Blackmores Limited

BKL Details

Blackmores Limited (ASX: BKL) is engaged in manufacturing and supplying vitamin, herbal, mineral supplements and natural skin and hair treatment products in Australia and New Zealand.

Key Takeaway from FY21 Results:

BKL has announced full-year FY21 results on August 26, 2021. Below are some of the key highlights:

• Strong international growth boosted the overall revenue with 3.2% growth in FY21 over the PcP. This was partly mitigated by loss of daigou and a mild cold and flu season impacting the domestic Australia and New Zealand market.
• An expansion in gross profit margin by 1.6 ppts (at 52.3%) was driven by favourable product mix and pricing trend.
• BKL continue to push investments in e-commerce and digital capabilities. It had witnessed the highest brand penetration in Australia, with one in every five households use Blackmore products.
• Through supply chain efficiencies and cost control measures, the company realized cost savings to the tune of $28 million and is on track to achieve annualized savings of $55 million by FY23.
• BKL is focusing on Asian markets with targeted investments in Digital Commerce and Pet that is likely to uplift revenue growth in the range of $250-$300 million by FY24.
• The underlying EBIT margin grew 2.7 ppts to reach 8.3%. BKL announced the final dividend of 42 cps, and full-year final dividends reached 71 cps (payout ratio at 48%).
• It becomes debt-free with net cash at $70.1 million as of June 30, 2021 as compared to net debt of $37.3 million in PcP.
  

Revenue Trend; (Analysis by Kalkine Group)

Key Risks: Highly competitive industry may distort revenue growth and margin expansion. BKL’s dependence on third party manufacturing in the international market may affect price bargaining and inventory management. Significant exposure to China may cripple exports and hamper profitability. The company is susceptible to foreign exchange movement, with adverse changes that may increase hedging costs and directly alter profitability.

Outlook: BKL is targeting to reach $900 million net sales by FY25. Its international markets to reach over 60% of sales with operations in India, Philippines, and Vietnam to become operational.  Gross margin expansion to be lifted by cost efficiencies and to be in the high-50’s and EBIT margin in the mid-teens for FY24.

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 positive return of ~37.22% in the past three months and a positive return of ~22.71% in the past six months. The stock is currently trading higher than the 52-weeks’ average price level of $60.05-$98.92. The stock has been valued using the EV/Sales multiple-based illustrative relative valuation method and has arrived at a target price with a correction of low single-digit (in % terms). The company can trade at a slight discount than its peers’ average, considering its significant exposure to China, which may hamper sales growth given the trade uncertainties. For the purpose of valuation, few peers like BWX Ltd. (ASX: BWX), Clover Corporation Ltd. (ASX: CLV), A2 Milk Company Ltd. (ASX: A2M) have been considered. Considering the trading levels, valuation indicating the possibility of price correction, key risks associated with businesses, we give a ‘Sell’ rating on the stock at the market price of $98.250, as on 30 August 2021, 10.30AM (GMT+10), Sydney, Eastern Australia.

BKL Daily Technical Chart, Data Source: REFINITIV 

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

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

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