Purecircle Share Discussion Threads

[bulltradept] 20/9/2019 16:18

Oh dear accounting irregularities, possibly..

[bulltradept] 24/6/2019 14:34

Tip Update: Hold at 244p
Tip style
SPECULATIVE
Risk rating
HIGH
Timescale
LONG TERM
Our previous tip
We said BUY at 340p on 01 Nov 2018
Tip performance to date
-28%
By Julia Faurschou

Stevia is all the rage as an alternative sweetener for food and drink companies looking to cut back or eliminate sugar from their products. PureCircle (PURE) management reckons it needs plenty of stock at hand, as customers are reluctant to launch new products without adequate supplies of the sugar-substitute available. This not only locks in capital, but generates additional operational risk. A $24.2m (£18.4m) write-down to inventory wiped out half-year profits, leading to a net loss of £21.1m. Chief executive Magomet Malsagov said the write-down relates to a by-product of its first-generation stevia product, which was primarily used in animal feed, but he does not expect any further write downs during the current financial year.

PURE:LSE
PureCircle Ltd

1mth
Today change
-2.21% Price (GBP)
243.50
Starleaf is PureCircle’s key product since it tastes more like sugar than previous varieties that had an aftertaste. Mr Malsagov said the company has already hit its production target of 16,000 metric tonnes for the current fiscal year, but the shift to Starleaf is not without short-term difficulty. The company noted some cannibalisation, with some customers reformulating first generation stevia, before placing new Starleaf orders. The company said that the results "should be seen in this context" but the effect is expected to be felt through the remainder of the year, with sales expected to return to “double-digit growth” next calendar year.

Analysts at Numis expect pre-tax profits of $10.5m during the year to June 2019, giving EPS of 5.2¢, compared with $8.3m and 5.5¢ in FY2018.

PURECIRCLE (PURE)
ORD PRICE: 244p MARKET VALUE: £427m
TOUCH: 243-246p 12-MONTH HIGH: 433p LOW: 240p
DIVIDEND YIELD: nil PE RATIO: na
NET ASSET VALUE: 114¢* NET DEBT: 52%
Half-year to 31 Dec Turnover ($m) Pre-tax profit ($m) Earnings per share (¢) Dividend per share (¢)
2017 53.5 -1.8 -2.3 nil
2018 50.7 -25.4 -12.7 nil
% change -5 - - -
Ex-div: na
Payment: na
*Includes intangible assets of $63.1m, or 36¢ a share £1=$1.32
IC View
The high inventory levels were a concern when we tipped PureCircle originally. We were under the impression that write-downs would not be an issue since the previous generation of stevia could be washed to refresh the product and extend shelf life, but this write-down applies to a different product. With capital locked in and sales still delayed through product transition, we have become circumspect about near-term performance. Move to hold.

Last IC View: Buy, 340p, 1 Nov 2018

[cottlet] 21/5/2019 10:09

not a lot of watching going on here!!!

[danieldanj] 28/9/2018 04:16

Purecircle (PURE) News Out Just Now

[meijiman] 18/9/2018 12:29

So why are the shares 330 bid and have been as high as 600p? It's a great mystery perhaps.

[dangersimpson2] 18/9/2018 12:06

You are missing that they have a large and increasing debt pile so it would be wrong to compare simply the market cap to earnings. 70p would still represent an EV of c£200m.

Also you are missing that their working capital position is one of the worst I've ever seen - they have about a year's worth of inventory, it takes them 6 months on average to get paid by customers but they pay suppliers in 3-4 months. Putting a 20x multiple on a company with such poor working capital flow characteristics would appear overly optimistic.

[acliff] 18/9/2018 08:51

on a p/e of 20 this is worth circa 70p
what am I missing?

[meijiman] 05/9/2018 11:17

I have no idea about that but the trading in this stock is hard to figure. Seems like it's a company in a great place with the right product at the right time..but it never seems to get it all together.

[dangersimpson2] 05/9/2018 10:45

I wonder if they are sounding out an equity raise. Even though they will probably report a small profit for this year I still expect their capex to exceed their operating cash flow and with the usual working capital flows there will be another increase in net debt.

I'm not sure holding large debt is really a good capital structure for a business that is continually free cash flow negative. Far better to have net cash and a large buffer so they could trade through any short term issues. With high debt they are always at the mercy of their bankers and if the global trade war escalates they could lose banking support and go into admin.

If they are proposing a raise it seems that there isn't much of a market for it around current prices though. Still given their £520m market cap you would have thought they could raise say £150m at £2m which would pay off their debt and give them a nice buffer to see them through to free cash flow neutral operation.

[dangersimpson2] 24/1/2018 14:54

I expect that this will produce minimal FCF in the future to discount, what little operating cashflow they generate gets eaten up by capex and working capital as they have a years' sales in inventory and it takes 6 months on average for customers to pay them and they pay suppliers in 3 months.

[essentialinvestor] 24/1/2018 13:04

from, well aware the market attempts to discount future cashflow.

I looked out to 2020 and from the 4 Traders site have an estimate of 34 Million
on operating profit, could not find a pre tax forecast.
Accept those estimate could change markedly nearer the time.

[from8to800] 24/1/2018 12:56

It seems to me you gentlemen are missing a crucial fact: the stock market is a forward looking discounting mechanism. With production set to double and with conversion from tobacco fields to stevia ones being offered as a service, I'd say the valuation aims to reflect that.
Nice recovery so far too, today.

