Developing Synergistic Relationship Between Sugar Manufacturers And Stevia Could Prove To Have High Investment Potential

by: Glen S. Woods

Sugar and stevia blends may be the future for calorie-reduced food and beverage products. The consumers are clamoring for low or zero calorie natural substitutes for sugar or high fructose corn syrup (HFCS). However, they do not wish to sacrifice taste and texture. That is where sugar and stevia blends come into play. Sugar and stevia producers are working together to expand stevia products as they have discovered that by blending these two products together, be it sugar or HFCS with stevia extracts, they have been able to create a better tasting diet product. Thus, they can create mid-calorie products for consumers who do not wish to lose the taste and texture that sugar or HFCS can deliver.

Cargill's Truvia®, Merisant's Pure Via™, and Ingredion's (NYSE:INGR) Enliten® all now have sugar and stevia blend products on the grocer's shelf. Interestingly, stevia itself has also gone through a transformation as more companies enter the market. Companies large and small are tweaking the stevia plant to develop better tasting leaves that do not have the slightly bitter aftertaste of earlier stevia products. There's good reason for these companies to do so: it's big business.

According to an August 2011 report by the market research firm Mintel, the global market for stevia products was at $500 million by the middle of 2011, and the firm expects to see it continue to rise to reach $825 million by 2014. Below are some of the companies that are actively developing better strains of stevia for the consumer and all are worth a look at as possible stevia market plays.

Tate & Lyle (OTCQX:TATYY), the $6.48 billion market cap global ingredients and food solutions provider with over 30 production facilities around the globe introduced TASTEVA™ last month, a stevia product it had been developing over the past two years. TASTEVA™, the company claims, does not have any of the bitter or licorice aftertastes that have been associated with early stevia products. Tate & Lyle developed TASTEVA™ for both food and beverage manufacturers that are seeking sweetness from a natural source, but can also be used as a blend to reduce sugar levels by 50% or more.

Company research, including feedback from customers around the world, showed that TASTEVA™ delivered a clean sweetness and a clear taste advantage over Reb A 97 and other stevia ingredients across a wide range of food products, including beverages and dairy. Tate and Lyle plans to debut TASTEVA™ Stevia Sweetener in Latin America as part of Food Ingredients South America in São Paulo, then later in Frankfurt Germany as part of Health Ingredients Europe, followed by more regional rollouts in 2013.

Tate & Lyle, with their two global business units, Specialty Food Ingredients and Bulk Ingredients, are not newcomers to the artificial sweetener business with the zero calorie sugar substitute, Splenda®, as one of its products. Splenda® enjoys being the top selling sugar substitute with 45% of the non-nutritive sweetener business; and TASTEVA™, as a zero-calorie natural sweetener, should fit in nicely with its sugar substitute pipeline. Tate & Lyle will issue its results for the first half of the year on Thursday, November 8th. It expects to report adjusted operating profit for the first half to be in line with expectations and the prior year period, which benefited from an exceptionally strong performance from its co-products.

Tate & Lyle is a British company and is listed on the London Stock Exchange under the symbol (TATE.L) or on the American Depositary Receipts (ADR) under TATYY. Its sales in the first quarter of 2012 totaled $4.95 billion. The company's common shares are trading near the 52-week high, and it is a solid company with a great product portfolio, including Splenda®. The company has a solid yield of 3.38, just slightly above the sector average of 3.10, and a low PE ratio of 11.54 compared to the sector average of 21.1. Earlier last month the Jefferies Group upgraded Tate & Lyle from a hold to a buy. If TASTEVA™ becomes a successful product and the stevia boom continues, look for the company's sales to continue to increase and consider this company's stock as an option to have in your portfolio.

PureCircle LTD, (PURE.L) on the London Stock Exchange and (OTCPK:PCRTF) in the U.S., is another British company and is the largest stevia processor in the world. This $573 million market cap company continues its efforts in developing a better tasting stevia product. Earlier this year PureCircle received a Notice of Allowance from the U.S. Patent and Trademark Office for its patent application for a new high-yield variety of stevia. Earlier, PureCircle teamed up with The Imperial Sugar Company to create Steviacane®, a sugar and stevia blend with 1/3 the calories of regular sugar. Steviacane®'s applications can be used in beverages hot or cold, and baked goods without sacrificing taste or texture.

In September, PureCircle entered into two agreements with Coca-Cola (NYSE:KO), one that is most interesting: to investigate and develop stevia for food products, which would clearly expand stevia's use beyond mostly sweetening drinks. The other would be for a supply line of the actual product delivered to Coca-Cola. PureCircle has added to its pipeline some new natural flavor and sweetness enhancers called PureCircle Flavors, designed to work by combining sugar or HFCS and stevia to deliver a reduced-calorie, better tasting natural product at a lower cost.

