Blackmores - BKL - Halebop analysis

hey halebop

im wondering can u do ur wiz sums etc and figure out a Discounted cost price for this company

im been pondering about it for some time now

pe is at 23 , slightly be4 industrial average etc.

Your views and research is much appreciated.

I have yet to grasp evaluating shares outside of mining :D

kind regards,
dazza

Hi Dazza. just for you...
:)

Key Business Tenets:

Is the business simple and understandable? “Yes”. They purchase commodity inputs for the manufacture and distribution of supplements and health foods.

Does the business have a consistent operating history? “Yes”. Profitable for decades (I think they listed around 86 or 87? Can remember they generated an element of speculative interest whenever it was). An uneven growth record in the 90’s has been better by a long way in the last 5 years.

Favourable long term prospects? “Yes”. Aging population, inadequate diets, intensive farming techniques, endemic levels of heart disease and cancer augers for continued demand for “natural” protection.

Management Tenets:

Is Management Rational? Loved reading their notices. They never say anything! A sense that they are a no nonsense operator of their business. Distinct lack of flashy acquisitions. While they have had their share of unsuccessful products over the years, this is a typical business risk with any innovator. Organic growth seems the preferred route.

A “Yes” on this one.

Is Management Candid with shareholders? Not much obvious need to be otherwise in recent history. The market did get a bit frustrated with them in the 90’s but I can’t really remember the specifics of why performance was choppy nor did I have an opinion on Blackmores at the time.

Their lower than expected profit in 2002 seemed a bit slow in being announced but it was a rough year if I remember rightly (Pan I think had their problems?)

Marginal “Yes”

Does management resist the institutional imperative? Yes. High dividends. Low capex. Few acquisitions. Like it!

Financial Tenets

Return on Equity Rising from the teens in the 90’s, through to the 20’s and in solid 30’s during the 2000’s.

Owner Earnings I only looked at 5 years which is a fraught sample (6 to 7 is better) but the results were good. Capex has historically been low, meaning most cash earnings can be spent as desired (in this case mostly dividends).

In the last 5 years owner earnings went from $4.6m to $7.0m to $9.9m to $10.8m to $11.8m. Dividends were high but retained owner earnings also remained positive for each of the last 5 years. Management know how to spend less than they earn. Given low capex numbers, much of these earnings must have been maintained as working capital (current ratios support this). Retained owner earnings were around $10.25m for the 5 years.

As an aside, the working capital increase vs low capex tells me Blackmores can and have been expanding incrementally and organically. Nice to know they can almost double their sales in 6 years on only $11m or so in capex.

Profit Margins

EBIT to Sales margin
2000 11.2%*
2001 12.2%*
2002 10.2%
2003 10.4%
2004 11.9%
2005 12.6%
2006 14.0%

* Blackmores calculation rather than mine

Nice increase, I suspect not much gross margin expansion in there, mostly driven by higher sales on top of little need for extra infrastructure. Given the market has a lot of competition in there, obviously a good performance.

Valuation

It would be easy to try and extrapolate 20%+ growth based on recent performance. While they could do it, embedding that sort of growth in a valuation model is asking for trouble. My one cautionary note is that I prefer my growth companies to have less growth than 20%, not more. When the wheels come off it can get nasty. …and with high growth the wheels invariably come off at some stage. On a PE of 24, Blackmores is already priced for growth. So anyhoo, assuming a 10% discount rate and…

20% Growth for 5 years, falling to 3% $25.18
15% Growth for 5 years, falling to 3% $20.73
15% Growth for 10 years, falling to 3% $30.81
10% Growth for 10 years, falling to 3% $21.25
10% Growth for 5 years, falling to 3% $16.95
5% Growth for 10 Years, falling to 3% $14.67

vs current share price of $20.60

While BKL reach the qualitative cri

I also looked at this and thought "what a great little company". Has the financial capability to achieve high ongoing rates of growth. But my model said I'd need to buy it at under $15. If I held it already, I'd rate it a sell if it hit $25 in the next few months.

What a beautiful worked example. Well-done and thank you, Halebop.

agreed halebop

thank you very much for your time

i did a few sums too, and thought that it was a bit expensive.

wait and see approach i guess

i do note that other competitors mainly nutralife and kordels has been taken over by private equities who also has the brand healtharies under their arm.


the avg daily volume traded in BKL is tiny around 1k shares.

i havent seen top 20 SH as such but will do soon.

definately one on the radar for me.

once again many thanks

Love your work HP! [:I]

Thanks folks! [:I]

To those who believe history can repeat itself BKL has achieved a 15% compound earnings rate over the last 10 years. Therefore the $30.81 valuation could possbily work. Compound the 10% discount rate for 5 years and you potentially have a $40 share price in 5 years time. Add in the fat dividends and it could be a nice little earner yet. Too many "steady as she goes" assumptions (particularly on the market multiple valuation front) in that one for me but still doable.

halebop

i noticed u said growth

but could u be a bit more specific

is it year on growth on ROA or EPS growth?

