FSA Individual Assignment Part 2 & 3- Blackmores

Executive Summary Blackmores Ltd is an Australian listed (BKL) international supplier of a wide range of vitamins and supplementary dietary products. The company employs over 1000 workers and their products reach cons ...

Executive Summary Blackmores Ltd is an Australian listed (BKL) international supplier of a wide range of vitamins and supplementary dietary products. The company employs over 1000 workers and their products reach consumers in 17 different countries. Blackmores Ltd is currently operating with a share price of $93.70 (ASX, 2017) and continues to be profitable in an industry with a medium level of market concentration. This report intends to examine Blackmore’s financial statements in order to complete a future valuation of the company via forecasted results. An examination of the share price, using 4 models will determine Blackmore’s value as an investment and whether or not there is glaring sensitivities for PM, Sales Growth or WACC when a pessimistic or optimistic outlook is implemented. Areas of improvement will eventually be identified along with potential thats to strong financial performance for Blackmores. These challenges can be overcome if they can successfully be remedied. (Part 2) Prospective Analysis The following prospective analysis of Blackmores Ltd will rely on 4 different valuation techniques. The models implemented for this report were the Abnormal Earnings Model (AEM), Abnormal Operating Earning Model (AOE), Discount Dividend Model (DDM) and the Discounted cash flow model (DCF). These valuations are established from Blackmores 2016 Annual report as well as 2013, 14 and 15 reports. In the process of determining a share price using the aforementioned models, certain economic assumptions and industry averages are implemented. Sales growth Sales growth for Blackmores Ltd will be dependent on many variables, including Gross Domestic Product (GDP), threat of new entrants and the exchange rate. The exchange rate factor is notoriously difficult to forecast and is therefore a relative unknown for Blackmores moving forward. The forecasting of Blackmores financial performance in future periods required certain assumptions relating to revenue growth. The % used in the sales growth from year to year took into account the average growth rates between 2012-2016, but mainly considered the industry growth for vitamins and supplements. The figures between 2012-2016, are displayed in table 2.1 below. Reference list ASX, ‘Blackmores share price as at 5 Jun, 12:18 pm AEST Australian Financial Review, 2017 ‘Blackmores Fined in China for Misleading advertising’, viewed at 2/6/17 http://www.afr.com/business/retail/fmcg/blackmores-fined-in-china-formisleading-advertising-20170316-guzk0s Business Insider, David Scutt,7 December 2016, BlackmoresAnnual Report, 2013, ASX_BKL_2013.PDF, viewed 2/6/17 (http://www.annualreports.com/HostedData/AnnualReportArchive/B/ASX_BKL_2013.pdf) Blackmore’s Limited "Blackmores Wins Australia’S Most Trusted Vitamin & Supplement Brand 7 Years Running". Blackmores.com.au. N.p., 2015. Viewed 1 Jun. 2017. Demand Metric, 2017, ‘Entering European Market Successfully’ viewed at 06/08/17 https://www.demandmetric.com/content/entering-european-market-successfully Euromonitor, (2016). ‘Vitamins and Dietary Supplements in Australia’ http://www.euromonitor.com/vitamins-and-dietary-supplements-in-australia/report Fitness Australia, 2016, ‘Industry Report 2016’ https://fitnessaustralia- International Monetary Fund, 2017, Global economic outlook. Viewed at 06/06/17 http://www.imf.org/en/Publications/WEO/Issues/2017/04/04/world-economic-outlookapril-2017 Investopedia, 2016, ‘Economic factors that most affect demand of consumer goods’ viewed 01/06/17 http://www.investopedia.com/ask/answers/042815/which-economic-factorsmost-affect-demand-consumer-goods.asp ReadySetGo, 2016 China ‘Blackmores Success Hiccups with China, the real reason’ viewed 3/06/17 http://readysetgochina.com.au/blackmores-success-hiccups-with-china-the-realreason/ SMH, ‘Blackmores Shares slump as growth fades’, Brian Robbins Oct 2016 viewed at 3/06/17 http://www.smh.com.au/business/retail/blackmores-shares-slump-as-growth-fades20161026-gsbofj.html 14 Scott, 2016 Mens Health ‘Is Australia’s latest fitness trend the real deal?’ https://www.menshealth.com.au/article/fitness/is-australias-latest-fitness-trend-the-realdeal Trading Economics, 2017, ‘Forecasts for GDP’ Viewed at 3/06/17 https://tradingeconomics.com/australia/forecast