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Mid-Cap

Is Vitaco Holdings destined to set the ASX on fire like star-performer Blackmores?

October 05, 2015 | Team Kalkine
Is Vitaco Holdings destined to set the ASX on fire like star-performer Blackmores?

Blackmores Limited


FY15 performance highlights:

Blackmores Limited (ASX: BKL) reported a revenue growth of 36% year on year (yoy) to $471.6 million in FY15, mainly driven by the Asian business growth. Accordingly, BKL reported an 83% yoy growth in net profit after tax to $46.6 million during the period. The group’s core business also contributed to the growth, wherein Blackmores Australia improved profitability by 88% yoy while sales surged by 43% yoy to $317.4 million. This growth was mainly underpinned by the retailers and the group’s 20% better investment on integrated brand activity had also paid off. Chinese consumers and entrepreneurs also supported Australian business growth. Blackmores launched 170 new products and range extensions during the period, and was recognized as the Most Trusted Brand for the seventh consecutive year. BKL reduced its net debt by 87% yoy to $7.1 million and even doubled its operating cash flow. Subsequently, the group’s net assets per share improved by 38% yoy to $5.27 during the period.


 
Reported stellar Fiscal year of 2015 performance (Source: Company reports)
 

Solid growth from Asia:

Blackmores Asia played a key role in delivering excellent performance by the group, wherein Asia revenues rose by 26% yoy to $84.0 million. Earnings before interest and taxes surged 82% yoy to $8.3 million in FY15 for Asia. Meanwhile, Blackmores Malaysia sales improved by 10% yoy while it’s EBIT rose by 22% to $3.3 million. On other hand, the group’s Thailand business continues to pose pressure, wherein its revenues and EBIT fell by 7% and 27%, respectively, on a year over year basis. But China sales generated solid growth during the period, driven by the Wholly Foreign Owned Enterprise which was formed last year. BKL leveraged the free trade zones opportunity in China and secured a license to directly trade within the zone. Accordingly the group had been improving its Chinese shoppers for its products via Australian retailers. Including China sales, Asian consumers added over $150 million to the firm’s sales during the FY15. To leverage this booming opportunity, BKL has been making solid marketing efforts and has even tied up with the tennis star, Li Na to become its brand ambassador in China.
 

Dividends, Net Debt and Earnings per Share (Source: Company Reports)
 

Generated outstanding returns:

Blackmores Limited shares generated excellent returns this year, delivering more than 314% returns in this year to date. The final dividend of 135 cents per share took the total dividends to 203 cents indicating a 60% rise. Management intends to continue maintaining BKL’s growth by strengthening relationship with consumers, enhancing connectivity to customers and growing its digital presence. BKL intends to continue its investments in Asia and to, in fact, invest to cater the customized needs of the consumers. The group continues to focus on innovation leveraging its expertise in Blackmores Institute and BioCeuticals, while operational efficiency remains a priority.


BKL Daily Chart (Source: Thomson Reuters)

Vitaco Holdings

IPO highlights:

Vitaco Holdings Ltd (ASX: VIT) stock was listed on September 17th 2015 and has delivered over 14.3% since than till date (as of Sep 30, 2015). This natural health supplement and specialist food and beverage manufacturer raised over $231.6 million worth of capital via a totally underwritten initial public offering priced at $2.10. The offer comprised 110.3 million shares (which would comprise over 79.3% of the shares during the issue and on completion of the offer) and were underwritten by JP Morgan and Citigroup Global Markets.


Manufacturing (Source: Company Reports)

Solid growth potential:

Vitaco Holdings distributed its product portfolio under two main divisions. Vitamins and Supplements and Sports and Active Nutrition is segmented as one division which comprises brands like Nutra-Life, Healtheries and Wagner. Health Foods is segmented as another division which consists of brands like Abundant Earth, Aussie Bodies, Balance, Bodytrim, Musashi and Healtheries. Vitaco Holdings built a solid base in Australia and New Zealand markets with major clients like Coles, Woolworths, Chemist Warehouse and Progressive Enterprises and Foodstuffs.


FY16F Pro forma net revenue by channel (Source: Company Reports)

Vitaco reported a revenue growth of 8.6% during fiscal year of 2015 on a year over year basis while EBITDA improved by 9.1% yoy during the same period. Moreover, the group estimates a better growth ahead and accordingly anticipates its revenues to improve by 22.6% yoy to $211.3 million during the fiscal year of 2016, driven by domestic markets business growth. VIT expects its EBITDA to grow by 15% yoy to $23.7 million in FY16. Meanwhile, Vitaco shares rallied over 31% since its IPO touched a peak price of $3.03 on September 24, although the stock could not sustain these levels.


Dietary Supplement Retail Sales (Source: Company Reports)

We believe that the stock has the potential to become the future Blackmores given its performance and the contribution from its core Australia and New Zealand business along with ability towards setting a global footprint (such as ability to penetrate the China and Brazil markets). Primarily, we are of the view that VIT stock has the potential to deliver outstanding performance in the coming months and accordingly, we give a “BUY” recommendation on VIT at the current stock price of $2.770.


VIT Daily Chart (Source: Thomson Reuters)

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The information given by Kalkine Pty Ltd ABN34 154 808 312 (Australian Financial Services License Number 425376) on this website is general information or advice only.

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