The increasing popularity of natural medicines and homeopathy among health-conscious baby boomers has made ginseng growers optimistic about future earnings. So are investors.
Once considered to be a herb primarily used in Asia, ginseng is now winning over people who believe it helps reduce stress, enhance stamina and increase virility.
Demand for ginseng is climbing. In 1996, 2.3 million kilograms were harvested in North America, compared with two million in 1995.
Eric Lau, an analyst with Brink Hudson Lefever Ltd. in Vancouver, said the industry's fundamentals are solid, although investors are only now beginning to see potential in the stock.
"I think one of the reasons the story doesn't sell in North America is because people perceive these companies have too much Asian exposure," he said.
The ginseng market in North America is now worth more than $300-million (U.S.) and analysts expect annual growth of 20 to 25 per cent as demand increases.
The most most popular stock picks are Chai-Na-Ta Corp. and Imperial Ginseng Products Ltd.
While most of the ginseng stocks are down, analysts expect them to rise with demand for the product over the next 12 months. Chai-Na-Ta, which recently hit a 52-week low of $8.50 (Canadian) on the Toronto Stock Exchange, fell 22.3 per cent last year, while the TSE 300 index rose 25.7 per cent.
Chai-Na-Ta closed yesterday at $12.70, down 5 cents on the day.
Imperial Ginseng , which trades on the Vancouver Stock Exchange, dropped 37.5 per cent last year, while the VSE rose 48 per cent. The stock closed yesterday at $7.20, up 25 cents on the day.
Stanley Lanzet of Lanzet Global Securities Corp. in New York said he has an 18- to 24- month stock price target of $26.70 for Imperial Ginseng .
"The whole case for this company hinges on the supply and demand for ginseng over the next three to four years," he said.
"We think the price of ginseng will do extremely well and, fortunately, Imperial ginsengg has a lot of acreage coming on."
Both companies grow ginseng and make value-added products such as vitamins, tea and candy. "In North America, the trend toward natural supplements is growing tremendously," said Gerry Gill, president and chief executive officer with Langley, B.C.-based Chai-Na-Ta.
Chai-Na-Ta is North America's largest ginseng grower, with 1,410 acres under cultivation. It recently announced a record ginseng root harvest of 300,000 kg, a 37-per-cent increase from 1995. Imperial Ginseng , based in Vancouver, has 560 acres under cultivation.
Brink Hudson's Mr. Lau rates both companies as "speculative buys."
"I'm still positive on ginseng because consumption of herbal products is strong," he said.
Mr. Lanzet said Imperial Ginseng 's stock has been weighed by disappointing financial results.
In the first quarter ended Sept. 30, its loss narrowed to $564,051 or 38 cents a share from $797,678 or 54 cents a year earlier. Revenue was $128,000, compared with $188,000.
Chai-Na-Ta had a loss of $36,000 or nil cents a share for the nine months ended Aug. 31, compared with a profit of $1.2-million or 8 cents a year earlier. Revenue, however, rose 17.8 percent to $11.3-million from $9.6-million.
CEO Mr. Gill said Chai-Na-Ta wants to boost sales and profits by focusing on value-added products that have higher margins. A key part of the strategy is penetrating non-traditional outlets such as drugstores and discount retailers.
Chai-Na-Ta is also looking to improve growth in Asia where rising living standards, particularly in China, have made the purchase of ginseng much more affordable.
Chai-Na-Ta and Imperial Ginseng are upbeat about Asia because North American ginseng commands a premium price of five to 10 times Asian ginseng .
Michael Shea, an analyst with Sutro Co. in Portland, Ore., said Chai-Na-Ta is a "buy" because it is the largest grower in North America and well-positioned to capitalize on its increased use.
"The stock is selling at eight times earnings and sales have been growing at 30 per cent a year
over the past four years while net income has grown over 20 per cent," he said.
Mr. Shea said the big challenge going forward for Chai-Na-Ta is how much success it will see from its value-added products given the amount of time and money being spent to develop the business.
SOURCE : The Globe and Mail
1997. 02.
|
Newsdesk