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Clover Corporation share price jumps 6% on strong first-half result

The Motley Fool logo The Motley Fool 3/20/2019 Tim Katavic
Baby formula and bottle© Provided by The Motley Fool, Inc Baby formula and bottle

The Clover Corporation Limited (ASX: CLV) share price is up 6% to $1.81 in Wednesday trade following the release of its half-yearly earnings report for the period ended 31 January 2019.

Key highlights from today’s earnings release include:

  • Net sales revenue rose 10% to $34.3 million
  • Net profit after tax increased 40% to $4.5 million
  • Earnings per share grew 40% to 2.71 cents
  • Clover’s Microencapsulated Powders are continuing to gain market share
  • $6.2 million in cash at bank
  • A fully franked dividend of 0.625 cents per share was declared (ex-div on April 8).

This was a great result from Clover whose microencapsulation technology enables nutritional oils, such as tuna, fish, algal and fungal oils to be added to infant formula and a wide range of foods and beverages. The company has added new customers and applications which has resulted in a number of new products being launched over the last 3 years. These additions have managed to transform Clover’s business as evidenced by its surge in profitability over the last 2 years.

For the first half of FY19, product and customer mix were crucial in delivering revenue growth and improved profitability over the prior corresponding period. Top-line growth was driven by increased demand in Asia, Europe, and the Americas which offset the 8% decline in Australia and New Zealand. Operating expenses were well managed which improved EBITDA margin rates as the company’s bottom-line benefits from operating leverage.

Outlook

Clover noted in its release that based on current demand patterns and a stable infant formula regulatory environment it expects third-quarter order rates to be consistent with the level of sales recorded in the first half of FY19.

The infant formula market remains strong but some caution is warranted with the pending regulatory change in Europe and a slowdown in licensing from Chinese regulators that has caused some customers to reduce stock builds. Furthermore, a proposed change in formulation has also been drafted in China.

The Clover share price has now risen an impressive 182% over the last 12 months and has outperformed infant formula companies such as A2 Milk Company Ltd (ASX: A2M) and Bellamy’s Australia Ltd (ASX: BAL).

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Motley Fool contributor Tim Katavic has no financial interest in any company mentioned. The Motley Fool Australia owns shares of A2 Milk. The Motley Fool Australia has recommended Bellamy's Australia. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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