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PureCircle Limited on course to meet full-year expectations

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Liberum said any signs of share price weakness should be viewed as a buying opportunity

PureCircle Limited (LON:PURE), the high purity stevia ingredients producer, said trading in the first three months of 2016 continued to be strong.

The three month period – the third quarter of the company's financial year – saw sales growth in line with the first half of the financial year.

The company said that there are more than $40mln of projects within the fiscal fourth quarter pipeline, though PureCircle cautioned that it has no control over when these orders are fulfilled as they are dependent on their customers' launch schedules.

Taking a conservative view that some of these deals will be delayed until the next financial year, the company expects year-on-year sales growth for the full year will be at least 10%.

Last year sales totalled $127.4mln.

Strong improvements in profit margins are currently expected to continue across the balance of fiscal 2016 (FY16), such that, even if not all sales projects close in FY16, the company still expects net profit for the full year to be in line with consensus.

Some of this improvement in margins will be down to favourable movements in foreign exchange rates but, speaking to Proactive Investors, chief financial officer William Mitchell noted that at the halfway point of the year gross margin had improved by eight points to 42%, of which only three percentage points was due to forex movements.

“The larger balance was due to benefits of our innovation (more new products being commercially successful from the same stevia leaf inputs), and we expect this innovation-led improvement to continue to lead to improved volumes and margins,” Mitchell said.

Meanwhile, the company highlighted that developments in the global sweetener market have continued to favour the mid-to-long term growth prospects for stevia.

There have been further regulatory approvals for stevia, including in the densely populated countries of India and Brazil, while, of course, in Britain the government has proposed a tax on added sugar in soft drinks.

“The market for stevia and our sales activity both continue to grow strongly; however, as I said in March, the trajectory of our sales growth will be uneven and is dependent on the pace and extent of customer roll-outs,” said Magomet Malsagov, chief executive of PureCircle.

“Although the precise level of our short term growth is uncertain, our operating margins continue to strengthen, which gives us confidence in the increasing future profitability of the group," Malsagov added.

Mitchell reinforced that message, telling Proactive Investors that, although PureCircle would be a “very large mid-to-long term growth” story, the company has consistently said the short-term growth trajectory would “not be a straight line”.

Liberum Capital left its earnings per share estimates for the full year unchanged but trimmed its sales forecast to $147mln, which would still represent a 15% increase year-on-year.

“PureCircle's 3Q update makes three points. 1) 3Q sales rose in line with 26% growth reported in 1H16. 2) There is timing uncertainty in the greater than $40mln 4Q16 launch pipeline which may result in FY sales growth falling into low double-digits. 3) Even in this scenario margin improvement means that PC [PureCircle] is on track to meet FY16 consensus EPS of $0.13,” the broker said.

The company's desire to err on the side of caution in terms of the fourth quarter pipeline sent the shares 10p lower to 370p, but Liberum said any signs of share price weakness should be viewed as a buying opportunity.

“Rising pressure to reduce sugar in food & beverages and PureCircle's number one stevia position puts PC in a strong position to deliver substantial profit and cash flow growth which we do not believe is discounted by the shares,” the broker said.


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PureCircle Limited Timeline

September 21 2016
July 12 2016

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