[essentialinvestor] 24/1/2018 11:44

Never quite understood the rating here.

Current market cap around £700 Million.

[dangersimpson2] 24/1/2018 11:07

I think the real question is not why the fall of the last few days but why the rise of the last year. Going through the recent news we have:

7th March 2017 - Interim Results show lower sales, lower gross margin, loss, higher debt

Shareprice £3.30

2nd May 2017 - Results to 30th June 2017 will be materially below market expectations.

Shareprice £3.08

19th September 2017 - Results show lower sales, lower gross margin, higher debt

Shareprice £4.50

Given that at it's peak purecircle was valued at close to $1.2bn or 10x sales for a company that has had declining sales, declining gross margin, increasing debt and never generated any FCF then I think it is fair to say the main cause of the rise was people attracted to the shareprice momentum. Now that the shareprice has started falling then those who trade momentum are likely to be selling rather than buying.

[from8to800] 24/1/2018 09:51

So, why the free-fall?

[johnthespacer] 23/1/2018 19:30

6 March 2018 FY2018 Half Year Results Announcement
18 September 2018 FY2018 Full Year Results Announcement

[from8to800] 22/1/2018 08:17

When are we to expect an update or results or any form of hint that management is still about, hard at work squeezing that good sweetness out of them plants?

[from8to800] 05/12/2017 14:36

PureCircle Begins Partnering With U.S. Farmers Who Have Grown Tobacco, To Now Grow SteviaSource: PR Newswire (US)Partnerships Create New Economic Opportunities for Tobacco Farmers In North Carolina to Grow Sustainable, Highly-Sought After Crop Supplying Stevia Sweeteners to Food and Beverage CompaniesCHICAGO, Dec. 5, 2017 /PRNewswire/ -- PureCircle (LSE: PURE), the world's leading producer and innovator of great-tasting stevia sweeteners for the global beverage and food industries, announces a new stevia farming program in the United States. The program will provide economic opportunities  for tobacco farmers looking for a sustainable crop which is in high demand by the global food and beverage industry.Photo - https://mma.prnewswire.com/media/615206/PureCircle_stevia_plants.jpgThis past fall, PureCircle partnered with North Carolina farmers to successfully plant and harvest StarLeaf™ stevia in small trial plots. PureCircle and its partner-farmers will significantly increase commercial production of StarLeaf™ stevia for the next planting season.PureCircle's StarLeaf™ is a variety of the stevia plant that contains rich amounts of the most sugar-like tasting, zero-calorie stevia sweeteners. The project in North Carolina is part of PureCircle's global program to scale up StarLeaf™ production, while also providing domestically grown stevia to the North American market.The trials this fall confirmed stevia grows well in soil and climate conditions that were conducive to growing tobacco.  With the declining demand for tobacco, stevia cultivation offers farmers in North Carolina the opportunity to increase returns and productivity of their acreage.Stevia is becoming the preferred zero-calorie sweetener among consumers and consumer product companies. The percentage of beverage and food products launched containing stevia increased by 13% in Q2 2017 compared to Q2 2016.  StarLeaf™ stevia will help companies accelerate launches of  reduced and zero-calorie products by making available sweeteners with the most sugar-like taste derived from a plant-based source.James Foxton, Vice President of Agricultural Operations at PureCircle, said:"We are proud to introduce stevia as a crop in North Carolina.  This program will boost the economic prospects of agriculture in that state by providing a viable alternative to tobacco. We look forward to working together with farmers in expanding stevia production and establishing a North American stevia supply chain for PureCircle.About PureCirclePureCircle is the only company that combines advanced R&D with full vertical integration from farm to high-quality, great-tasting innovative stevia sweeteners.The Company collaborates with farmers who grow the stevia plants and with food and beverage companies which seek to improve their low- and no-calorie formulations using a sweetener from plants.PureCircle will continue to: lead in research, development and innovation; produce a growing supply of multiple varieties of stevia sweeteners with sugar-like taste, using all necessary and appropriate methods of production; and be a resource and innovation partner for food and beverage companies.PureCircle stevia flavor modifiers work in synergy with sweeteners to improve the taste, mouthfeel and calorie profile, and enhance the cost effectiveness, of beverage and food products.For more information, visit: www.purecircle.com  View original content:Great and interesting news, IMO.

[justfactual] 26/10/2017 23:22

Now it's a proven market leader it has become desirable for a takeover. Either Tan Boon Seng increasing or the timing of the spike today indicating big US interest. Won't be long before we see 600p+ here again.

[justfactual] 26/10/2017 23:15

Well...10 months on and Pure has gone from 200p to over 500p. :-)

[itr7] 26/10/2017 16:29

up 8.6% today on no news that I can see. Anyone seen what's going on?

[scantrader] 03/10/2017 13:44

Ta. You might well be right - wouldn't be the first time I closed a short far too early !

[dangersimpson2] 03/10/2017 12:56

Well done scan, got your short term price action right there.

Strange price action though - up significantly on no news, down a bit on poor results, then back up on no news and now down on no news. If I were to guess I would say they've been doing the rounds talking the company up ready for a fundraise and now the news of the raise has leaked out.

This is a longer term play for me - given the debt and working capital characteristics I still think this is a potential zero if there is any future business disruption or in the next credit cycle contraction. Might never happen of course but the risk still looks to the downside to me.