Blackmores – an incredible ride
When Marcus Blackmore oversaw the float of his family’s business 35 years ago at $1.00 per share, little did he (or anyone) realise that total dividends since 1985 would have aggregated to $27.65 per share.
Today, Blackmores (ASX:BLK) has a market capitalisation of $1.36 billion, and the share price at $77.90 is down 63 per cent from its peak four years ago of $218. The financial data over the four years to June 2020, tabled below, gives readers insight into this deterioration.
Over the four years to June 2020, Net Profit is forecast to decline 82 per cent from $100 million to an estimated $18 million; Dividends per share are forecast to decline from $4.10 to nil; Return on Equity is forecast to decline from 64.3 per cent to 8.8 per cent and Net Debt to Equity is forecast to increase from 10.1 per cent to 63.7 per cent.
Today, Blackmores is suffering its biggest challenge for many years as it continues to lose market share in China. Blackmores gets little transparency in the demand profile and the supply chain associated with the Daigous route to market. While this was a major contributor in the hockey stick boost for Blackmores in the handful of years to Fiscal 2016, the situation seems likely to come to a head in the June 2020 half-year.
|Year to 30 June||2016 (Actual)||2018 (Actual)||2020 (Forecast)|
|Net Profit ($m)||100||70||18|
|EPS (17.4m shares)||$5.75||$4.02||$1.03|
|PE at $77.90||13.5X||19.4X||75.6X|
|Net Debt/ Equity (%)||10.1||25.6||63.7|
The recent release of Blackmore’s interim report for the six months to 31 December 2019 revealed Net Profit of $18 million, a decline of 47 per cent from $34 million in the previous corresponding period, on Revenue of $303 million down 5.5 per cent from $320 million in the previous corresponding period.
The forecast Net Profit for the year to June 2020 of $17 million to $21 million (say $18 million) implies nil net earnings in the June 2020 half-year.
Many commentators had previously expected a Net Profit of $26 million for the June 2020 half-year. At the Earnings before Interest and Tax line (EBIT), the $32 million reduction is expected to comprise Cost of Goods Sold ($13 million), new labels ($7 million), less discounting ($8 million), the coronavirus ($7 million) less asset sales ($3 million).
Recently appointed CEO Alistair Symington and CFO Gunther Burghardt must be considering some sort of Chinese trade partnership. Given the current share price, the uncertainty associated with Blackmores operating environment and the relative performance with its major competitor, Swisse, we will allow this one to pass through to the ‘keeper.