FY20 result: Clover reports more strong growth, time to buy shares?

Clover Corporation Limited (ASX: CLV) has reported its FY20 result to investors, showing more strong growth.

Clover claims to have superior microencapsulation technology to enable nutritional oils (like fish) to be added to infant formula, foods and beverages. Its technology protects the oil from oxidation, allowing them to be incorporated into a range of applications.

Clover’s FY20 report

Clover reported that its sales revenue increased by 15.1% to $88.3 million. Management said that the improved revenue was thanks to new customers, new products and geographic expansion, whilst maintaining the base of the business.

The company saw revenue growth across all markets, with infant formula demand growth as well as increased interest in the health benefits of omega 3 fatty acids, leading to new products. The EU market has grown substantially as new and existing infant formula manufacturers adjust their formulations to meet the new EU standard for infant formula. The USA was showing promising growth, though many projects are on hold due to COVID-19.

The EBITDA (click here to learn what EBITDA means) rose by 35% with operating expenses only rising by 10.7% to $11.4 million.

Clover reported that its net profit after tax (NPAT) grew by 23.6% to $12.5 million. The company has continued to invest in research and development,

It increased its final dividend by 5% to 2.5 cents per share.

Melody Dairies

In 2019 Clover invested in Melody Dairies in New Zealand which has built a new nutritional spray dryer in Hamilton during 2020. Clover owns 42% of the Melody Dairies equity and access to 42% of the dryer capacity to manufacture its products. The construction of the spray dryer is complete with qualification trials progressing well. This will add much needed capacity and reduce risk, by supplementing production in Australia.

However, customer audits have been impacted due to COVID-19 preventing travel, which will slow volume initially.

Outlook

The company benefited from pantry stocking during FY20, with demand returning to normal. COVID-19 impacts could both positively and negatively affect Clover in FY21.

It continues to target new customers in Europe and it’s restarting new product development in the USA.

Clover said it’s increasing its vertical integration in the supply chain, establishing partners in supply and logistics. It’s also working on new products to access new markets and applications. Clover said its concentrated DHA powders have won additional business in a range of new applications including bread, yoghurt, health bars and sport nutrition.

The company may look to grow profit with a strategic acquisition and/or a partnership in the future.

Clover seems like a solid business. After falling around 10% at the open, Clover is valued at around 30 times the 2020 financial year earnings. It could be worth buying for the long term growth, though other ASX growth shares attract me more such as Pushpay Holdings Ltd (ASX: PPH).

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At the time of publishing, the author of this article does not have a financial or commercial interest in any of the companies mentioned.

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