Neptune Shares Should Continue to Push Higher on Increased Product Demand

Jun.24.11 | About: Neptune Technologies (NEPT)

By M.E. Garza

On Wednesday, Neptune Technologies & Bioressources (Nasdaq:NEPT) (TSX-V:NTB) made an important announcement that should drive share prices higher as the news is digested and revenues begin to impact the balance sheet.

According to company officials, Neptune Technologies has signed contracts with two large U.S. distributors that management believes will increase demand for its Neptune Krill Oil product by nearly 50%. The company is significantly enhancing its presence in the US Food, Drug, Mass and Clubs Sales Channels and has finalized agreements with two major US distributors to sell Neptune Krill Oil through their well established network of US national retailers and wholesalers. Neptune CFO Andre Godin said:

We now have even more influential partners with clear vision and extensive resources to build strong brand recognition amongst the largest retailers.

Now Neptune Krill Oil (NKO) will be in Costco - among other giant retailers - competing with rivals such as Schiff® MegaRed® Omega-3 Krill Oil.

According to estimates they will see a "minimum" demand from the new distributors of 50 thousand kilograms per year, compared to Neptune's current annual production of 130 thousand kilograms, the news release stated.

While the two distributors were not yet identified, together they are said to hold 30% of the U.S. nutraceutical market, supplying 54 thousand retailers which in turn serve over 100 million U.S. customers.
An agent who helped put the substantial deal together, Bill Van Dyke, CEO of B&D Nutritional Ingredients, said he chose to work with Neptune because it was "the best krill oil manufacturer," on the market.

To meet the new demand, Neptune also announced it launched a plant renovation at its Sherbrooke facility that will eventually double its current plant capacity.

This important incremental US market presence is consistent with Neptune's overall business strategy of sustained revenue growth in the nutraceutical business. The increased demand generated by the two new distributors is also in line with the plant capacity expansion which will commence shortly. The new state of the art plant add on will more than double the existing capacity and not affect the current production. Frederic Harland, Finance Director of Neptune said:

The Plant capacity increase will shortly contribute to sustain the continuous strong growth of Neptune. It is very important to also underline that the expansion will be done without a plant shutdown.

We continue to like Neptune as an investment just as much as when we recommend the stock-- back when it was trading at around the $2.50 per share level. Especially since the company has several forward looking catalysts, including a pending partnership with Nestle and Yoplait, which are rumored to be on the way. Remember also that Neptune is also waiting for word from Health Canada on their CTA for a Phase II clinical trial which could come any day.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.