Hi Everyone
Just thought I start a new thread as it amuses me everytime I click on "not lower than 2.61" but the SP is showing 2.45 etc
I actually don't mind the SP drop if that is because the traders/shorters want to sell off this stock & go elsewhere. If it is to stay at $2.40-2.50 so be it. (of coz DYOR)
I am long with this stock, at least 2-3 years until the next economy cycle (remember when health supplements meet their low during 2010-2011, then strong rebound in 2012?)
Why do I have faith in Vitaco?
Top down, the health supplement (or complementary medicines) is a growing sector with 20-30% growth each year according to my retail pharmacy research report from IBISWorld, only followed by Beauty sector which is only 10-15%. Most pharmacists agree that with the growing trend complementary medicines will takeover the OTC medicine sales as no.1 non-dispensary revenue.
The sector is also fragmented with Blackmores & Swisse each holding 15% market share (Australia). The next level players Sanofi (who makes Nature Own & Cenovis) & Pharmacare (who makes Natures Way & Bioglan) each getting less than 10%.
Vitaco still have at least 50% fragmented market to go for!
Bottom Up, Vitaco holds quality products, diversified brands, each distributing via different channels, targeting different consumer groups.
I also believe in their strategies (that's if they do what they say in their prospectus).
1. Blue Ocean Strategy: While BKL, Swisse & Pharmacare busy fighting for Organic Baby Formula with BAL & A2m, Vitaco is going into protein supplements. With acquisition of Musashi, Musashi & Aussie Bodies nearly dominates the sport nutrition market. Protein Supplement is also targeting the China aged folks or retirees which is a giant market. (For whom from non-asian background, asians consume rice(carbohydrate) as main source of energy, therefore more prone to muscle loss than caucasians)
2. Online Alibaba boom: while later than its peer, Vitaco is still in time to get into the online boom to set up their tmall store before end of 2015.
3. Sourcing: around 40% of Vitaco’s product is made by external manufacturers. That’s obviously not great for their margins. Management has identified a number of products that could be made at Vitaco’s own plants. Upon floating the directors announce to investigate the potential to maximise the manufacturing capacity with obvious benefits (well, I am clearly not expert of this area, but I can see increased margins, simpler quality control, faster new product development, and faster launches of those new products.)
4. Labour Cost: old story. NZ has cheaper labour costs compared to Aus.
Now if you ask me, is VIT the next BKL? No I won't say that.
BKL is more established. BKL owns more than 50% source of Evening Primrose Oil in the world (that means Vitaco would have to buy from them if to launch EPO supplements). BKL owns patented flu formula the Kaloba(R) which is non-replicable by competitors. BKL also owns a research lab, and when I last attend their Symposium, there are at least 5 known PhD academics which are the reason why BKL can come up with at least 5 new products every year, and each supported by scientific literature. When I speak to their sales reps, most are all shareholders of their company and they always sound proud of their company.
However I bet on Vitaco NOT on the basis to become the next BKL. I only need it to take up the remaining fragmented 50% market shares out there, maybe eat up a small slice from Sanofi which is clearly not doing so well. Maximise the profit margins by maximising manufacturing capacity & so on. Maybe
decades later set up a lab (I know they already have one) to the scale similar to that of BKL. Making patented products & so on. Thats why, I say it is a long term hold position.
