Comvita - CVT

[Catalyst]

There's been a couple of positive comments from CVT lately...

1. Earnings for the first three months of FY12 are better than the last two years despite the currency headwinds.
2. The company are forecasting that it is "going to have a significantly better financial result in 2011/12."
3. Medihoney milestone payment of US$1m from Derma due this month, plus ongoing royalty payments.
4. It looks like the company will negotiate an out-of-court settlement on its UK medical patent, which is likely to result in a recovery of some costs already expensed and a reinstatement of its patent.

Technically, CVT has today bounced off previous resistence at $1.57/58, which should now be a level of support.

Fundamentally, CVT is currently trading on a forward PE of 10.0x ($1.69/($5m/29.7m)) and an EV/EBITDA of 5.2x ($1.69x29.7m + $6.9m)/$11m. (Assuming CVT achieves FY12 EBITDA of $11m and NPAT of $5m -> the same as in FY10).

[sharer]

Recently watching MaoriTV (always worth checking their programmes), saw a substantial report about Comvita. Was pleasantly surprised to see they have a much larger range of products in the market than i appreciated. Mostly they seem to have been concentrating on getting business established overseas, & it looks like there is a strong push to develop & market "cosmetic" type products as well as the "medicals". As mentioned earlier the "medical" products (esp. aids to chronic ulcer & wound healing) are likely to be very profitable, & recent regulatory approvals very significant. As a "2nd string" the cosmetic & beauty unguents could also be very profitable, as a market accustomed to paying ridiculous prices for anything a touch exotic. Comvita also seem to be developing new products for the "healtherys" fad markets, & this also looks like a potentially lucrative diversification. Besides the famous manuka honey, they've spent a lot on getting into growing olives, & extracting magical substances to sell expensively, another clever diversification probably. Until i saw the programme on TV i didn't know they were making such good progress in developing their own plantations of manuka, based on tested & high "UMF" yield plants, to ensure they have their own independent source of supply. Obviously an intelligent and longterm plan for developing the business is in place, & just starting to yield benefits.
The only serious caution seemed to be doubts about how hard (& expensive) it might be to secure patents and exclusive rights. I wondered if the original intellectual property (relating to UMF assays, research at Waikato Univ, etc etc) might actually now be just interesting history (most disastrously so far in the legally expensive UK clash), and that for investors information about their newer products. and their science directed plant breeding programme, maybe most relevant.
Anyway, i decided to take CVT off my potential Sell list, and feel happier now just to wait & see what happens in the next year or two.
Sharer.

[Catalyst]

Wow, big profit upgrade from CVT...forecast NPAT to be around $7.8m for FY12 (midpoint of guidance range).

I value CVT around the $3 mark, based on...

PE of 13x = 13 x $7.8m/29.7m shares = $3.41
EV/EBITDA of 7x = (7 x $15m EBITDA - $18.9m net debt) / 29.7m shares = $2.90

[Blendy]

grrr, these were on my list to buy this morning, and then i had to pop out and missed out!!!

[Catalyst]

A $2 entry price is still not bad IMO Blendy....not as good as this mornings $1.77 but if the company can achieve its profit figures then it should continue to rerate up.

[Catalyst]

Some bullish technical signs to back up the fundamental view:

CVT smashed through previous resistance of $2.00. This should now, theoretically, be a level of support (a nice round number).

All of the high volume days in the last four months (>= 100k shares traded) have corresponded with up or flat share price movements ie. CVT is being accumulated. This is backed up by a rising OBV indicator.

[evander]

takeover offer $2.50.

