PureCircle’s H119 results highlight the ongoing evolution in the company: sales declined 5%, partly due to phasing of deliveries, but also due to adoption of the superior-tasting, higher-margin Reb M product cannibalising the base business. Gross margins were up 240bp as a result of Reb M contributing positively to the mix. The innovation pipeline continues to strengthen and the company is well positioned to capitalise on the continued shift away from sugar and towards natural sweeteners.
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PureCircle |
Growing pains
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Consumer |
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19 March 2019 |
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PureCircle’s H119 results highlight the ongoing evolution in the company: sales declined 5%, partly due to phasing of deliveries, but also due to adoption of the superior-tasting, higher-margin Reb M product cannibalising the base business. Gross margins were up 240bp as a result of Reb M contributing positively to the mix. The innovation pipeline continues to strengthen and the company is well positioned to capitalise on the continued shift away from sugar and towards natural sweeteners.
Navigating growth
Management has chosen to shape the business for the long-term opportunities that lie ahead and therefore is concentrating its efforts around StarLeaf, which contains the better-tasting Reb M, and the company’s new technology to convert Reb A to Reb M. Customers are switching to Reb M and indeed some reformulations have resulted in cannibalisation of the base business. The pipeline, however, remains healthy, with an ever-increasing number of new launches globally of products containing stevia. The increased focus on Reb M is opening new categories and applications for PureCircle, such as foodservice, where increased food-labelling regulation is driving a greater focus on calorie reduction. The company’s continued focus on innovation across the supply chain has resulted in the potential to extract proteins, antioxidants and fibre from StarLeaf, thus helping to drive down the overall cost of Reb M.
Unique proposition
PureCircle is increasingly diversified, both by category and geography. The company is uniquely positioned in the industry through its vertical integration, which spans from plant breeding through to extraction and application. This allows deep expertise regarding stevia, as PureCircle is involved at every stage of the process. This is backed up with intellectual property and the company is increasingly looking to become a solutions provider for its customers, by working ever more closely with them on their innovation, and delivering custom blends.
Valuation: In line with global peers
PureCircle trades at consensus FY20e P/E of 32.4x, which is broadly in line with its global ingredients peer group. Although it lacks the scale of some of its peers, it is on a growth trajectory as stevia continues to gain traction as a natural sugar substitute. Competition is likely to increase during FY19 as a number of competitors have recently launched biosynthesised stevia alternatives. This could, however, help to drive an overall increase in market size for stevia.
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Consensus estimates
Source: Company data, Eikon |
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