Blackmores Limited

BKL Details

Blackmores Limited (ASX: BKL) is involved in the development, sales and marketing of natural health products for humans and animals including vitamins, and herbal and mineral nutritional supplements. It operates in geographies such as Australia, New Zealand and Asia. Its market capitalization as on March 15, 2021, stood at ~$1.64 billion.

Recently, the company disclosed changes of interests of its substantial holder, FIL Limited and the entities who has increased stake in the company from 8.09% to 9.09%, effective from 05 March 2021.

In a previous announcement, the company informed the stock exchange about the resignation of Nimalan Rutnam as a Joint Company Secretary, with effect from 4 January 2021.

Interim Report (For the half-year ended December 2020)

The company for the interim period reported 4% YoY increase in revenue to $302.6 million. On geographical basis, the revenue from Australia and New Zealand (ANZ) declined by 10% to $148 million while the revenue from China increased by 27% and from other international markets increased by 19% YoY. Underlying EBIT for the period stood at $30.8 million, an increase of 15% on pcp. Underlying NPAT for the period stood at $19.4 million, an increase of 8% on pcp. Net cash surplus at the end of the first half of FY21 stood at $71 million.

The Board of Directors declared interim dividend of 29 cents per share (cps) (fully franked).

Results at a Glance (Source: Company Reports)

As per the FY20 report (ended June 30, 2020) revenue stood at $568 million, a decline of 3% on the prior year. Underlying NPAT for the full-year stood at $18.7 million, which is in line with guidance despite impacts from COVID-19. The company managed to finish the year with good results in international markets with revenue up 30% on the same period last year. During the period, the company’s BioCeuticals sales increased by 7% while Blackmores’s strengthened its leadership position in Australia with 16.4% share of vitamin and dietary supplements.

Key Data (Source: Company Reports)

Outlook

Despite the additional cost variances which will arise from the company’s first full year of Braeside manufacturing ownership, H2FY21 is expected to see good growth, underpinned by the sentiment that revenue growth in Asia is expected to continue with positive signs of health and economic recovery underway. However, the Australian vitamin and supplement market is expected to continue to face structural challenges as international borders remain closed and the focus on vaccine rollout is expected to disrupt consumer behaviour for at least the rest of the CY21.

The Board has expressed confidence and working on the strategic priorities, simplifying its operating model and delivering consumer led innovation consistently, which is expected to help the management to put the company back on the path to sustainable, profitable growth and restore future dividends.

Valuation Methodology: P/E Based Relative Valuation (Illustrative)

P/E Based Relative Valuation (Source: Refinitiv (Thomson Reuters))

Note: All forecasted figures and peers have been taken from Thomson Reuters, NTM-Next Twelve Months

Technical Overview:

Weekly Chart –

Source: Refinitiv (Thomson Reuters)

Note: Green colour lines are Bollinger Bands® with the upper band suggesting overbought status while the lower band oversold status, and yellow lines are Fibonacci retracement lines which measure price rebound and backtrack. https://www.bollingerbands.com/

The stock has been resilient with higher-high and higher-low. On the first trading session of the ongoing week, the stock has given close at its peak price of $87.19, demonstrating continued resilience. The technical indicator RSI with a reading around 64 but a flattish curve at the end, suggests flattening of bullish momentum.

Going forward, there might be limited upside wherein the stock may face with resistance around $89.00 whereas on price retreating, it might find support around $83.61.

Stock Recommendation

The company’s gross margin and EBITDA margin for H1FY21 stood at 61.9% and 13.5%, better than the H1FY20 result of 59.2% and 10.5%, respectively implying improvement in operating efficiency. Having said that, the company is vulnerable to the new variant of COVID-19 as they evolve, necessitating localized lockdown which might turnout to nationwide lockdown affecting group’s operating and financial conditions.  

We have applied P/E based relative valuation (on an illustrative basis) and the target price reflects that the stock might witness a fall of low double-digit (in % terms).

The stock has made a new 52-week high of $87.32 today, and may witness profit booking from higher levels.  Therefore, we suggest investors to book profit at current levels, and wait for a better entry level in the stock. Hence, we give a “Sell” rating on the stock at current price of A$87.19 per share, up by 2.251% on 15^th March 2021.

BKL Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

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