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Investment Analysis and Portfolio Management

   

Added on  2022-12-19

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FinanceEconomics
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Running head: INVESTMENT ANALYSIS AND PORTFOLIO MANAGEMENT
Company name: Blackmores Limited
Exchange: ASX
Ticker symbol: BKL.AX
Sector: Consumer Defensive
Industry: Household & Personal Products
Recommendation (buy/sell/hold): Buy
Current price (as of 01-05-2019): 92.580
Target price: 139.03
Investment Analysis and Portfolio Management
Name of the Student:
Name of the University:
Author’s Note:
Course ID:
Investment Analysis and Portfolio Management_1

1INVESTMENT ANALYSIS AND PORTFOLIO MANAGEMENT
Executive Summary and Final Recommendation:
The analysis of the financial report mainly indicates that the financial performance of
Blackmores Limited is improving but the share value is still underpriced. Hence, investors can
use the opportunity to increase their exposure in Blackmores Limited and generate higher returns
in the long run. The financial models such as dividend discount model, FCFE approach and
relative valuation model has indicated that share price of Blackmores Limited is underpriced.
Hence, a BUY call is initiated for Blackmores Limited.
Investment Analysis and Portfolio Management_2

2INVESTMENT ANALYSIS AND PORTFOLIO MANAGEMENT
Table of Contents
1. Business description, history and financial performance:...........................................................4
1.1 Introduction to the company:.....................................................................................................4
1.2 Overview about the company:...................................................................................................4
1.3 Corporate strategy:.....................................................................................................................5
2. Industry comparison and projections:..........................................................................................5
2.1 Identifying the competitors of the organisation:........................................................................5
2.2 Explaining about the company market share and performance over 5 years:...........................6
2.3 Explaining, discussing and analysing the important ratios of the organisation for the last 5
years, while comparing it with the industry:...................................................................................7
2.3.1 Five year financial performance of Blackmores Limited:......................................................7
2.3.1.1 Profitability:.........................................................................................................................8
2.3.1.2 Liquidity ratio:...................................................................................................................10
2.3.1.3 Efficiency ratio:.................................................................................................................11
2.3.1.4 Gearing ratio:.....................................................................................................................12
2.3.1.5 Stock market ratio:.............................................................................................................13
2.3.2 Comparing the financial performance of Blackmores Limited with Industry:.....................14
2.4 Explaining the DuPont analysis 3-step and 5-step for ROE:...................................................16
3. Industry trends/economic environment:....................................................................................19
3.1 Overall Microeconomic environment:.....................................................................................19
3.1.2 SWOT Analysis:...................................................................................................................19
3.2 Overall Macroeconomic environment:....................................................................................20
3.2.1 Porter’s 5 force analysis:......................................................................................................20
Investment Analysis and Portfolio Management_3

3INVESTMENT ANALYSIS AND PORTFOLIO MANAGEMENT
4. Investment Summary:................................................................................................................21
5. Equity Valuation:.......................................................................................................................22
5.1 Dividend Discount Model (DDM):.........................................................................................22
5.2 Free Cash Flow to Equity (FCFE):..........................................................................................23
5.3 Comparing the intrinsic value:.................................................................................................24
5.4 Relative Valuation Models (RVM):........................................................................................25
6. Investment Risks:.......................................................................................................................26
6.1 Business and Operation risks:..................................................................................................26
6.2 Market risks:............................................................................................................................27
References and Bibliography:........................................................................................................27
Appendices:...................................................................................................................................33
Investment Analysis and Portfolio Management_4

