Cross Pollination
Cross pollination is a valuable element of any investing framework. At its simplest investors in our domestic funds benefit from the insights the Montgomery global team garner researching, analysing and talking to international companies.
Our domestic investments can also be informed by the the insights gleaned from companies in which we are not investors.
One example in which investors are currently taking a risky bet, and may be informed by the experience of another company, is in the area of Chinese demand for Australian baby formula, milk, protein and health foods.
With 425 employees, Vita Life Sciences Limited (ASX: VSC) has been listed since 2007 and sells 750-800 registered SKU’s of vitamins and supplements in seven countries in the Asia Pacific under three main brands, VitaHealth, VitaSciences and Herbs of Gold.
In their FY16 results announcement they offer a sobering view for investors who have thrown caution to the wind in their theme-based pursuit of Blackmores, Bellamy’s and Capilano et al.
Vita Life Sciences reported on regulatory changes in China for over the counter (OTC) products and noted that these are being tightened. On their segment results slide they stated one of the reasons their Asia segmental revenue declined 32.3 per cent and the number of products being sold into the country fell, was because of “industry wide new regulatory regime impacting OTC products”. Granted management changes also contributed.
It appears vitamins are or will be treated by regulators like other drugs in China where it can take more than five years before approvals for direct sales are granted.
Vita Life Sciences is one of the few listed businesses in this space that has a direct presence in Asia built over more than a decade.
The idea to take away from VSC’s result and commentary is that if regulatory changes are already occurring in China in the over-the-counter market, the grey import / parallel market won’t escape. This may force companies like Blackmores and Bellamy’s to go direct – and ultimately provide a barrier to entry if they succeed. In the meantime, the regulatory path is both long and arduous – just the sort of thing that speculators paying huge P/E’s for future blue sky generally don’t hang around to endure.
Roger Montgomery is the founder and Chief Investment Officer of Montgomery Investment Management. To invest with Montgomery domestically and globally, find out more.
Roger Montgomery is the Founder and Chairman of Montgomery Investment Management. Roger has over three decades of experience in funds management and related activities, including equities analysis, equity and derivatives strategy, trading and stockbroking. Prior to establishing Montgomery, Roger held positions at Ord Minnett Jardine Fleming, BT (Australia) Limited and Merrill Lynch.
This post was contributed by a representative of Montgomery Investment Management Pty Limited (AFSL No. 354564). The principal purpose of this post is to provide factual information and not provide financial product advice. Additionally, the information provided is not intended to provide any recommendation or opinion about any financial product. Any commentary and statements of opinion however may contain general advice only that is prepared without taking into account your personal objectives, financial circumstances or needs. Because of this, before acting on any of the information provided, you should always consider its appropriateness in light of your personal objectives, financial circumstances and needs and should consider seeking independent advice from a financial advisor if necessary before making any decisions. This post specifically excludes personal advice.
Tristan Harrison
:
A very good point Roger.
Did the TPP free up any Australian companies to trade or has nothing really changed?
Tristan