Blackmores Ltd
Table of Contents
1 introduction 1
2 2
3 Corporation Background 3 3.1 Organization 3 3.2 Market Position 3 3.3 Government Impact 4 3.4 Description of Competitors 4
4 Capital Structure 6 4.1 Blackmores’ Current & Historical Leverage 6 4.1.1 Debt to Equity Ratio 6 4.1.2 Degree of Financial Leverage and Operating Leverage 8 4.2 Capital Expenditure and Financing 9 4.3 Capital Structure Relative to Competitors 10 4.4 Bankruptcy Risk Assessment 11 4.5 Leverage Policy Summary 12 4.6 Is this the Optimal Leverage Policy? 13
5 Dividend Policy 14 5.1 Current and Recent History of Dividend Payment 14 5.2 Dividend policy comparing to comparable firms 14 5.3 Relevant Company Characteristics to its Dividend Policy 16 5.4 Analysis of Company’s Dividend Policy and Lintner’s Analysis 16 5.5 Optimal Dividend Policy 17
6 Valuation 19 6.1 Assumptions 19 6.2 Valuation Method 20 6.2.1 Determining the Cost of Equity (rS) 20 6.2.2 Determining the Cost of Debt (rb) 22 6.2.3 Weighted Average Cost of Capital (WACC) 22 6.2.4 Estimating the Future Sales Growth Rate 23 6.2.5 Estimating Future Cash Flows 23 6.2.6 Estimating Firm value 24 6.3 Sensitivity Analysis 25 6.3.1 Share price sensitivity to changes in the Sales Growth Rate (2011-2020) 25 6.3.2 Share Price Sensitivity to Change in the Sales Growth Rate (after 2020) 26 6.3.3 Share Price Sensitivity to Changes in WACC 27 6.4 Comparison of the Estimated and Actual Share Price 28
7 Investment Recommendation 29
8 Appendix 30
9 Reference 34
Executive Summary
Blackmores LTD (BKL) which started in the 1930s is a major player in developing and marketing products and services that deliver a more natural approach to health, based on their expertise in vitamins, minerals, herbs and nutrients.
For the year ended 30 June 2010, Blackmores posted a net profit after tax of $24.3 million, an increase of 17% on last year. Group revenue
1 introduction 1
2 2
3 Corporation Background 3 3.1 Organization 3 3.2 Market Position 3 3.3 Government Impact 4 3.4 Description of Competitors 4
4 Capital Structure 6 4.1 Blackmores’ Current & Historical Leverage 6 4.1.1 Debt to Equity Ratio 6 4.1.2 Degree of Financial Leverage and Operating Leverage 8 4.2 Capital Expenditure and Financing 9 4.3 Capital Structure Relative to Competitors 10 4.4 Bankruptcy Risk Assessment 11 4.5 Leverage Policy Summary 12 4.6 Is this the Optimal Leverage Policy? 13
5 Dividend Policy 14 5.1 Current and Recent History of Dividend Payment 14 5.2 Dividend policy comparing to comparable firms 14 5.3 Relevant Company Characteristics to its Dividend Policy 16 5.4 Analysis of Company’s Dividend Policy and Lintner’s Analysis 16 5.5 Optimal Dividend Policy 17
6 Valuation 19 6.1 Assumptions 19 6.2 Valuation Method 20 6.2.1 Determining the Cost of Equity (rS) 20 6.2.2 Determining the Cost of Debt (rb) 22 6.2.3 Weighted Average Cost of Capital (WACC) 22 6.2.4 Estimating the Future Sales Growth Rate 23 6.2.5 Estimating Future Cash Flows 23 6.2.6 Estimating Firm value 24 6.3 Sensitivity Analysis 25 6.3.1 Share price sensitivity to changes in the Sales Growth Rate (2011-2020) 25 6.3.2 Share Price Sensitivity to Change in the Sales Growth Rate (after 2020) 26 6.3.3 Share Price Sensitivity to Changes in WACC 27 6.4 Comparison of the Estimated and Actual Share Price 28
7 Investment Recommendation 29
8 Appendix 30
9 Reference 34
Executive Summary
Blackmores LTD (BKL) which started in the 1930s is a major player in developing and marketing products and services that deliver a more natural approach to health, based on their expertise in vitamins, minerals, herbs and nutrients.
For the year ended 30 June 2010, Blackmores posted a net profit after tax of $24.3 million, an increase of 17% on last year. Group revenue