4INVESTMENT ANALYSIS AND PORTFOLIO MANAGEMENT
1. Business description, history and financial performance:
1.1 Introduction to the company:
Blackmores Limited is one of the major developed of customer products for consumers in
Australia, where the organization has been selling their products for the past 89 years. The
company was started in Warriewood, Australia during 1930s, after incorporation the company
increases consumers demanded its operations in the country, which has allowed the management
to acquire new drugs thaw. Moreover, the company has been trying to improve its net profit
generation capability levels to former glory, which was achieved during 2016
(Blackmores.com.au 2019).
1.2 Overview about the company:
There is key Attributes of Blackmores Limited, which has allowed the organization to
improve with performance over the years. Moreover, the company has been conducting
extensive research and development to attain more customized products for the customers.
Blackmores Limited has been committed to deliver natural healthcare products and services to
the consumers, where the highest quality standards are met. In addition, the management taken
precautions to meet the deserving expectations of the customers, which allowed the organization
to enjoy the award of Australia’s Most Trusted Brand for vitamins and supplements for the tenth
year running in 2018 (Blackmores.com.au 2019).
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5INVESTMENT ANALYSIS AND PORTFOLIO MANAGEMENT
1.3 Corporate strategy:
Blackmores Limited has a specific corporate strategy, which aims to improve its
operational conditions and reduce any kind of excessive expenses in the long run. Management
of Blackmores Limited thrives to increase their research and development expenses to acquire
new methods in preparing product for the customers. The second corporate strategy that has been
implemented by the management is the online selling platform, which is allowing organization to
improve its revenue generation capability and increasing customer reach. The strategy has been
considered a fruitful endeavor, which has allowed the organization to increase its revenue
generation capability (Blackmores.com.au 2019).
2. Industry comparison and projections:
2.1 Identifying the competitors of the organisation:
The biggest competitors of Blackmores Limited are Integria Health care, Mede Linked
and Health Line, as these companies specify in a particular drug, which is also provided by
Blackmores Limited. The competitiveness in the Australian Household & Personal Products is
relevantly high, where organisation without specific knowledge about the current competiveness
cannot make relevant investments decision to increase its market share. The competitiveness of
Blackmores Limited is minimal in the Household & Personal Products market, where companies
like are Integria Health care, Mede Linked and Health Line are also increasing their
competitiveness in the market to capture more market share (Vogel 2014).
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6INVESTMENT ANALYSIS AND PORTFOLIO MANAGEMENT
2.2 Explaining about the company market share and performance over 5 years:
Figure 1: Share price trend of Blackmores Limited for the past 5 years
(Source: Au.finance.yahoo.com 2019)
The above figure provides information about the share price trend of Blackmores Limited
for the past 5 years, which helps in estimating the share price performance of the organization.
Share price performance of the organization has relatively improved over the 5-year period
where in 2016 the five-year high was touched. The company met a high of $220.90 in 2016,
while after that it started to decline to the levels of $80.45 in 2019. Moreover, during the period
of 2017 to 2019 the share price performance of Blackmores Limited was consolidating, which is
a positive indication in the technical analysis. This directly indicates that there is future growth
available in the share, which could allow the investors to increase its return from investment.
However, the five-year low of Blackmores Limited was at the levels of 26.35 while the high was
at the levels of 220.90, which indicate that more than 100% increment in share price was
Investment Analysis and Portfolio Management_7

7INVESTMENT ANALYSIS AND PORTFOLIO MANAGEMENT
witnessed. This was only possible due to the high growth rate that has been achieved by the
organization over the period of 5 years (Blackmores.com.au 2019).
2.3 Explaining, discussing and analysing the important ratios of the organisation for the
last 5 years, while comparing it with the industry:
2.3.1 Five year financial performance of Blackmores Limited:
Profitability 2018 2017 2016 2015 2014
Net margin 11.63% 10.68% 16.68% 11.96% 7.31%
Gross margin 61.39% 57.03% 64.26% 62.04% 68.17%
Return on assets 15.06% 14.32% 22.56% 15.87% 10.75%
Return on equity 36.30% 33.24% 56.10% 35.03% 24.40%
Liquidity ratio 2018 2017 2016 2015 2014
Current ratio 1.7
3
1.8
1
1.5
3
1.63 2.26
Quick ratio 1.14 1.22 0.93 1.30 1.60
working capital 128,040.00 116,106.00 102,345.00 72,846.0
0
73,336.0
0
Efficiency ratio 2018 2017 2016 2015 2014
Asset receivable
turnover
4.25 4.14 4.96 4.38 4.93
Investment Analysis and Portfolio Management_8

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