There were a few surprises for me when reviewing Blackmores’ (ASX:BKL) recent results for yesterday’s mea culpa. I was surprised how much of the revenue growth was in Australia. I’m not sure why, but I had the idea in my head that it was Asian demand driving the company’s stellar share price gains.
Asian sales were up 26% last year. Impressive, sure, but nothing on the 43% growth in Blackmores’ home market of Australia.
Even those growth rates aren’t enough to justify a 300% increase in the share price, though. The other crucial factor is that margins have rebounded to the levels of a few years ago, driving a dramatic increase in profit. It seems Blackmores has regained some pricing power.
That seems true even anecdotally. You still see Swisse and Nature’s Own on television, but Swisse in particular is not as prominent as it was. So what’s going on?
This morning’s AFR suggests Swisse is about to be sold to Chinese private equity firm Hony Capital. If Swisse has been dressing itself up for sale, it would make perfect sense to take the foot off the marketing accelerator to improve margins and make the company seem as profitable as possible.
We’ll soon find out whether Swisse’s new owners are happy with the status quo. Blackmores shareholders will be hoping so.
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Forager Funds is a boutique fund manager specialising in a value investing approach. We offer an ASX listed Australian Shares Fund as well as an International Shares Fund both aimed at delivering returns for long term investors.