[VIDEO ANALYSIS] Is there a rebound in sight for Blackmores (BLK)?

William O'Loughlin:

We're up to question four. Joanne from New South Wales asks, so she has two parts. So starting with part one. Can you speak on Blackmores (BKL)? Do you think it will keep going down or rebound?

 

Shannon Rivkin:

Yeah, good question. It's funny that the question's been termed do you think it will keep going down or rebound because it's one that's really been in the press over the last 18 months or so and rightfully so. But it's almost hard to remember where it's come from. In 2014 this was at 20 dollars and it went as high as 220 or so. So the 10 times increase over 3 year, that was over 2 years actually. And I think, that's the more impressive thing. But the question is, has it been over sold or did it go too far. And I'm firmly in the it went too far camp. And the main reason behind that is, what caused the increase in profit and expectations of profit was something that I think is artificial. And that's primarily the, that affect of Dygoods. Which is those buyers out of China buying in Australia for, to make an arbitrage by selling in China. And what caused that originally was issues with health scares for the competitors in China. Which meant that names in Australia which were traditionally very well regarded all of a sudden had this huge price premium.

 

 

But obviously as time went by that was always going to slow down and that's exactly what we're seeing. So that whole Dygood trade and arbitrage has really died down now. So the numbers you've seen for Blackmores in the last year out of China, while, it's still very promising, it's a 20 million dollar market there. It's still a very exciting market and I think it is their future. But the market was under pricing as if it was going to out do what they make in Australia yesterday. And it's just not going to be like that.

 

 

So now we've seen it back to a hundred dollars or so today. It's trading on expectations of, sorry on 22 times this year's profit expectations. Which is still very very healthy. So that's a still, a solid multiple. And you would have to see, still continued growth beyond that. Now I think that can all be achieved. And I think if they have recognised the problems that they've seen over the last year and tried to handle things better as far as inventory and not over allocating towards China. Then I think this is a good story. Management has done a great job. But the days of seeing 50, 100% growth, they're behind us. Unless again maybe we see another health scare in China. That's the sort of thing that could return to favour.

 

 

This is a much less scary version of what we saw with Bellamy's. And that's probably because, unlike Bellamy's Blackmores makes it's own product. So it's not just marketing brand. And they weren't quite caught as short as what Bellamy's was. But there's something to be learned from these sort of situations. William was just talking about these high multiples. This was trading on incredibly high multiples which just weren't appropriate given the artificial nature of the demand that we were seeing.

 

William O'Loughlin:

Okay-

 

Shannon Rivkin:

So by the way the summary of that meeting. Do you think it will keep going down or rebound? I think it's appropriately priced now. I think if we're going to see any growth, any improvements here they're going to have to start delivering above what the market has been expecting.

 

William O'Loughlin:

Okay.

 

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