Blackmores: Big growth ambitions but can ANZ deliver
About the author:
- Author name:
- By Belinda Moore
- Job title:
- Senior Analyst
- Date posted:
- 31 August 2021, 9:00 AM
- Sectors Covered:
- Agriculture, Food & Beverage, Travel and Chemicals
- BKL’s FY21 result was materially weaker than expected. Despite this, strong growth was reported, particularly from its China and International businesses. The company continued to deliver impressive CF conversion and the balance sheet is in a strong net cash position.
- BKL has a clear strategy to deliver material earnings growth through to FY24. These targets clearly impressed, with the share price up strongly since the result. Trading on full multiples, we maintain a Hold rating with a new PT of (login to view).
Event: FY21 result was materially weaker than expected
In FY21, net sales rose 1.3%, gross profit increased 4.6%, EBIT was up 51.7% and underlying NPAT increased 61.2%.
Analysis: solid growth but misses on a number of fronts
EBIT missed our forecast by 15% while NPAT was 25% weaker than expected, despite cost savings beating guidance by A$4m. The miss reflected the International result being 19% lower than our forecast while Corporate Costs were 35% higher. Net interest expense, minorities and tax were also higher.
Strong earnings growth, albeit off a low base, reflected growth from its China (EBIT A$14.3m vs A$0.2m the pcp) and International businesses (EBIT +49.5%), supply chain efficiencies and opex savings (A$22m), price rises and mix benefits.
ANZ had a challenging year (sales -14%) due to the loss of the daigou, a mild cold & flu season and reduced foot traffic in the pharmacy channel. Pleasingly, the GP margin rose to 52.3% vs 50.6% the pcp and the EBIT margin rose to 8.3% from 5.5%.
Outlook: FY24 targets impress the market
Looking to FY22, BKL said the outlook remains positive in its International and China businesses with sales momentum continuing into FY22. However ANZ will remain challenging due to border restrictions and lock downs.
Strong sales growth in International and China is expected to more than offset disrupted trading in ANZ. In addition, efficiency and price/mix initiatives are expected to deliver sustainable margin improvement.
In FY22, there will be A$9-13m in opex (as opposed to capex) due to the new accounting standards (IFRIC Software as a Service SaaS) to support further investment in digital capabilities including e-commerce platforms. In FY24, BKL targets >40% of group sales from e-commerce vs >27% in FY21.
BKL is targeting to grow revenue by A$250-$350m to A$825-875m in FY24 (FY21 was A$576m). It is targeting A$130-150m of additional revenue from International (~21-25% CAGR), A$80-100m in China (~15-19% CAGR) and A$40-50m in ANZ (~2-3% CAGR + growth in Pet on top of this rate). BKL aims to be fully operational in India, Philippines and Vietnam by FY24.
In August 2021, BKL made its first shipments to India. While it is great to see this strong FY24 target, we note that sales growth in recent years has been subdued and we see the greatest risk to BKL’s target being in ANZ.
By FY24, BKL hopes to increase GP margin to the high 50% and EBIT margin to ~15% (vs 8.3% in FY21). Based on its revenue targets, this would equate to EBIT of A$123.8-131.3m in FY24 (160-176% growth on FY21 of A$47.6m).
Given the lower base in FY21 than we previously expected and with an additional A$9-13m of investment, we have reduced our FY22/23 NPAT forecasts by 23.1% and 13.2% respectively.
We have increased our FY24 forecasts so they are in line with BKL’s revenue and EBIT targets at A$842.2m and A$126.2m respectively.
Investment view: Hold rating
After upgrading our medium to longer term forecasts, our valuation has risen to (login to view).
The FY21 result gives us increasing confidence in the turnaround at BKL and the opportunity to materially increase margins over time (been lagging peers).
However, growing ANZ’s revenue in line with its targets won’t be easy given structural and competitive threats. Trading on full multiples (FY22/23F PE of 52.0x/35.7x), we maintain a Hold rating.
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