CAM
17-07-2004, 12:53 AM
and for our agriculture industry.....
Bananas: The Next Starbucks
The Associated Press reported that Chiquita Brands (NYSE: CQB) is innovating with the hope to mimic Starbucks' (Nasdaq: SBUX) success in coffee. Chiquita wants to take the centuries-old banana, improve it, and sell it for a premium price.
The first generation of this strategy is already growing in the Philippines and marketed in Japan. The new highland banana is super-sweet. It is so popular in Japan that it commands a 100% premium and is quickly building market share.
Does "super-sweet" ring a bell? Fresh Del Monte Produce (NYSE: FDP) rose from an October 2000 low of $3.38 to a 2003 high of $29 on the success of its super-sweet pineapples. Del Monte, with less annual revenue, has a market capitalization 70% higher than Chiquita's. Del Monte proves that innovation, even in fresh food, can generate obese profits and sharply higher stock prices.
Quick look at Chiquita
Chiquita, at a market capitalization of $831 million, is a well-known brand name at a micro-cap price. It trades at a below-market 9 times trailing earnings and an estimated 7 times 2005 earnings. That's cheap.
Last quarter, bananas were 53% of Chiquita's total sales. Bananas pay the bills, and then some. Banana operating margins at 6.6% (down from 9.3% a year ago) were still enough to fund innovation, digest a European acquisition, and produce net income of $20 million.
Expanding operating margins will have an explosive impact on earnings. In a world where many stocks are priced at multiples of sales, Chiquita's enterprise value is 37% of revenue. That is not the valuation you would expect for a company with the potential for explosive profitable growth.
Short history of bananas
In the 1960s, the Gros Michel was the best-selling banana. A sterile, seedless banana, it was devastated by disease and replaced by the Cavendish -- the king of sweet bananas exported today. The Cavendish is also a sterile, seedless mutant (that sounds yummy, doesn't it?). There is no natural diversity at work here! Because of that, diseases could devastate it, too.
Don't worry -- your breakfast of Kellogg's (NYSE: K) Corn Flakes with fresh banana slices is not in jeopardy. There are more than 400 varieties of bananas, and researchers are working on new varieties that are disease-resistant.
Bananas have a short growing cycle, thrive in tropical locations, and grow in good soil or bad. They are tailor-made for experimentation, and Chiquita has promised not to take the genetic route that has gotten Monsanto (NYSE: MON) embroiled in controversy.
The new bananas
So, what could you expect to see from Chiquita? The company has signed an exclusive multiyear agreement with FHIA, a Honduras-based agricultural research organization, to provide Chiquita with the R&D it needs for new banana varieties.
Although the company has not disclosed what new flavours will be developed, it is logical to assume apple, vanilla, strawberry, and a "hint of lemon" will be among the choices. Why? These flavours already occur naturally in some banana varieties.
A surprise might be the colour of the new bananas. Nature already provides them in green/white (variegated), bluish/green, orange, yellow/green, green/red, and hot pink -- to name the more colourful. One word of caution, though. The hot-pink variety, besides being inedible, has seeds hard enough to break a tooth.
There is speculation that an "environmentally friendly" banana may be offered. Much of today's research is aimed at reducing the amount of chemicals needed to eradicate disease. New disease-resistant varieties might provide a premium-priced product for natural (organic) food vendors such as Whole Foods Market (Nasdaq: WFMI).
What the company has said is that it will start testing "a few" new varieties with consumers this year.
What's ahead?
With the success of the new sweet banana in Japan, and sweet pineapples around the world, consumers have shown a willingness to embrace new food varieties and pay a premium price.
The to
Bananas: The Next Starbucks
The Associated Press reported that Chiquita Brands (NYSE: CQB) is innovating with the hope to mimic Starbucks' (Nasdaq: SBUX) success in coffee. Chiquita wants to take the centuries-old banana, improve it, and sell it for a premium price.
The first generation of this strategy is already growing in the Philippines and marketed in Japan. The new highland banana is super-sweet. It is so popular in Japan that it commands a 100% premium and is quickly building market share.
Does "super-sweet" ring a bell? Fresh Del Monte Produce (NYSE: FDP) rose from an October 2000 low of $3.38 to a 2003 high of $29 on the success of its super-sweet pineapples. Del Monte, with less annual revenue, has a market capitalization 70% higher than Chiquita's. Del Monte proves that innovation, even in fresh food, can generate obese profits and sharply higher stock prices.
Quick look at Chiquita
Chiquita, at a market capitalization of $831 million, is a well-known brand name at a micro-cap price. It trades at a below-market 9 times trailing earnings and an estimated 7 times 2005 earnings. That's cheap.
Last quarter, bananas were 53% of Chiquita's total sales. Bananas pay the bills, and then some. Banana operating margins at 6.6% (down from 9.3% a year ago) were still enough to fund innovation, digest a European acquisition, and produce net income of $20 million.
Expanding operating margins will have an explosive impact on earnings. In a world where many stocks are priced at multiples of sales, Chiquita's enterprise value is 37% of revenue. That is not the valuation you would expect for a company with the potential for explosive profitable growth.
Short history of bananas
In the 1960s, the Gros Michel was the best-selling banana. A sterile, seedless banana, it was devastated by disease and replaced by the Cavendish -- the king of sweet bananas exported today. The Cavendish is also a sterile, seedless mutant (that sounds yummy, doesn't it?). There is no natural diversity at work here! Because of that, diseases could devastate it, too.
Don't worry -- your breakfast of Kellogg's (NYSE: K) Corn Flakes with fresh banana slices is not in jeopardy. There are more than 400 varieties of bananas, and researchers are working on new varieties that are disease-resistant.
Bananas have a short growing cycle, thrive in tropical locations, and grow in good soil or bad. They are tailor-made for experimentation, and Chiquita has promised not to take the genetic route that has gotten Monsanto (NYSE: MON) embroiled in controversy.
The new bananas
So, what could you expect to see from Chiquita? The company has signed an exclusive multiyear agreement with FHIA, a Honduras-based agricultural research organization, to provide Chiquita with the R&D it needs for new banana varieties.
Although the company has not disclosed what new flavours will be developed, it is logical to assume apple, vanilla, strawberry, and a "hint of lemon" will be among the choices. Why? These flavours already occur naturally in some banana varieties.
A surprise might be the colour of the new bananas. Nature already provides them in green/white (variegated), bluish/green, orange, yellow/green, green/red, and hot pink -- to name the more colourful. One word of caution, though. The hot-pink variety, besides being inedible, has seeds hard enough to break a tooth.
There is speculation that an "environmentally friendly" banana may be offered. Much of today's research is aimed at reducing the amount of chemicals needed to eradicate disease. New disease-resistant varieties might provide a premium-priced product for natural (organic) food vendors such as Whole Foods Market (Nasdaq: WFMI).
What the company has said is that it will start testing "a few" new varieties with consumers this year.
What's ahead?
With the success of the new sweet banana in Japan, and sweet pineapples around the world, consumers have shown a willingness to embrace new food varieties and pay a premium price.
The to