PureCircle — StarLeaf to drive growth

PureCircle — StarLeaf to drive growth

PureCircle’s FY18 results demonstrate the business is recovering well from the problems in North America. Transition to the superior StarLeaf stevia product is proceeding well and should continue to be accretive to margins. The innovation pipeline remains strong and the company is well positioned to continue to capitalise on the shift away from sugar and towards natural sweeteners.

Analyst avatar placeholder

Written by

PureCircle

StarLeaf to drive growth

Consumer

QuickView

21 September 2018

Price

351p

Market cap

£611m

Share price graph

Share details

Code

PURE

Listing

LSE

Shares in issue

174.2m

Business description

PureCircle is the world’s largest producer and marketer of high-purity stevia, a plant-based sugar substitute. It is a vertically integrated manufacturer and its business spans plant breeding and harvesting through extraction and application of stevia leaf extract.

Bull

Stevia remains an attractive sugar substitute. Pipeline is strong.

HQ move to Chicago means the company is closer to its largest market and better able to capitalise on opportunities.

Migration to StarLeaf stevia is margin-enhancing over time.

Bear

Competition likely to increase with fermentation-based, biosynthesised stevia alternatives recently launched.

Inventory levels remain elevated. This is a strategic choice, but is a drain on cash flow.

Vertical integration adds complexity to the business.

Analysts

Sara Welford

+44 (0) 20 3077 5700

Paul Hickman

+44 (0)20 3681 2501

PureCircle’s FY18 results demonstrate the business is recovering well from the problems in North America. Transition to the superior StarLeaf stevia product is proceeding well and should continue to be accretive to margins. The innovation pipeline remains strong and the company is well positioned to continue to capitalise on the shift away from sugar and towards natural sweeteners.

Bounceback in North America

FY18 sales were 10% above the previous year, with volumes up 17%.Sales growth was driven by both the North American recovery and new business wins across key accounts. The successful launch of StarLeaf stevia is significant: it contains a better-tasting variant of stevia, which enables customers to achieve no added-sugar formulations, rather than having to mix stevia with sugar or other sweeteners. StarLeaf is also accretive to margins and remains a 100% natural product.

Uniquely positioned

PureCircle is increasingly well-diversified. Geographic diversification helps to reduce geopolitical and climate risks, and the company is now well diversified both by end market and by geographies where stevia is grown. By category, stevia has moved well beyond the traditional carbonated soft drinks market with which sweeteners have long been associated. Indeed, the area with most stevia launches is now the snacks category. PureCircle 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, from breeding seedlings through to extracting stevia. This expertise 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.

Valuation: In line with global peers

PureCircle trades at consensus FY20e P/E of 29.3x, which is at the upper end of its global ingredients peer group. While it lacks the scale of some of its peers, it is on a strong 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.

Consensus estimates

Year
end

Revenue
($m)

PBT
($m)

EPS
(c)

DPS
(c)

P/E
(x)

Yield
(%)

06/17

118.9

7.7

4.2

0.0

83.6

N/A

06/18

131.1

7.5

5.0

0.0

70.2

N/A

06/19e

163.0

13.8

8.2

0.0

42.8

N/A

06/20e

188.5

24.3

12.0

0.0

29.3

N/A

Source: Company data, Bloomberg

EDISON QUICKVIEWS ARE NORMALLY ONE OFF PUBLICATIONS WITH NO COMMITMENT TO WRITING ANY FOLLOW UP. QUICKVIEW NOTES USE CONSENSUS EARNINGS ESTIMATES.

Edison is an investment research and advisory company, with offices in North America, Europe, the Middle East and AsiaPac. The heart of Edison is our world-renowned equity research platform and deep multi-sector expertise. At Edison Investment Research, our research is widely read by international investors, advisers and stakeholders. Edison Advisors leverages our core research platform to provide differentiated services including investor relations and strategic consulting.Edison is authorised and regulated by the Financial Conduct Authority. Edison Investment Research (NZ) Limited (Edison NZ) is the New Zealand subsidiary of Edison. Edison NZ is registered on the New Zealand Financial Service Providers Register (FSP number 247505) and is registered to provide wholesale and/or generic financial adviser services only. Edison Investment Research Inc (Edison US) is the US subsidiary of Edison and is regulated by the Securities and Exchange Commission. Edison Investment Research Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

DISCLAIMER
Copyright 2018 Edison Investment Research Limited. All rights reserved. This report has been prepared and issued by Edison for publication globally. All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report. Opinions contained in this report represent those of the research department of Edison at the time of publication. The securities described in the Investment Research may not be eligible for sale in all jurisdictions or to certain categories of investors. This research is issued in Australia by Edison Investment Research Pty Ltd (Corporate Authorised Representative (1252501) of Myonlineadvisers Pty Ltd (AFSL: 427484)) and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia.The Investment Research is distributed in the United States by Edison US to major US institutional investors only. Edison US is registered as an investment adviser with the Securities and Exchange Commission. Edison US relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. As such, Edison does not offer or provide personalised advice. We publish information about companies in which we believe our readers may be interested and this information reflects our sincere opinions. The information that we provide or that is derived from our website is not intended to be, and should not be construed in any manner whatsoever as, personalised advice. Also, our website and the information provided by us should not be construed by any subscriber or prospective subscriber as Edison's solicitation to effect, or attempt to effect, any transaction in a security. The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are "wholesale clients" for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. This document is provided for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document.
A marketing communication under FCA rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.Edison has a restrictive policy relating to personal dealing. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report. Edison or its affiliates may perform services or solicit business from any of the companies mentioned in this report. The value of securities mentioned in this report can fall as well as rise and are subject to large and sudden swings. In addition it may be difficult or not possible to buy, sell or obtain accurate information about the value of securities mentioned in this report. Past performance is not necessarily a guide to future performance. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a "personalised service" and, to the extent that it contains any financial advice, is intended only as a "class service" provided by Edison within the meaning of the FAA (ie without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision. To the maximum extent permitted by law, Edison, its affiliates and contractors, and their respective directors, officers and employees will not be liable for any loss or damage arising as a result of reliance being placed on any of the information contained in this report and do not guarantee the returns on investments in the products discussed in this publication. FTSE International Limited ("FTSE") (c) FTSE [2014]. "FTSE(r)" is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under license. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE's express written consent.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London+44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York+1 646 653 7026

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney+61 (0)2 8249 8342

Level 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London+44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York+1 646 653 7026

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney+61 (0)2 8249 8342

Level 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Mologen — Global lefitolimod partnership close to completion

Mologen announced that it has signed term sheets for a global partnership with Oncologie for its lead asset, lefitolimod. The deal is expected to complete in Q119, and in the near term Mologen expects to receive €23m from the agreement in a combination of R&D funding, cash payment and bond issues. Sensitivity remains around Oncologie who are an early stage biotech with $16m in seed funding. Mologen announced a capital raise in which it could receive gross proceeds of €18m. Focus remains on data from the Phase III IMPALA trial in metastatic colorectal cancer (mCRC), expected in 2020. We value Mologen at €188m (€16.6/share).

Continue Reading

Subscribe to Edison

Get access to the very latest content matched to your personal investment style.

Sign up for free