Clover milks it, but profit leaves watchers unmoved

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Clover said on Wednesday profit for the year ended June soared 82% to R345.6m as above-inflation price increases instituted on its product range last year more than offset rising input costs.

The total dividend for the year rose 75% to 56c.

Last year, Clover raised prices across its milk products by 18% to counter high-cost inflation.

Despite the higher dividend, Anthony Clark, a small caps analyst at Vunani Private Securities, said he had no intention of buying the share due to the unpredictability of the business.

"Historically, milk is a cyclical business (which) follows a three-to four-year cycle. In good times (when milk prices are rising), Clover makes money," Clark said. But when milk prices fell, as was currently the case, the company did not perform well.

Last year, Clover's profit declined by 21% as the weaker rand increased packaging costs and the consumer environment remained subdued.

"I don't expect Clover to have good earnings growth in 2016," said Clark.

He said factors weighing on earnings included the weaker rand and the decline of international milk prices.

Ron Klipin, a portfolio manager at Cratos Capital, also said the "volatility of the milk cycle" made Clover's earnings "impossible to project".

The supply glut in the global milk market was also of concern, Klipin said, given that "Clover does not have pricing power in the raw milk market".

Since June last year, the international price of raw milk has plunged by more than half due to excess supply. Clover said it had to lower its prices last month in response to the steep declines in global prices, as well as increased competition from Danone.

Between January and June this year, milk production was 10% higher, year on year, Clover CEO Johann Vorster said.

"Danone has acted aggressively to protect their market share," he said, adding that this pushed the group to lower its prices by 60c a litre.

Ian Cruickshanks, the chief economist at the SA Institute of Race Relations, however, praised Clover's "long-term planning".

"They are preparing to compete with new entrants even before they come," he said.

Clover plans to invest R470m on expansion into the rest of Africa next year and will spend R60m on improving its yoghurt production facilities.