Executive Summary 3
1. Company Overview 6
2. Industry Analysis 19
3. Current Issues 33
4. Blackmores Financial Analysis 42 5. Share Valuations 53 6. Valuation Discussion 72 7. Appendix – Financial Statements 80 References 92 Executive Summary
•Blackmores Limited is an industry leader in both natural health and research, basing its principle activity on the development and marketing of health products and natural supplements.
•Blackmores Limited (BKL) listed on the Australian Stock Exchange on the 2nd May 1985. Ownership structure has remained relatively constant, with the largest shareholder with a total substantial holding of 24.69% of the company is the Executive Director Marcus Blackmore, son of the founder Maurice Blackmore.
•The company has over 150 products, catering for all areas in natural health and vitamins. Products are distributed primarily through retail pharmacies, supermarkets and health food shops and operations now stem offshore to New Zealand and throughout Asia.
• Products are developed by Blackmores Scientific Researchers and are governed under the strict guidelines and control of the Therapeutic Goods Administration (TGA).
•Blackmores’ initial process of the research of alternate medicines was initially via the supply of products and funds to external researchers. However, the late 1990's saw the company to shift towards a more in-house, formalised process, with the appointment of a research manager based at Southern Cross University. This involvement runs from the supply of products to the full funding of clinical trials.
•Commitment and attitude towards their socially responsible and environmentally friendly business practices sits high on Blackmores’ priority list, continually incorporating more and more socially and environmentally sustainable practices to all aspects of their business model.
•The Complementary health care industry in Australia distributes primarily through its pharmacy and supermarket channels and therefore caters to customers in each of these markets. Competition in both markets is derived from two major firms, namely Symbion and Sigma Health.
•Blackmores is currently operating in an industry which has witnessed recent rapidly accelerating growth, placing itself at the beginning of its mature growth life-cycle. Blackmores is the only mainstream brand that has been able to diversify its position across health food stores, pharmacy, grocery and practitioner channels.
•An aging population, exchange rates and the expected increase of patients, have all had a significant impact on the operations of Blackmores, with many of these contributing to a variety of key success factors.
•The well-knows pan Pharmaceuticals scandal has had an astounding impact on the entire complementary health-care industry, with it now acting as a precedent for all industry and issues going forward.
• DuPont analysis highlights the rapid accelerating growth seen by the industry and Blackmores specifically. This is evident across all aspects of DuPont analysis, with ROE, operating cash flows and dividend growth reaching all time company records, just to name a few.
• Our final company analysis reveals share price to be in fact undervalued by all relevant measures expect for Free cash Flows to Equity. Further research...