BKL - Blackmores Limited

[SilverRanger]

At today's closing price of $148 the stock will actually look inexpensive if they can deliver a strong FY2017 profit.

Not sure about value, but I bet lots of chartists (your nemesis?) will be shorting this stock if $144 is broken.

 

[piggybank]

Not sure about value, but I bet lots of chartists (your nemesis?) will be shorting this stock if $144 is broken.

Hi SilverRanger,

Why $144? Does anyone else have an opinion on a figure to start shorting this stock?

Cheers
PB

 

[Triathlete]

Hi SilverRanger,

Why $144? Does anyone else have an opinion on a figure to start shorting this stock?

Cheers
PB

I would agree with Silver Ranger that a close below $144 could see a move down towards $125-$120 and worst case $110.

This is just my opinion as well and not a recommendation please do your own analysis.

 

[Triathlete]

I would agree with Silver Ranger that a close below $144 could see a move down towards $125-$120 and worst case $110.

This is just my opinion as well and not a recommendation please do your own analysis.

There is the close below $144 are we now going to see a short term price collapse come Monday and coming weeks???? time will tell. Glad to have got out at $183.90 now.

Fundamentals look good though but will wait to see the stock find some support level before getting back in.

Stock doctor has a current valuation for BKL @ $189.94

Consensus price at $194.00.

Plenty of value just not sure were the fall will end....patience needed..!!

 

[skc]

At today's closing price of $148 the stock will actually look inexpensive if they can deliver a strong FY2017 profit.

BKL got smoked today.

I read the 4E report and saw numbers inline with expectations so I thought it'd do ok. But I was too busy trading when their non-price sensitive results announcement came out, which mentioned that Q1 FY17 is tracking lower than pcp. That surprised everybody and the bloodbath was on.

The market was looking for 15-20% growth in FY17 at least... so there'd be plenty of price target revisions tomorrow.
BKL @ today's closing price of $129.5 has a market cap of $2.23B... so it's trading at PE 22x (on NPAT $100m), which doesn't sound that high in this market.

Some of the reasons given by management of the weak Q1 forecast is that wholesalers are running down inventories, and that some of the "suitcase export trades" have moved up the value chain and not shopping at retailers anymore.

My guess is that.... the wholesalers got caught up in the hype and over ordered in the last few quarters. These started to normalised in Q4 and accelerated in Q1 FY17. I will be surprised if demand for BKL's product suddenly fall off without major issues like a health scare, recall etc. An alternate explanation is that Chinese regulations are changing "DaiGuo" behaviors in ways that BKL isn't on top of. May be another brand is a good enough substitute (less face it, Blackmore, Swisse, Nature's Way - what's the difference) is now easier to distribute in China after the new regulations.

Hard to tell from just one quarter. But definitely worth monitoring.

 

[Peter1668]

BKL got smoked today.

I read the 4E report and saw numbers inline with expectations so I thought it'd do ok. But I was too busy trading when their non-price sensitive results announcement came out, which mentioned that Q1 FY17 is tracking lower than pcp. That surprised everybody and the bloodbath was on.

The market was looking for 15-20% growth in FY17 at least... so there'd be plenty of price target revisions tomorrow.
BKL @ today's closing price of $129.5 has a market cap of $2.23B... so it's trading at PE 22x (on NPAT $100m), which doesn't sound that high in this market.

Some of the reasons given by management of the weak Q1 forecast is that wholesalers are running down inventories, and that some of the "suitcase export trades" have moved up the value chain and not shopping at retailers anymore.

My guess is that.... the wholesalers got caught up in the hype and over ordered in the last few quarters. These started to normalised in Q4 and accelerated in Q1 FY17. I will be surprised if demand for BKL's product suddenly fall off without major issues like a health scare, recall etc. An alternate explanation is that Chinese regulations are changing "DaiGuo" behaviors in ways that BKL isn't on top of. May be another brand is a good enough substitute (less face it, Blackmore, Swisse, Nature's Way - what's the difference) is now easier to distribute in China after the new regulations.

Hard to tell from just one quarter. But definitely worth monitoring.

I think the market over re-acted to the bad news.

 

[skc]

I think the market over re-acted to the bad news.

May be... there was a lot of certain growth priced in so a Q1 contraction is definitely unexpected. Share price can over react in a situation like this.

However, the news did create a lot of uncertainty. If the problem is only affecting this quarter then current share price is a great opportunity. If the problem is just the tip of something more fundamental then the share price may not recover.

I think you might get a decent answer by interviewing a number of Dai Guo's and a few pharmacies.

 

[Triathlete]

Here is my current view on BKL with chart





Strategic Comment

Last updated : 25 August 2016

BKL is a Star Growth Stock and has delivered strong EPS growth given the strong performance in the last two years aided by BKL's growing East Asian exposure . Recent price weakness creates a potential opportunity for investors to buy a stock which currently represents value.

