Blackmores: Encouraging progress is being made

About the author:

Belinda Moore
Author name:
By Belinda Moore
Job title:
Senior Analyst
Date posted:
01 March 2021, 2:00 PM
Sectors Covered:
Agriculture, Food & Beverage, Travel and Chemicals

  • BKL’s 1H21 result was better than guided to with 8% NPAT growth vs expectations that it would be lower than the pcp. Strong results from the China and International businesses, cost out, EBIT margin expansion, solid CF conversion and balance sheet strength were the highlights. Consequently dividends have resumed although at a lower than expected payout ratio.
  • In line with the seasonality of the business, 2H21 EBIT should be slightly lower than the 1H. The next update is likely at BKL’s Investor Day on 22 April.
  • The progress management has made, as demonstrated in the 1H21, gives us confidence that BKL can be successfully turned around. However trading on an FY22F PE of 33x, we believe BKL is fully valued and maintain a Hold rating.

Login to view full research note.

1H21 result – beats guidance

BKL’s result was better than expected (8% NPAT beat). With revenue growth slightly below expectations, tight cost control appears to explain the beat.

Total savings/efficiencies of A$7m were realised, comprised of A$4m in supply chain savings and A$3m of lower operating expenses. The EBIT margin was 110bp higher at 10.2%.

Divisionally, ANZ was weak (travel restrictions materially reduced foot traffic in the higher margin pharmacy channel and led to increased discounting), whereas China (EBIT +26% on pcp) and the International business (EBIT +61% on pcp) delivered strong growth.

Operating cashflow was also stronger than expected and the balance sheet is in a solid position (A$73m net cash – no debt).

The Board declared an interim dividend of 29cps (vs. nil the pcp), which was below our forecast of 60cps.

BKL flagged the future likelihood of investing in its digital and communication sales channels and will provide further detail on this front at its upcoming Investor Day (22 April). BKL said that e-commerce sales across the group are 25% of group revenue. At this stage most of the growth is coming from China however BKL sees a big opportunity in Australia.

Outlook: 1H earnings skew – expecting solid FY21 earnings growth

BKL’s 2H21 result is expected to be stronger than the very weak pcp (was loss making) but lower than the 1H21 due to lower revenue and increased advertising and promotional spend in the 2H21.

FY21 earnings growth reflects the combination of strong growth from the China and International operations, cost savings (A$18m total), price rises from 1 October 2020 and further mix benefits.

BKL’s Business Improvement Program continues to target A$50m of savings by FY23 however half of these benefits will be reinvested in marketing, sales and innovation, with particular focus on its Asian operations. Its efficiency program is expected to materially increase BKL’s margins which are lagging peers.

Following a stronger than expected interim result, we have increased our FY21/22/23 NPAT forecasts by 3.2%/3.5%/4.3%.

In line with the seasonality of the business (China’s key selling events are in the 1H), we have assumed a 1H vs 2H EBIT split of 55%/45% in FY21.

Given BKL will reinvest cA$10m in its inventory position in the 2H21, we expect FY21 cash conversion will moderate (vs. the 1H21).

Investment view – Hold rating 

The 1H21 result gives us increasing confidence in the turnaround at BKL and the opportunity to materially increase margins over time. This along with solid top line growth should produce strong earnings growth over coming years. However trading on full multiples (FY22F PE of 33x), we maintain a Hold rating.

Following forecast changes and given BKL’s stronger than expected cashflow generation and net cash position, our valuation has risen.

Find out more

Download full research note

You can find further detailed analysis of company results this reporting season by browsing our reporting season tag, and view a full list of upcoming results on our Reporting Season Calendar.

If you would like access or more information, please contact your adviser or nearest Morgans office.

Request a call  Find local branch

Need access to our research?

You are also welcome to start a two-week trial of our online platform, which provides access to detailed market analysis and insights, provided by our award-winning research team

Create trial account 

Disclaimer: The information contained in this report is provided to you by Morgans Financial Limited as general advice only, and is made without consideration of an individual's relevant personal circumstances. Morgans Financial Limited ABN 49 010 669 726, its related bodies corporate, directors and officers, employees, authorised representatives and agents (“Morgans”) do not accept any liability for any loss or damage arising from or in connection with any action taken or not taken on the basis of information contained in this report, or for any errors or omissions contained within. It is recommended that any persons who wish to act upon this report consult with their Morgans investment adviser before doing so.

  • Print this page
  • Copy Link