Stevia’s status as a bona fide sugar substitute now looks to be firmly established. If the huge sums ploughed into new launches by drinks giants Coca-Cola and Pepsi this year isn’t irrefutable proof, a landmark year for PureCircle, which makes natural sweeteners derived from the stevia plant, provides ample backup.
With growing sales and soaring profits in 2014, PureCircle’s share price hit a record 650p earlier this year.
It has been a long road but the business, which claims to be the driving force behind moving stevia from niche to mainstream global acceptance, has established itself as the go-to player for the grocery industry, with some analysts estimating it holds a 70% market share.
The calorie-free extract is 300 times sweeter than sugar and was heralded as the holy grail of sweeteners when it finally gained full EU approval in December 2011 – three years after the US.
Obesity crises in the US and UK, health-conscious consumers and mounting pressure from the government’s Responsibility Deal have all conspired to push the food and drink producers towards cutting the calorific content of their products.
The big players in the soft drink sector such as Coca-Cola, Pepsi and Dr Pepper in particular have taken considerable flak, driving market adoption of stevia.
Multiples looking to adapt to the change of mood are also pushing for manufacturers and suppliers to provide them with healthier products.
Data from market research firm Mintel indicates more than 2,200 new food and beverage products containing stevia were launched in the past year, with about 5,000 products now including the extract.
This is where PureCircle comes in and one of a number of reasons for that mammoth share price, which is up from the mid-300s in November 2013 and has sat at the £6 mark for most of the year.
Julian Lakin of Mirabaud Securities said the past 18 months had heralded the most significant developments in the company’s history, with its strain of the stevia extract appearing in mainstream cola products for the first time.
Coke Life, which is a sugar-plus-stevia reduced calorie drink, hit the shelves nationwide in the UK in September, following trials in Argentina and Chile last year, and now in the US. Coca-Cola hopes the drink can revive flagging sales and help it claw back market share from PepsiCo. Pepsi has returned fire with news of its own stevia-based drink, True, set for a US launch in 2015 after being introduced in October. PureCircle called the launches a “step change” in the industry.
“The most exciting thing is the carbonated soft drinks segment as that is potentially a huge market,” Julian Lakin says. “And that was the one that was always going to be the most challenging to get the flavour right, especially with colas.
“We have gone from something which was totally niche, only really sold in the Far East in spicy foods where the taste could be easily disguised, to now coming out in main brand colas. It’s a huge transition and one of the fundamental reasons why the shares have done so well.”
PureCircle’s massive R&D operations mean it is adept at developing variants of the sweetener to meet customer requirements – it worked very closely with Coca-Cola on Coke Life for example – giving the company a competitive advantage over rival stevia makers.
It has built a customer base of more than 300 clients from 2011 to 2013, with 12 products in the market in the financial year ended 30 June 2014, compared with six 12 months earlier. Growing demand from food producers and drinks giants drove sales volumes up 37% in the year to $101m, with operating profits up $16m to $17.2m.
Charles Pick, equity research director at Numis Securities, adds: “PureCircle has delivered in terms of the numbers it said it would to the City. It has made various forecasts in the recent past, particularly in regards to top line, which have all been delivered on. And the top line has been growing apace off a low starting base.”
Apart from the vagaries of the food and drink industry, there is another more technical factor that has kept PureCircle’s stock at a high price.
Shares are held closely by the founding family and a number of Far Eastern organisations – Wang Tak the most important among them – keeping supply of PureCircle equity tight. Lakin says any investors hoping to buy a significant number of shares would find it very difficult to find sellers.
Wang Tak has spent the years following the flotation in 2007 buying up any loose shares from anyone who wanted to sell, hovering up a lot of the loose stock. “It subscribed for new shares from the company at £2 and has continued to subscribe all the way up,” Lakin adds.
The investor has upped its stake just this week and now owns 25% of the business.
Sue Bancroft, PureCircle vice-president for Europe Middle East and Africa, says, “PureCircle’s vision is to lead the global expansion of stevia as the next mass volume natural origin sweetener – and we are on the way to achieving this. But it is only through delivering outstanding value to our customers and consumers that we will keep succeeding and maintain our market leadership.”