In its latest result announced on 24 August 2016, management noted a slowdown in 4Q16 growth and that 1Q17 revenues were expected to be weaker against the previous corresponding period due to volatility in the Australian wholesale market. However, management outlined the expectation for improvement in sales as FY17 progresses with a view of stabilization in sales from 2Q onwards. BKL management also retained the positive disposition of the promising medium to long term outlook driven by demand for high quality Australian products by the Chinese consumer.

Looking forward, we expect BKL to pass through the coming quarters of softer performance to conclude a year of broadly flat revenue but continued strength in margins to meet our criteria while favourable demographic trends support its medium to long term outlook. While risks around changing Chinese regulations and an inability to grow margins and stabilize sales should be an ongoing consideration to investors, at this point we are comfortable to retain coverage of BKL as a Star Growth Stock and we will continue to monitor any changes to the above mentioned factors closely in the coming months.

Lincoln valuation........$148.14

Consensus valuation...$135.00

14 day free trial....www.lincolnindicators.com.au

Cheers
Triathlete

 

[Miner]

May be... there was a lot of certain growth priced in so a Q1 contraction is definitely unexpected. Share price can over react in a situation like this.

However, the news did create a lot of uncertainty. If the problem is only affecting this quarter then current share price is a great opportunity. If the problem is just the tip of something more fundamental then the share price may not recover.

I think you might get a decent answer by interviewing a number of Dai Guo's and a few pharmacies.

SKC et al
I do not hold BKL and always envious of it sky rocketing prices and to see what happened now.
I am reading your golden statement to interview pharmacists etc. I have not done so but have been watching the window dress up with BKL products in health shops and chemists for few months. The heavy discounts offered by some pharmacies also tell me something on over inventory.
Do not forget there are other products like SWISS and the market is over flooded with health products.
So purely from consumer perspective I have been staying away to buy Black more products - they are over priced. In addition when I read the labels on content, then I did not find value for money.
If there are other idiots like me who do not read the financial statements produced by BKL but just buy or reject to buy BKl Products - we know what happens in next quarter.

 

[skc]

Strategic Comment

Last updated : 25 August 2016

BKL is a Star Growth Stock ...

Thanks Triathlete. I am impressed that Lincoln update it's contents so quickly.

[/B]
SKC et al
I do not hold BKL and always envious of it sky rocketing prices and to see what happened now.
I am reading your golden statement to interview pharmacists etc. I have not done so but have been watching the window dress up with BKL products in health shops and chemists for few months. The heavy discounts offered by some pharmacies also tell me something on over inventory.
Do not forget there are other products like SWISS and the market is over flooded with health products.
So purely from consumer perspective I have been staying away to buy Black more products - they are over priced. In addition when I read the labels on content, then I did not find value for money.
If there are other idiots like me who do not read the financial statements produced by BKL but just buy or reject to buy BKl Products - we know what happens in next quarter.

Yes I remember seeing the 50% off sale in my junk mail piles and thinking why they would want to do that... but I didn't think too hard about it.

Domino's regularly run 50% off sale as well so it may or may not be an indication of what's happening.

Another potential explanation for slow sales just popped into my head... it's very hard to see the direct benefits of taking health supplements. It's easy to see how someone suffering from certain health conditions would like to give these a try. And to give it a proper trial they must do that for at least 6-12 months. So with a surge in brand name and popularity starting some 18 months ago in China, may be the initial wave of trialists are rolling off, and the word of mouth becoming more mixed, as some consumers didn't see the desired health benefits.

Pure speculations... but it'd be interesting to know what proportion of BKL's customers are true, long term daily users vs transient trialists.

 

[Triathlete]

Thanks Triathlete. I am impressed that Lincoln update it's contents so quickly.

You know what they say SKC.....quick information in quick time = Money

 

[Peter1668]

Thanks Triathlete. I am impressed that Lincoln update it's contents so quickly.



Yes I remember seeing the 50% off sale in my junk mail piles and thinking why they would want to do that... but I didn't think too hard about it.

Domino's regularly run 50% off sale as well so it may or may not be an indication of what's happening.

Another potential explanation for slow sales just popped into my head... it's very hard to see the direct benefits of taking health supplements. It's easy to see how someone suffering from certain health conditions would like to give these a try. And to give it a proper trial they must do that for at least 6-12 months. So with a surge in brand name and popularity starting some 18 months ago in China, may be the initial wave of trialists are rolling off, and the word of mouth becoming more mixed, as some consumers didn't see the desired health benefits.

Pure speculations... but it'd be interesting to know what proportion of BKL's customers are true, long term daily users vs transient trialists.