Quote:

---

quote:Originally posted by Dazza

halebop

i noticed u said growth

but could u be a bit more specific

is it year on growth on ROA or EPS growth?

---

I look at ROA, ROE, cashflow and gross margins. Read my first post carefully. The only time per share metrics come into it is when I value the shares using DCF. The important qualitative criteria have nothing to do with EPS.

EPS can be massaged by swapping shares for a lower priced company. Never mind that the lower priced company doesn't earn it's cost of capital. This was the model adopted by conglomerates in the 60s and investment companies in the 80s. It doesn't work but there are always those who try. The market will let itself be suckered for a year or two but it never lasts. Think too of why you might be buying another company at a fraction of the market multiple? Just maybe you are getting a great deal and just maybe you aren't...

EPS can also keep rising even as return on equity (and assets) fall. A company that can maintain returns on higher assets and equity is a rare beast but worth much, much more for it. EPS can also be raised by taking on more risk via leverage. While it can be "sexy" to see your company swallowing up competitors to the left and right, the benefits can be shortlived versus the future costs.

Hagstrom's Buffett book was good at describing this the relative merit of unequal ROA/ROE propositions:

Two companies in the same business, each worth $20m. Company A has assets of $20m and profits of $2m, Company B has assets of $10m, goodwill of $10m and profits of $2m. Even though they both have similar organic growth prospects, the 2nd company is much more attractive. To grow profits to $4m, A requires capex of $20m, whereas B requires just $10m invested, which means that growth can be bought and paid for quicker. Which means more growth can be bought and paid for too. In the end, this might mean company B is actually worth $25 or $30m because of it's superior economics.

The trick then is to purchase at less than it's instrinsic value. And here is the only time I might use EPS (though I'm more likely to use an Owner Earnings hybrid EPS figure because I want to know how much profit it generates for me rather than count money that will need reinvesting just to keep the business going).

Quote:

---

quote:Originally posted by Halebop

I look at ROA, ROE, cashflow and gross margins. Read my first post carefully. The only time per share metrics come into it is when I value the shares using DCF. The important qualitative criteria have nothing to do with EPS.

---

I should have added: Don't trick yourself into valuing a company before you have done the qualitative analysis. A cheap company isn't enough. There are plenty of examples on the share trader forum of cheap companies that have swallowed their fan boy's capital.

"There are plenty of examples on the share trader forum of cheap companies that have swallowed their fan boy's capital."

This fanboy says a rueful "Amen!"

Halebop. Your approach seems very rational. Well done. I'll keep my eyes on your future posts.

Quote:

---

quote:Originally posted by contrarianinvestor

Halebop. Your approach seems very rational. Well done. I'll keep my eyes on your future posts.

---

Cheers CI [:I] ...I'd like to claim credit but Buffett beat me to it by 40 or so years.

Quote:

---

quote:I'd like to claim credit but Buffett beat me to it by 40 or so years.

---

I also read Hagstrom's book. There is also a CNBC interview with Buffett on YouTube which I enjoyed:
Part 1, Part 2, Part 3, , Part 4, Part 5

This is a great little company to put on the watchlist for long term investors and buy on dips. It has rarely been cheap on any metrics (apart from during the depths of the GFC), but the steady growth rate in earnings, which continued throughout the GFC, is a real credit to them. As per yesterday's analyst presentation, they've managed a 15.6% pa growth in eps over the past 5 years. Capital needs are not a limit to growth, so they can afford to pay out significant dividends (yield currently 4.7% + franking). And, of course, they head up their outlook with "well-positioned"... but I won't hold that against them.

Currently, I'd like to be able to buy around $22 max on a value basis (sellers now at $24), but, looking at the chart, I'm not sure that will be possible. However, I am including it on my "long term quality holds" list.

(Regards their products, I've never been that comfortable with supplements, but have had to change my mind this year after discovering that their "Omega Joint" product was spectacularly more successful than any conventional pain-relief I'd tried.)

Hi Liz. 24 bucks is a major hurdle for this one. It peaked there early in 2007. Back there again. Will be interesting to see if it breaks through.

More steady growth from Blackmores. Now at $28.03.

Would write more, but looks like it would practically be a repeat of last years post!

PE 17.1, yield 4.4% plus franking. Buy on weakness.

Quote:

---

Originally Posted by Lizard

More steady growth from Blackmores. Now at $28.03.

Would write more, but looks like it would practically be a repeat of last years post!

