Friday, September 28, 2012

Pure Play in Fast Growing Stevia Sweetener Product


Part II:  Upstart Stevia First (STVF) joining agri-giants Archer Daniels Midland (ADM), Cargill and Tate & Lyle (TATE) in lucrative sweetener market.

 
My article “Stevia Muscling into $58 Billion Sweetener Market” (September 25, 2012 post) outlined the turmoil in the market as sugar refiners and corn syrup producers argue over nutrition and nature.  Meanwhile a new, natural sweetener made from the leaves of the stevia plant is rapidly gaining market share.

The market could shift to stevia at faster rates if supply issues could be resolved.  Today nearly all stevia is grown and refined in China and South America.  The plant will not grow from seeds and must be painstakingly propagated in greenhouses and transplanted into fields.  So far production is limited and costs for stevia remain higher than sugar or corn syrup. 

 
New Player on the Field Taking Aim at Quality, Costs

Short supplies and high production costs translate into opportunity for any company with stevia knowhow.  Stevia First Corporation (STVF:  OTC/BB) based in California is one of several new entrants to the stevia alternative sweetener market.  A developmental stage company, the Stevia First management team has lengthy experience in California’s agriculture sector and hopes to tap its connections and expertise to become one of the first major U.S. stevia growers and refiners. 

The company is presently conducting field trials to perfect mechanized cultivation and harvesting of the stevia shrub, both aimed at cutting down on the steps that represent as much as 70% of stevia costs.  Stevia First is also designing a pilot extraction facility that will enable it to more efficiently tap the plant’s sweetening secret called “steviol glycocides” from the harvested leaves.  The extraction process will rely on organic solvents followed by refinement and crystallization steps.

Stevia First is also pursuing a fermentation-based process to produce Rebaudioside A, the sweetest of the stevia glycocides.  The process begins with a yeast or other microbe that over expresses enzymes elemental in steviol.  The fermentation alternative eliminates the need to grow and harvest the stevia plant.  The company has begun process optimization studies at its lab in Yuba City and hopes to publish data on in early 2013.  While not yet proven Stevia First management believes the fermentation route to stevia glycocides could lead to more consistent flavors from lot to lot as well as reduced aftertaste compared to extractions from stevia leaves.

The novel fermentation alternative has been licensed from a horticulture research group in Canada, Vineland Research, which has given Stevia First exclusive use of the technology and is also providing consulting services to the company.  If perfected, the process could give Stevia First a clear edge in the fast growing and supply starved market for high quality steviol extracts and finished products. 

With both farm and fermentation-based sources, Stevia First is hopeful it can bring large quantities of no-calorie sweeteners to the market.  Once stevia glycocide supplies are assured, Stevia First plans to formulate and brand its own stevia products.  The management team not only has smart agronomists and stevia experts in its ranks, several members of the group have marketing and brand development expertise.  Robert Brooke, the company’s chief executive officer, is confident the group can become a successful vertically integrated participant in the stevia market.

 
Formulation for a Stevia Pure Play

All-natural stevia appears to be the fastest growing segment of the sweetener market.  However, none of the established players the sweetener game presents a stevia pure play.  For example, both agriculture giant Cargill and food ingredient conglomerate Archer Daniels Midland (ADM:  NYSE) sell stevia products, but sweeteners of all types are minor contributors to their respective total sales.  UK-based PureCircle (PURE: London) is among the largest stevia growers, but also sells flavorings and other sweetener enhancers.   To tap into stevia growth on a stand alone basis, investors will need to take on a bit of risk with a developmental stage company like Stevia First. 

As an early stage company Stevia First has yet to book any sales and it has a modest balance sheet.  Stevia First reported $917,146 in total cash on its balance sheet at the end of June 2012.  The company used just over half a million in cash in the June quarter.  However, management believes it can trim back its cash usage to $100,000 per month and stretch its piggy bank well into 2013.

Stevia First has not been a public company for long. It was merged with a public shell in October 2011 and its shares began trading under the symbol STVF less than a year ago.  The company raised $1.3 million in new capital through the sale of common stock in the private equity market in February 2012.  No matter how frugal management is over the next few months, I believe it is more likely than not that Stevia First will need to open the door for new investors again. 

The sweetener market is in a bit of turmoil with heated competition.  As the big guys battle in the court room, I believe it is a timely for an upstart like Stevia First to enter the market with new products and new technologies.


Please note that at the current price level STVF can be considered a micro-cap stock. Micro-cap stocks are characterized by price volatility, low trading volume and wide bid-ask spreads. This makes micro-cap stocks appropriate only for risk-tolerant investors. 

Neither the author of the Small Cap Strategist web log, Crystal Equity Research nor its affiliates have a beneficial interest in the companies mentioned herein.

 

3 comments:

andrew fields said...

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Stevia flavored drinks said...

I would love to try stevia products.

QUALITY STOCKS UNDER 5 DOLLARS said...

I did not realize the market for sweetners was 55 billion dollars.