Blackmores Limited

¹Ratios such as P/E, EPS, ADY are on Trailing Twelve-Month basis, which are subject to change based on certain factors such as company performance, and stock price changes.

²ROE has been taken for the Half-Year Ending December 2021.

BKL Details

This report is an updated version of the report published on 17 June 2022 at ~3:52 PM GMT

Blackmores Limited (ASX: BKL) is engaged in manufacturing ad supplying vitamin, herbal, mineral supplements and natural skin and hair treatment products in Australia and New Zealand. On 15 June 2022, the company announced that an Independent Non-Executive Director, David Ansell, has provided BKL with notice of his resignation effective Thursday, 30 June 2022.

H1FY22 Financial Highlights:

• Increased Top-Line: Sales revenue increased by 14.3%, owing to distribution expansion and robust execution of product innovation directing to market share gains, especially in the International and China segments.
• Bottom-Line Highlights: Aligned with revenue performance, BKL continued to deliver improved gross profit and EBIT margin expansion during H1FY22. The bottom line expanded due to opex savings, supply chain efficiencies, and targeted price/mix initiatives.

Underlying Operating Metrics; Analysis by Kalkine Group

Key Risks and Challenges

The company would require disciplined cost management and investment flow due to macro risks, such as supply chain constraints and changing consumer behaviour.

Outlook

BKL expects a recovery in the Australian market with a focus on reducing out of stocks and accelerating the delivery of new product innovation. Favourable performance of the international markets will sustain longer with momentum from new product launches. Total group A&P investments are estimated to clock $10 to $15 million higher in H1FY22 relative to H1FY21.

Valuation Methodology: EV/Sales Multiple Based Relative Valuation (Illustrative)

Source: Analysis by Kalkine Group

*% Premium/(Discount) is based on our assessment of the company’s NTM trading multiple after considering its key growth drivers, economic moat, stock’s historical trading multiples versus peer average/median, and investment risks.

Stock Recommendation: The stock of BKL gave a negative return of ~21.07% in the past six months. The stock is currently trading lower than the 52-week average price level band of $67.500 - $103.970. The stock has been valued using the EV/Sales multiple-based illustrative relative valuation method and arrived at a target price with an upside of low double-digit (in percentage terms). Considering the potential supply chain constraints and potential policy concerns from the Chinese market, the company might trade at a slight discount to its peers’ EV/Sales multiple average. For valuation, a few peers like McPherson’s Ltd (ASX: MCP), BWX Ltd (ASX: BWX), Biome Australia Ltd (ASX: BIO) and others have been considered. Given the favourable top-line stance, cost-saving measures, controlled inventory management, current trading levels, and upside indicated by valuation, we give a “Buy” recommendation on the stock at the current market price of $68.490, as of 17 June 2022, at 10:40 AM (GMT+10), Sydney, Eastern Australia.

Markets are currently trading in a highly volatile zone due to prevailing macroeconomic and geopolitical tensions. Therefore, it is prudent to follow a cautious approach while investing.

BKL Daily Technical Chart, Data Source: REFINITIV

Note 1: The reference data in this report has been partly sourced from REFINITIV.

Note 2: Investment decisions should be made depending on the investors’ appetite for upside potential, risks, holding duration, and previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the Valuation has been achieved and is subject to the factors discussed above.

Technical Indicators Defined: -

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices.

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