Reasons to be positive about Blackmores Blackmores acquired...

Reasons to be positive about Blackmores

Blackmores acquired ‘Global Therapeutics’ in May 2016 for $23m. The acquisition has two brands offering Chinese herbal medicine – these brands are market leaders in this category at health food stores and pharmacies.

Blackmores will soon be launching in Indonesia, further expanding its overseas markets.

The partnership with Bega Cheese Ltd (ASX: BGA) to develop nutritional foods including toddler milk is progressing. In FY17 it has plans to start selling these products in markets like China. Its toddler milk will put it in direct competition withBellamy’s Australia Ltd (ASX: BAL).

Blackmores’ balance sheet is in an extremely strong position; its gearing ratio is a low 9.1% and its net interest cover is 80.2x.

Dividend

Blackmores’ grossed up dividend yield is currently around 5.2%. Considering Blackmores is expected to pay a dividend of $6.20 per share by FY18 (source:Commsec), this suggests Blackmores is trading at a forward yield of 7.9%. This makes Blackmores look like an attractive income and growth stock.

Time to buy?

Blackmores is currently trading at 18.5x FY16’s earnings and 13.2x FY18’s estimated earnings. These ratios appear reasonable for the potential growth on offer.

As I mentioned before, Blackmores didn’t disclose how ‘down’ the first quarter would be – 1% down and 10% down are both ‘down’.

I think Blackmores looks like a good buy at this price, but it may be worth splitting a potential investment in half; invest half before the Q1 update and the other half afterwards, in case a cheaper price is available.