Blackmores Limited (ASX:BKL) operates in the vitamin herbal and mineral supplement, or VHMS, market. Its product range extends to arthritis, cholesterol, stress, sleep and eye health. Distribution is via pharmacies, supermarkets and health food stores. The company has been operating for 80 years and is the Australian market leader with approximately 20% market share. International sales represent about 23% of revenue, but are growing strongly.
Blackmores is one company that will benefit from an ageing population and health-conscious consumers in an industry that's gaining credibility.
The credibility and trust in the Blackmores brand is its competitive advantage in this industry.
Blackmores has an unblemished record of quality and market-leading innovation. For the past three years, the company has been awarded Australia's "most trusted vitamin and supplement brand" by a poll conducted by Readers' Digest.
While the Blackmores brand is recognised for its quality and premium status, the company is also riding the 'global VHMS wave'. The VHMS market is gaining popularity worldwide based on an ageing population, an increasing awareness of the importance of good health by consumers, and increased rates of obesity, cardiovascular and other diseases, which leads to increased demand for better nutrition and supplements. When you combine this with a number of fast-growing emerging markets, you have the potential for significant growth.
One big reason to invest in Blackmores will be its ongoing success in Asia.
Although price pressure remains from key clients in Australia, Blackmores' earnings growth will come from Asia.
Evidence of this is in its third quarter 2015 report, where Blackmores announced, "Notwithstanding weakness in Thailand, and the benefit of a weaker AUD, the Asian business delivered an impressive 43% increase in sales compared with the previous corresponding period."
Blackmores' Chief Executive Christine Holgate understands that each country in Asia is different and requires a different sales and marketing strategy.
Part of this strategy is to recruit local people in each country who have either been to University in Australia, or worked for Australian companies in the past. These representatives operate independently in Thailand, Malaysia, Singapore, Hong Kong, China, Korea, Cambodia and Macau.
Another part of this strategy includes partnering with dominant Traditional Chinese Medicine, or TCM, companies and healthcare retailers to assist with revenue growth by establishing product awareness across the region. One such partnership is with Eu Yan Sang–one of Asia's leading healthcare companies in Singapore, and CJO–a major Korean home shopping network.
This expansion into Asia now represents 18% of group revenue and the targeting of its growing middle class, is certainly providing momentum which should continue for some time to come.
Valuation
This is the hard bit when it comes to Blackmores. While it's obvious that all of the indicators look good, the question is how much is the stock worth. At its current price of around $74, the stock is up 163% in the past 12 months, and its P/E is close to 40. For me, it's just too expensive, but if you believe, based on all of the above, that it's reasonably priced, then now may be the time to buy.