PE 17.1, yield 4.4% plus franking. Buy on weakness.

---

Buy on weakness, indeed, Liz!

The above post was over four years ago but BKL hit the $200 mark today! Meanwhile, I'm looking for the next umpteen bagger!

:)

Later: Back to $180 as I wrote that - but still up about 25% today.

When you find it,would you kindly share it with us??!! lol.

BKL looks very nice,
But I find it hard to buy a share where
Any-one -even Morningstar have it as a SELL (in red)
=Also find it hard to pay $180 for one share!
...now talking of potential umpteen baggers and at the other end of the spectrum, (ie 180000 shares for the price here of one)
try looking up;

Seismoelectric.

I have had slightly disturbing security problem clicking on the above; has anyone else?

Quote:

---

Originally Posted by Joshuatree

I have had slightly disturbing security problem clicking on the above; has anyone else?

---

Sorry Jt
Not Intended to be a link,
Have removed the Blue. ;)

Quote:

---

Originally Posted by percy

When you find it,would you kindly share it with us??!! lol.

---

Still sitting on the shares I bought when I worked for them..

Cost me about $4.00 to $5.00 :-))))))))))))))))))

They worthless now; i will give you $10 for that old crumpled shoe box in your cupboard (prob underneath some cut open and sellotaped ,one use ,recycled vacuum cleaner bags) with your useless certificates in; doesn't matter if they are dusty, and i will throw in some vitamins that really do work in fact two for the price of one; no side effects (yellow pee etc), only 3 years past their use by date; I'm doing you favour tidying up your clutter; will even take your vacuum bags ,OK!!!!????​?

Quote:

---

Originally Posted by Joshuatree

They worthless now; i will give you $10 for that old crumpled shoe box in your cupboard (prob underneath some cut open and sellotaped ,one use ,recycled vacuum cleaner bags) with your useless certificates in; doesn't matter if they are dusty, and i will throw in some vitamins that really do work in fact two for the price of one; no side effects (yellow pee etc), only 3 years past their use by date; I'm doing you favour tidying up your clutter; will even take your vacuum bags ,OK!!!!????​?

---

You do not know how close to the truth you are :-)))

The only Aussie shares I own..

Did not look at the price for years .. Was going to sell when they hit $30.00

Think I might now .. Can not see them becoming an Apple or Google ..

Quote:

---

Originally Posted by janner

Still sitting on the shares I bought when I worked for them..

Cost me about $4.00 to $5.00 :-))))))))))))))))))

---

THAT'S INCREDIBLE.!
Fantastic,
Well done.!!!

Quote:

---

Originally Posted by percy

THAT'S INCREDIBLE.!
Fantastic,
Well done.!!!

---

Well done Marcus Blackmore :-)))))

Worth a read ...

http://www.smh.com.au/business/marke...29-gklnub.html

Quote:

---

Originally Posted by stoploss

Worth a read ...

http://www.smh.com.au/business/marke...29-gklnub.html

---

Thank you for that

I am out.. !!!..

Still interested JT ??

A bargain at $170.00

I see Bega is benefiting from the Blackmores effect:

Blackmores and Bega Partnership

Best Wishes
Paper Tiger

Disc: Do not buy Bega Tasty because I can buy Mainland Vintage.

Seems once you get too big life becomes difficult

And now Mr Blackmore back to captain the ship

https://www.smh.com.au/business/comp...22-p516k6.html

Quote:

---

Originally Posted by winner69

Seems once you get too big life becomes difficult

And now Mr Blackmore back to captain the ship

https://www.smh.com.au/business/comp...22-p516k6.html

---

The biggest shareholder and CEO of a billion dollar company gets bulk billed by his cardiologist? Lol

The RACGP/RACP could learn a thing or two about lobbying politicians.

If the trading halt is actually due to revised guidance it seems it’s going to be bad, really bad

They previously told They market first half profit after tax of ~$21 million. ....a decline of ~38% on the prior corresponding period.

Worse than is really bad.

Shareholders may need to take some of the companies own Executive B stress formula tablets. I reckon they work pretty good and am a regular user.

Seems things turning to custard at Blackmores

Lower H1 guidance and signaled might lose money in H2


And it’s not all virus related - that just seems to add to a raft of problems.

Close at $78

Once could no wrong and a market darling and share price was over $200 a few years ago

A lot of things must have gone wrong

Quote:

---

Originally Posted by winner69

Close at $78

Once could no wrong and a market darling and share price was over $200 a few years ago

A lot of things must have gone wrong

---

Only 17.4 million shares on issue .

Don’t blame Mr Blackmore for getting grumpy at ASM

We’ve had enough’: Blackmores’ biggest shareholder hits out

https://www.smh.com.au/business/comp...20-p5brdp.html