By Henry Kawabe
It appears as though the global market for stevia, the zero calorie natural sugar substitute, continues to grow like an unstoppable snowball — gaining size and strength as it rolls down a mountain’s side. For the year 2011 US research company, Packaged Facts, estimated the world stevia market was between $800 million and $2 billion, a considerable rise from the $20 million in 2008. Much of that growth was attributed to stevia gaining regulatory approval in the US market. However, in the EU market where sales of stevia as a table top sweetener began at the end of 2011, Merisant, a leading supplier of stevia, expects its sales to reach $100 million by the end of the year, or 20% of the approximate $500 million EU stevia market. According to Zenith International, the global market for stevia is forecast to reach 11,000 tons by the middle of the current decade, equivalent to value sales worth $825 million, which some believe sales have already exceeded.
In an interview with Food Navigator, Jason Heckler, Vice President of Global Marketing and Innovation for PureCircle Ltd. (LON:PURE, PINK:PCRTF), the world’s leading producer of stevia, said he estimates that over 1000 food and beverage products with stevia extract will have hit the market by the end of 2012, with over half of the products in Europe. Meanwhile, PureCircle’s PureCircle’s CFO, William Mitchell, sees the potential for rebaudioside A (Reb A), the sweetest of the steviol glycosides, as he indicates sales could reach as high as $10 billion over the next few years. The Coca-Cola Company (NYSE:KO) recently announced it has reformulated its Glacéau Vitaminwater line for the British market with a stevia-sugar mix lowering the calories per bottle by 30. Philippa Classey, marketing manager for Glacéau Vitaminwater, North West Europe & Nordics said, ‘We are always looking for ways to improve our products. This is an exciting set of changes for Glacéau Vitaminwater; our consumers have always loved the taste of our drinks. Being able to keep the products tasting great, but with fewer calories and introducing stevia from natural origins and an updated nutrient blend is a fantastic step. After an amazing Olympic year in 2012, we’re in the starting blocks ready for a great 2013.”
We can now add Canada to the growing list of countries due to its approval from Health Canada for stevia’s use as an additive in food and beverage products. With stevia coming into great demand, companies are developing new strains of stevia plants, entering in joint ventures, signing distribution deals, and investing a lot of time and money in the future of the sweetener. However, there are concerns from the bottlers and food manufacturers about the reliability of the supply line of quality stevia. These companies are also concerned about the lingering bitter aftertaste found in earlier varieties of stevia. However, stevia companies are addressing those issues and are developing new plant breeds and methods of growing and processing stevia. Below are three companies that have been making news lately in the stevia market and may be worth a look at as an investment in a pure stevia play.
PureCircle Limited (LON:PURE, PINK:PCRTF) didn’t miss a beat when it announced scarcely a week after Canada’s approval of stevia, that it has appointed Unipex Solutions Canada as its distributor for stevia sweeteners within Canada. PureCircle is the world’s leading producer of high-purity stevia products. Unipex seems like a wise choice as it markets active ingredients, specialty chemicals, industrial commodities, and services throughout Canada and the Northeast US. Ms. Taleen Chouljian, SBU Manager, Unipex Solutions Canada, commented about the deal, “The approval represents a great opportunity for us and we are happy to work with PureCircle to bring great tasting stevia sweeteners to the Canadian market.” John Forte, VP Sales North America, PureCircle added, “PureCircle and Unipex have been preparing for stevia’s approval for some time, and we are pleased to provide our innovative stevia sweeteners along with Unipex’s ingredient expertise to manufacturers seeking the right stevia solutions for their products.”
PureCircle does not grow its own stevia. It contracts farmers across South America, Africa, Asia, and formed a recent agreement with S&W Seed Company (NASDAQ:SANW) for the US market. PureCircle has also established joint venture partnerships with the sugar industry creating Natural Sweet Ventures by joining with Imperial Sugar Company in the US; Tereos PureCircle Solutions was created by partnering with the French sugar company Tereos; and NPSweet A/S is a joint venture with the German sugar beet company Nordzucker AG. PureCircle also is working with Coca-Cola (NYSE:KO) in a joint venture to develop and then supply stevia products as a commercially viable sweetener for the food industry.
With its corporate headquarters in Kuala Lumpur, Malaysia, and sale and marketing based in Oak Brook IL, PureCircle is clearly the leader in stevia production globally. It is responsible for 90% of the stevia sold in the US. The company has a market cap of $577.9 million and trades on the London exchange, but also in the US under the ticker (PINK:PCRTF). The company’s revenue for the first six months of 2012 was $45.5 million, well on target to exceed 2011 revenues of $53.3 million. I do like this company, and I think it will continue to build on its sales. It has strong contracts with the major bottlers and food manufacturers, and has a long list of stevia growers in its arsenal. However, as an investment, I’m not as excited about its trading on the US market. I find the volume far too low, with a three-month average of just over 2200 shares exchanging hands per day. The stock, selling at $3.75 is close to its 52-week high. My choice to buy the stock would be on the London exchange where the volume is much heavier, though does have its major swings. The company has enjoyed a good run up YTD, rising steadily over 160% to close at 240GBp.
