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Clover share price rockets 19% higher on strong profit growth

In morning trade the Clover Corporation Limited (ASX: CLV) share price has stormed higher following the release of its full year results.

At the time of writing the shares of the provider of ingredients for infant formula and nutrition products are up 19% to a record high of $2.69.

What happened in FY 2019?

For the 12 months ended July 31, Clover continued its impressive form and delivered a 21.8% increase in revenue to $76.7 million. This was driven by new customers, new products, territorial expansion, and strong demand for infant formula ingredients.

On the bottom line, the company’s profits grew even quicker over the 12 months. Clover posted a net profit after tax of $10.1 million, up 33.1% on the prior corresponding period.

This was the result of the company winning the business of several new customers and distributors in FY 2019 after moving through their extensive qualification processes. Management advised that these processes began three years ago and are now delivering in revenue and profitability growth.

The company’s CEO, Peter Davey, said: “The company continues to focus on doing the right things to win new customers and providing excellent service to support and retain the existing customer base. We work with customers; visiting, providing expert technical help, and delivering the best products every time, on time. We combine excellent people with unique and technologically superior products. It’s not just one thing, it’s everything. We aim to deliver excellence across every aspect of the business – that is our competitive advantage in the market, and it shows in our continuing growth.”

Outlook.

Management advised that Clover continues to have a strong pipeline of opportunities to grow its market share in infant formula and to diversify into new adjacent markets.

However, it did warn that increasing competition is putting pressure on its margins.

It said: “Whilst legislation in Europe to increase DHA (docosahexaenoic acid) in IF (infant formula) in 2020 and likely similar changes in China in future years provide good prospects for growth, we are seeing pressure on margins due to increased competition. Clover expects to maintain its market position as reflected in the second half of FY2019.”

Although the margin pressures are disappointing, I think its positive long-term growth potential makes up for this and could make Clover a decent alternative to the likes of A2 Milk Company Ltd (ASX: A2M) and Bellamy’s Australia Ltd (ASX: BAL).

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James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of Clover Limited. The Motley Fool Australia owns shares of A2 Milk. 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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