substitute and its use in the food and beverage industry becomes more widespread. Volatility is likely to remain a feature while the business grows and its products become more established. Over the next 12 months, we also expect the company to benefit from a recovery in the US now that the US CBP issue has been resolved.
|
Consensus estimates
Source: Bloomberg |
EDISON QUICKVIEWS ARE NORMALLY ONE OFF PUBLICATIONS WITH NO COMMITMENT TO WRITING ANY FOLLOW UP. QUICKVIEW NOTES USE CONSENSUS EARNINGS ESTIMATES.
|
Disclaimer
|
|
Disclaimer
|
Kindred Group’s all cash offer for 32Red marks a meaningful and well-priced entry into the UK online casino market. With robust FY results and 20% growth in Q117 net gaming revenues, our standalone 32Red forecasts are largely unchanged, underpinned by continued margin expansion and high cash generation. Within an enlarged group, there should be additional revenue and cost synergies, suggesting upside to our numbers. Consideration is expected to be paid in mid/late May.