PureCircle, though having farmers in various countries grow its stevia plants, is technically not a grower of the product; therefore, it can be subject to supply line issues. PureCircle may feel as though it has addressed that issue when it entered into a five-year agreement with S&W Seed Company (NASDAQ:SANW) out of Five Points, CA. S&W Seed, known as an alfalfa grower, entered the stevia growing business in 2009 when it began researching stevia varieties from the standpoint of vigor, potential yield, leaf quality, and taste characteristics for commercial planting and cultivation. In early 2011, S&W Seed began growing its stevia product on its 114 acre farm in Chowchilla, CA, and recently planted an additional 150-acre second-generation stevia field using a variety it felt was superior to its first planting.

Though the agreement can be a positive step in securing quality stevia, it does still leave a void in the supply line. When one considers most stevia growers are small farms in China, Vietnam, and other countries dotted around the world, it becomes evident that the issue still remains with supply as well as consistency of taste. And as the popularity of stevia continues to rise, will S&W Seed's 264 acres be enough to guarantee supply? It's doubtful. So I would look for PureCircle to find other growers that might be able to bolster its supply.

Stevia First Corp. (OTCQB:STVF) may be the company that could be able to fulfill the stevia supply concerns. This nano-cap company plans to grow stevia in the US on an industrial scale, and has taken to social media to get its company message across as the company announced it intends to provide information and insights on industry news and topics of interest to financial advisors, investors, and journalists through its website. The implementation of Stevia First's CEO Blog is designed as a forum so that readers can better understand the strategic and tactical activities that the company is undertaking. This $21.7 million dollar market cap agricultural biotechnology company is taking a different approach to growing, manufacturing, and selling stevia. Its approach is a two-fold plan.

The first is to cultivate the actual stevia plants while cross-breeding high- grade stevia seeds and seedlings to produce disease-resistant plants with leaves that have a higher content of rebaudioside A (Reb A). And the second is through a licensed fermentation process that is designed to more efficiently produce the sweet Reb A from stevia while assuring even consistency in the product, which is something that has been an issue with growers around the world. This fermentation process gives Stevia First the ability to significantly diminish the need to grow the entire stevia plant and may even eliminate the requirement for the stevia plants totally. Vineland Research and Innovation Centre, the Canadian company which licensed the technology, developed the technology of producing the stevia through fermentation-based technologies and are capable of converting low-cost plant materials into sweet steviol glycosides.

Thus, it is possible to produce the sweet extract through a method other than the growing the entire plant and extracting the sweet Reb A from the leaves, saving space, time, and costs. Extracting the Reb A from the stevia leaves accounts for about 70% of the cost of developing the product. With the fermentation method potentially bypassing the extraction process, there can be an abundant amount of Reb A produced with minimal costs-and if this process proves successful on an industrial scale, Stevia First could be one of the major players in stevia production.

Today the stock trades just over $0.43, quite a discount from earlier numbers. However, swings are consistent with small development companies where the stock moves mostly on news rather than sales. The news can come in a variety of forms, be it a new concept, a possible partnership agreement, a possible takeover bid, or potential customers and sales. Stevia First is a development-stage company, which is developing a much-needed product, and has the space and technology to advance beyond development into being a major producer in the stevia business.

With its social media-savvy attitude, this company appears to be rather proactive in expanding itself and getting the word out about its product, and might just be the stevia company that is well worth a second look. But I do advise caution, as this is a volatile company with high risks along with its possible high rewards. As with all micro cap companies there is a higher level of associated risk with STVF and that has to be considered before making any investments.

As the market research firm Mintel pointed out in the aforementioned 2011 report, stevia is a growing commodity-and with companies now developing sugar and stevia blends, the market should continue to grow at a rapid pace. Clearly there will be a need for companies to meet the demand both in growing the plants and extracting the desirable Reb A extract. The verdict is still out on is which company can bring the best return on one's dollar. If Stevia First is able to develop its fermentation process and cultivate a sweet customer base, there is tremendous room for growth…and it might be the company for a pure stevia play that could yield excellent returns on investment.

Interested investors are advised to perform additional research into each of the above companies. Each offers something a little different with regard to exposure to the growing presence of stevia in the American diet. Suggested starting points are the companies' websites: Tate & Lyle, PureCircle, S&W Seed Company and Stevia First Corporation.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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