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Clover's cup runneth over

Nov 29 2010 16:25 Marc Ashton

Company Data

TIGER BRANDS LIMITED [JSE:TBS]

Last traded 311.01
Change -1.56
% Change 0.00
Cumulative volume 58476
Market cap 59.68bn

Last Updated: 28/08/2014 at 12:02. Prices are delayed by 15 minutes. Source: McGregor BFA

BHP BILLITON PLC [JSE:BIL]

Last traded 336.83
Change -7.23
% Change -0.02
Cumulative volume 942822
Market cap 719.53bn

Last Updated: 28/08/2014 at 02:33. Prices are delayed by 15 minutes. Source: McGregor BFA

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THE listing of dairy products company Clover is apposite to what's happening globally, and local investors ought to wake up and smell the coffee (with milk). 

Just ask Marius Kloppers, CEO of BHP Billiton [JSE:BIL] , who tilted at Potash Corp, a manufacturer of fertiliser in a R45bn deal, most recently torpedoed by antitrust authorities.

Not convinced? What about Marc Farber – Dr Doom and an exalted contrarion investor – and his peer Jim Rogers, who believe the global agribusiness has the characteristics of the oil industry where there’s a growing supply deficit, most notably in China.

Industry research suggests global demand for dairy products is expected to increase 50% over the next 10 years, and will double by 2050.

This is the industry into which Clover will feed.
 
Clover is cheap on a straight price to earnings (PE) basis. It also has a solid operating track record stretching back to the early 1900s, and with milk producers comprising 85% of its shareholder base, it has the look and feel of an agricultural cooperative.
 
The shareholder base is important. What the company loses in potential corporate action flexibility, it makes up in a set of shareholders who are going to want solid dividend yields. Therein lies the appeal of Clover listing in this environment. 

Provided they don't paralyse Clover with internal squabbles, there is room to continue to consolidate the dairy products industry.

In 2008, there were 3 665 milk producers, but by October 2008 this figure had slipped to 2 698. Make no mistake, there are rapid changes taking place here.
 
The chairperson of the Milk Producers Organisation (MPO) has already noted that the listing won't have a short-term impact on the price of milk.

Long term, however, there’s going to be demand for better profit-making that will further drive the price of milk to both suppliers and consumers. 
 
Critics say the diary products industry is inefficient relative to a company such as Tiger Brands [JSE:TBS], which has worked hard on optimising its brands and supply chain.

Yet management at Clover says its primary motivator for the listing is to raise cash to make itself more efficient and improve its cost base.
 
There are signs the industry is already streamlining.

Since 2007, there has been a slight decrease in the number of staff employed by Clover with 6 362 now employed compared to 6 776.

Over the same period, profits have soared, going up to R330.8m in 2010 from R167m, indicating the company is driving efficiencies.
 
Industry experts say demand for milk products will rise as diets become westernised in emerging markets.

Initially untidy perhaps, but Clover is an attractive play for the long-term investor.

- Fin24

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