the rock, page-5

Yes, it is a great company that consistently flies under the radar, year after year. Over the last 2-3 years its exposure in the financial community has gotten better, but its nowhere near where it should be. I've said this before but I have a relatively high valuation on CLV (around $0.80). I've pushed this target out to 2014-2015 due to recent developments.

The key to the valuation is how well the company can leverage off its products and IP. For those long-termers who remember the initial Mead Johnson contract, it changed the business. Operationally it started to make millions with the prospects of growth as the demand grew. I believe they have a winning formula (no pun intended) here. If they can secure these sorts of contracts and build on these relationships there is no reason why we cannot look forward to NPAT figures in the double digits.

In the last few years I have come to better appreciate the product offering as I recently became a Dad. The market for infant nutrition is enormous - a billions market. I have realised that I am not the only young family who use these products. In fact, most people who can afford and can get access to infant formula use it even those who are stringent 'breast' only - i.e formula is used to subsidise. Its become a very important product in modern life. These sorts of trends are what I look for in an investment:
- Unique offering
- Unsaturated market
- Positive market trends
Clover has all of these. The encapsulation technology, an input to infant formula is always something we are going to need. We shouldnt forget that due to the technology the omega-DHA can be fortified in a lot of other products - like bread, cereals etc. As a young adult I eat that "Tip top with Omega" in it as I dont like Salmon for breakfast. I would really, really like to see management get more aggressive on this as the market is there. We have a competitive product that can take market share from the leader, Martek.

Having said all this I do have some critisms. I cant let the soy venture go and this is my primary gripe. This was a disaster from the start. It was a great idea to get it going as it provided horizontal diversification. It fit with the 'functional' food ethos, but there were delays in the build, delays in the start-up, ramp-up and then sales effort. Even when CLV took the management over from FFI they couldnt make it work. It was a bad initiative. I am waiting a conclusion on its sales as its dragged on from a business sale to an asset sale. I hope that when the assets are extinguished we can at least get back what we owe/put into it. When we opened it in 2005 it cost the JV 9-Mill (revised upwards from 8-Mill). In total including opex and capex my numbers look like we sunk circa 5.5-Mill into it:
- 2.5Mill CAPEX which was our share on inital equity capital
- and circa 3-Mill on shareholders loans.
CLV believes they invested 2.1 and 2.3 respectively as at FY10 close, but as I said, I personally believe it was more than this.

The NU-Mega business has been our saviour.