Actually, I was thinking BKL's product in this way (only initial wave of trialists) as well when the stock price keeps to be smashed recently. But you think about it, BKL's products have already in the market for so many years and have been carrying back to China by the chinese people here all the time, not only last 18 months. I think DaiGou starting popular around 18 month ago when people can easily set up a mini-shop on WeChat or other e-commerce sites. Since then selling volume of BKL's products expands quickly. BKL now is establishing their selling channels in China directly in a way similar at here. If that's successful, China's market and potential for BKL's products are huge. I have the following reasons to be positive about BKL's product's future in China:
1. Chinese people spend a lot of money on health supplements, especially the aged people
2. Australian products are very well trusted in China
3. BKL's products are only available directly in China recently, might not all places yet
4. BKL's management team has a good track record to be successful in a competitive market
This a only my personal opinion for discussion, it might be not right.

 

[Triathlete]

Actually, I was thinking BKL's product in this way (only initial wave of trialists) as well when the stock price keeps to be smashed recently. But you think about it, BKL's products have already in the market for so many years and have been carrying back to China by the chinese people here all the time, not only last 18 months. I think DaiGou starting popular around 18 month ago when people can easily set up a mini-shop on WeChat or other e-commerce sites. Since then selling volume of BKL's products expands quickly. BKL now is establishing their selling channels in China directly in a way similar at here.

If that's successful, China's market and potential for BKL's products are huge. I have the following reasons to be positive about BKL's product's future in China:

1. Chinese people spend a lot of money on health supplements, especially the aged people
2. Australian products are very well trusted in China
3. BKL's products are only available directly in China recently, might not all places yet
4. BKL's management team has a good track record to be successful in a competitive market
This a only my personal opinion for discussion, it might be not right.

You could be right but at the moment all the news is negative so the share price will continue to fall as has been the case lately until people change their view and BKL can find some support.

The level around $111 - $110 is very important for their share price so will be interesting to watch over the coming months.

 

[Klogg]

So with a surge in brand name and popularity starting some 18 months ago in China, may be the initial wave of trialists are rolling off, and the word of mouth becoming more mixed, as some consumers didn't see the desired health benefits.

If that's the case, this may hurt:



Why are their provisions so low relative to inventory?
And do the raw materials ever go bad? (Doubtful, but worth asking)

Looking at Inventory vs Sales, they're clearly gearing up for additional sales that have not yet eventuated in Q1


EDIT: This may be the answer to the increase in raw materials:
"We are also holding inventory of scarce raw materials to give us access in a growing market to mitigate against the vulnerability of having core product lines out of stock."

 

[McLovin]

If that's the case, this may hurt:

View attachment 68027

Why are their provisions so low relative to inventory?
And do the raw materials ever go bad? (Doubtful, but worth asking)

Looking at Inventory vs Sales, they're clearly gearing up for additional sales that have not yet eventuated in Q1


EDIT: This may be the answer to the increase in raw materials:
"We are also holding inventory of scarce raw materials to give us access in a growing market to mitigate against the vulnerability of having core product lines out of stock."

Why was their provision in the previous period so high? 6% spoilage seems high, especially given the shelf life of the finished product. I seem to recall them saying last year that they were having real problems sourcing some raw ingredients to keep up with demand and maintain the quality control.

 

[Klogg]

Why was their provision in the previous period so high? 6% spoilage seems high, especially given the shelf life of the finished product. I seem to recall them saying last year that they were having real problems sourcing some raw ingredients to keep up with demand and maintain the quality control.

The dangers of a quick glance at a report... I wrongly took 2015 as the 'expected'. Will need to go back and check what the provision (and actual, if they give it) rate of spoilage is.

Thanks

 

[Triathlete]

I would agree with Silver Ranger that a close below $144 could see a move down towards $125-$120 and worst case $110.

Seems we are getting closer to the above price ........anyone following BKL have a view.
Stock doctor has a value of $148 on the stock..

 

[UMike]

Seems we are getting closer to the above price ........anyone following BKL have a view.
Stock doctor has a value of $148 on the stock..

Morningstar has a similar value but with a very high "Fair value" uncertainty rating.

I'm very hesitant to touch it.

 

[Triathlete]

Morningstar has a similar value but with a very high "Fair value" uncertainty rating.

I'm very hesitant to touch it.

The "uncertainty rating" is a concern , sounds like they are having troubles analysing or believing what is in their accounts/contracts earning potential etc and need a few things to line up to confirm the current valuations.....

Is there any value investors looking at this stock at the moment?????

I would think this would be on their watch list at the moment???

Looking at the chart the $110 level is one of two of the most important levels which is 50% of All time High and will be worth watching moving forward especially now that you have mentioned this uncertainty rating from Morningstar.

I would like to think that the stock would find support here and consolidate and wait for further signs of a turnaround before moving higher. Time will tell though.

 

[dpgrubesic]

I'm watching this one like a hawk it is a great company and it certainly has a lot to grow.

If anything it has got to be a strong longer term stock?