Blackmores Limited (ASX: BKL)

By Jason Fittler

BKL distributes branded vitamins and supplements in Australia, New Zealand and Southeast Asia.

Founded in the 1930s, the company is the leading player in Australia with a 20% market share.

The attraction of this franchise is its long-standing reputation for quality, underscored by the company winning the Readers Digest Most Trusted Brand Survey for vitamins and supplements in Australia, for the fifth consecutive year.

Unfortunately, the company has not been immune from the significant slowdown in retail spending in Australia, with profit down sharply on the previous financial year.

Margins have also been crimped by a confluence of factors: increasing competition from lower-cost rivals, destocking and deep discounting by the major retailers, and the rise in influence of discount chemists at the expense of smaller community pharmacies, which are the company’s most important channel for sales.

But it’s not all doom and gloom, with Asia, their engine room for growth having recorded another year of stellar growth, and their other businesses also growing.

Historically, the company has been very profitable with return on equity averaging 32.3% for the past three years.

In terms of its debt profile, following the recent acquisition of BioCeuticals, gearing has increased to 70%, which is high for our liking. But with a forecast interest cover of 8 times and the reactivation of the dividend reinvestment plan, our concerns are placated somewhat.

According to our numbers for 2014, BKL is trading on a prospective 16 times earnings and paying a 5% fully franked dividend yield. We feel these numbers are undemanding for a company with a long track record of above-average earnings and dividend growth.

Up until recently the company had posted ten consecutive years of sales and profit growth.

Importantly the brokers covering the stock have it on either Hold or Underperform so some level of pessimism is already factored into the stock.

The stock may be suitable for risk tolerant investors seeking a combination of growth and income. 

For more information on Blackmores Limited (BKL) please contact us on 07 4771 4577.