[CAM]

Cerebos New Zealand has launched $71.6 million bid to acquire medical honey products manufacturer Comvita.
The offer values shares in the Bay of Plenty-based company at $2.50 apiece, according to a statement from the company, representing a 19 per cent premium on yesterday's closing price of $2.10.
The deal is conditional on gaining a 90 per cent acceptance rate form Comvita's shareholders.
''If the offer is successful, Cerebos intends to de-list Comvita and operate it as a Bay of Plenty-based subsidiary company on a largely standalone basis,'' said Trevor Kerr, chairman of associate company Cerebos Gregg's.
Cerebos operates a number of brand names in New Zealand including Gregg's, Robert Harris, Bruno Rossi, Atomic and Caffe L'Affare coffees among others.
It recently invested in a $13 million expansion at Dominion Salt in Mt Maunganui and is currently making a $6 million investment in an instant coffee producing plant in Dunedin.
''We are committed to the long term by providing the funds necessary to grow the business, like we do Atomic, Caffe L'Affare and Dominion Salt,'' said George Crocker, chief executive of Cerebos' food and coffee division.
''In particular, we can provide strategic assistance in sales and marketing in Asia where the Comvita brands are not yet well established.''
Cerebos New Zealand and Cerebos Gregg's are wholly owned subsidiaries of Cerebos Pacific, the Singapore-based food and health supplements company.

[Catalyst]

I can't see it succeeding at $2.50.

Based on the company's FY12 NPAT guidance of between $7.3 - $8.2m, the offer price of $2.50 corresponds to a PE ratio of between 9.0x - 10.2x and an approx EV/EBITDA ratio of between 5.9x - 6.6x.

[CAM]

Comvita spurns hostile Cerebos bid
http://www.nzherald.co.nz/business/n...ectid=10758983

Manuka honey-based wound care maker Comvita is urging shareholders not to accept a $71.6 million offer to buy the company from Cerebos New Zealand, the local bid vehicle of Singapore-listed Cerebos Pacific.
Chairman Neil Craig told investors the offer is "unsolicited, unwelcome, opportunistic and your directors have reason to believe this offer undervalues Comvita by a considerable margin."
In a letter to shareholders, he advises holding onto their stock pending further advice from directors, and said the company is on the verge of reaping the rewards of long-term planning.
"The directors consider that Comvita's current share price on the NZX does not fully reflect the value of the company and the potential to increasingly reward shareholders from this year onwards," Craig said.
"This offer by Cerebos is an opportunistic attempt to capture the benefit of the company's innovation and hard work that our loyal and patient shareholders deserve."
The rebuff comes after the Cerebos vehicle made an offer of $2.50 a share for Comvita, a premium of 19 per cent to yesterday's closing price, in a bid to take control of the local manuka honey-based wound care manufacturer and delist it.
Cerebos plans to operate the company on a standalone basis, and says it will look to use its links into Asia to market the brand into one of the fastest growing regions in the world.
"Cerebos would be looking to explore areas of collaboration," sister company Cerebos Gregg's chairman Trevor Kerr said in a statement.
"In particular, we can provide strategic assistance in sales and marketing in Asia where the Comvita brands are not yet well established."
Comvita's shares were unchanged at $2.10, and have surged 42 per cent this year, valuing the company at $62 million by market capitalisation.
The stock is rated a 'buy' by the one analyst who follows the company, according to Reuters.
The offer comes a month after Comvita settled a patent dispute with Brightwake, where it granted a sub-licence to the British rival letting it manufacture, distribute and sell its Algivon brand in territories where the Comvita subsidiary Apimed Medial Honey has patent protections.
As part of the settlement, Comvita avoided a 226,000 pound payment.
The Te Puke-based company expects annual profit of between $7.3 million and $8.2 million, with sales likely to be between $91 million and $95 million.
Cerebos Gregg's, whose local brands include Caffe L'Affare coffee, Bisto gravies, and Raro drink powder, recently invested $13 million to expand facilities in a joint venture at Mount Maunganui, and is spending $6 million on the country's only instant coffee producing plant in Dunedin.
"We believe the business has potential which can only be fulfilled by an increased investment in research and development and brand building - even at the expense of short to mid-term profitability," Kerr said.
The offer is conditional on Cerebos reaching 90 per cent acceptances to force the compulsory acquisition of the remaining shares, and let it delist the company.
If it falls short and decides to declare the takeover unconditional, it will "seek appropriate representation on the Comvita board and will participate in decisions relating to Comvita and its future through the Comvita board," according to the offer document.

Shares in the parent Cerebos Pacific fell 0.6 per cent to S$4.78 on the Singapore Exchange yesterday, and have dropped 2.4 per cent this year.
The company has a market capitalisation of US$1.19 billion.