Clover Corporation Limited

CLV Details

FY 21 Financial Performance: Clover Corporation Limited (ASX: CLV) manufactures and distributes functional food ingredients that contain LCPs in the healthcare and nutrition space.

• Top Line Update: In FY21, CLV’s revenue nosedived by 32% and was registered at $60.5 million. Pantry stacking of FY20 and COVID-19 discrepancies in FY21 led to contracted volumes and revenue downswing.
• Bottom-Line: CLV reported EBITDA at $9.5 million (FY20: $18.9 million) and NPAT at $6.0 million (FY21: $12.5 million). Considerable margin drain was attributed to top-line erosion and 3% margin decline attributed to unfavourable forex headwinds.
• Financial Position: As of 31 July 2021, cash position stood at $9.09 million ($9.24 million PcP), and net debt stood at $3.99 million ($5.28 million PcP). Borrowings were continued to be repaid in line with loan terms. Additionally, the net leverage ratio moved up to 0.5x (FY20: 0.3x) due to the EBITDA dip.

FY21 Financial Snapshot, Analysis by Kalkine Group

Key Risks and Challenges

• COVID-19 Impact: The company’s activities were delayed due to COVID-19 restrictions resulting in widespread containment measures.
• Forex Headwinds: The company’s financial health and operations are susceptible to FX deviations amidst global operations in place.

Outlook

• CLV expects robust growth in healthcare and nutrition due to a robust global pipeline of new opportunities.
• CLV focuses on increasing vertical integration into its supply chain to improve customer service and create value through strategic acquisitions and partnerships for logistics.

Valuation Methodology: EV/Sales Multiple Based Relative Valuation (Illustrative)

Source: Analysis by Kalkine Group

*% Premium/(Discount) is based on our assessment of the company’s NTM trading multiple after considering its key growth drivers, economic moat, stock’s historical trading multiples versus peer average/median, and investment risks.

Stock Recommendation

The stock of CLV gave a positive return of ~10.39% in the past six months. The stock is currently trading higher than the 52-weeks’ average price level band of $1.170 - $1.980. The stock has been valued using the EV/Sales multiple-based illustrative relative valuation method and arrived at a target price of low single-digit (in percentage terms) downside. The company might trade at a slight discount to its peers, considering shredded top-line and unfavourable shareholder’s return. For valuation, few peers like Bubs Australia Ltd (ASX: BUB), Tassal Group Ltd (ASX: TGR), Select Harvests Ltd (ASX: SHV) have been considered. Given the significant pandemic impact, changing consumer preferences, declined interest coverage, high competition from pure-play retailers, declining operational metrics, valuation indicating downside, we suggest investors book profits and give a “Sell” recommendation on the stock at the closing price of $1.700, up by ~1.796%, as of 16 November 2021.

CLV Daily Technical Chart, Data Source: REFINITIV

Note: The purple line reflects the RSI (14-day period)

Note 1: The reference data in this report has been partly sourced from REFINITIV.  

Note 2: Investment decision should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the valuation has been achieved and subject to the factors discussed above.

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