Stevia First Corp. (OTC:STVF) is taking a different approach when it comes to developing stevia as a business. The company is not rushing its development or its product to market. Instead it is concentrating its efforts on creating a number of high-quality stevia products that will propel the company to the top of the stevia market by producing both conventional stevia and organic stevia. Based out of Yuba City, California, Stevia First Corp. is developing two separate products by utilizing two completely different growing methods. The first is through a fermentation system that it licensed from Vineland Research and Innovation Centre of Ontario Canada for producing the sweet steviol glycoside from the stevia plant using the knowledge the company obtained from mapping the biochemical pathways in the steviol glycosides. With that knowledge Stevia First, through the fermentation method, will able to produce consistent stevia extracts with the desired characteristic much more precise than by growing the actual plants. This process should create stevia extracts that are high in the sweet Reb A without the lingering aftertaste, and hopefully develop stevia extracts that would become more palatable for use beyond the beverage industry and into food and bakery goods. There is a second benefit to a fermentation process, and that’s cost. The normal extraction and purification process of the stevia leaves comes to about 70% of the cost of producing the sweet extract. The fermentation process requires just the low-cost plant materials to make the sweet steviol glycosides, and could bypass or significantly reduce the need for stevia leaf production, thus lowering the costs to produce the sweet Reb A while guaranteeing a consistent supply line with a taste that does not vary. If the fermentation process proves successful on a large scale, it has the potential for great profits for Stevia First and the company probably would be primed for a buyout from one of the large multinational food or beverage corporations.
Stevia First also intends on capitalizing on the growing organic market by being the first in the U.S. to grow organic stevia on an industrial scale. This may be the sleeper winner for the company considering the continued rise for organic products—not just in the US, but globally. The demand for organic foods appears to have wings: US sales grew to $29.9 billion in 2011 up from $26.6 billion in 2010, and the expectations forecast for US organic foods sales in 2014 could reach $42 billion. I like Stevia First’s business model. However, it is a small company with a market cap of just $19.3 million and, being a development company with no sales, the stock can and will move on news, good or bad. Currently trading at $0.36 per share, this appears to be a solid entry price and a good buy, especially if some positive news comes out in the form of development updates, partnerships or licensing agreements.
Stevia Corp. (PINK:STEV), a small development-stage farm management company, earlier this month announced the expansion of its commercialization phase, and expects its first major stevia crop harvest in Vietnam of roughly 1,000 tons during first quarter of 2013. With the harvest, the company, based on its sales price and costs projections, sees early 2013 revenues of more than $2 million and its first quarterly profit. That would be quite a jump from the 3rd quarter 2012 which had revenues of $112,517. George Blankenbaker, Stevia Corp. President, commented, “This will again signify another major milestone achieved well ahead of schedule. This, together with our joint venture operations in China launched last quarter, will begin a solid foundation for the company to continue scaling its business model and target significant revenue and profit growth during calendar year 2013 provided we also achieve certain capital requirements.”
Based in Indianapolis, Indiana, Stevia Corp has invested its stevia business with growers in Vietnam and Indonesia. Although costs are far less there than in the U.S., just like any company receiving its product from overseas it is also dependent on sources out of its control, which can make this company a very risky prospect. This year has not been good for investors for the $10.48 million market cap company, as the stock plunged YTD over 80%. However, the stock is rallying—up 25% from its lows after the announcement of what appears will be a successful stevia crop harvest. Stevia Corp is trading at $0.15 per share. I don’t see much more upside movement at this time since the harvest news has already been reflected in the stock price. And though I am very bullish on the future of stevia, I have concerns that this company’s supply of stevia comes 100% from farms in Vietnam and Indonesia. In spite of being more cost efficient in the growing costs, its entire product is physically out of the company’s control, and as an investment that brings up a high risk concern. I think Stevia Corp is worth keeping an eye on to see if the company is able to actually meet its sales goals and whether it shows it can bring a quality product to market. And only then will I see a better potential reward for the risk.
Clearly stevia is a growing commodity with excellent investment potential. It is still in its infantile stage and I can see quite a few companies jockeying for position with this product. All three companies previewed in the article have growth potential. The question is which ones can bring solid investment profits. Of the three, I do like Stevia First Corp as an investment for a few reasons: They are a US company growing stevia in California, they are using a fermentation method that could cut the growing and producing costs considerably, and they are entering the wide-open organic market. But, caution is necessary, as small cap stocks can be volatile. They offer huge upside potential, but corresponding downside risks. The three companies offer good current-level entries for various levels of risk. Interested investors should perform more their own research to determine which of these fit their investment goals.
Disclosure: Long KO and STVF
