3rd time doing analysis! Here's my previous analysis': A2M:...

3rd time doing analysis! Here's my previous analysis':
A2M: http://hotcopper.com.au/threads/a2m-analysis.2694137/
BFC: http://hotcopper.com.au/threads/bfc-analysis.2693150/

Running on borderline no sleep so let me know what you think and if I've made any mistakes.
The more informed investors are the better decisions they can make!

Anyway, here it is!
Vitaco Group
Current situation: Price: $2.15 Shares: 139.14M Market Cap: $299M 52 week high+low: $3.23 - $1.97 (Source: Google Finance, https://www.google.com/finance?q=ASX:VIT&ei=Y1i0VuC4NoiR0ASxmoaACA

Who is: Vitaco Group is an Australian and New Zealand nutritional products business that develops, manufactures and distributes a range of branded products within the nutrition, health and wellness industry. Currently has operations in Australia and New Zealand, and is growing presence in offshore markets, particularly across Asia.
Vitaco’s origins go back to 1904 when the Healtheries brand in NZ was established. In 2007, Healtheries merged with Nutra-Life, a leading New Zealand supplement and sports nutrition brand founded in 1967, to create what is now the Vitaco Group. In 2014 Vitaco added the Bodytrim brand and then in 2015 added the Musashi brand to their portfolio. [1] page 8
Vitaco generates their income through the sale of products within the vitamins and dietary supplements category, the sports nutrition category and the health and wellness, packaged food category. Current distribution channels are grocery, pharmacy, health food and sports specialty, route (including gyms, petrol stations and convenience stores) and direct-to-consumer/online. Large customers include Woolworths, Coles and Chemist Warehouse (via Sigma Pharmaceuticals) in Australia, and Progressive Enterprises and Foodstuffs in New Zealand. In FY15, the Vitaco Group’s top ten customers accounted for approximately 58% of net invoiced revenue. Currently have operations in Auckland, New Zealand (where it manufactures its products) and Sydney, Australia. As of 30^th June 2015, the Vitaco Group employed 440 people. [1] Page 8
For the best overall description see their website: www.vitaco.com.au

Vitaco Brands:
- Healtheries (established in 1904) #1 brand in the vitamins and dietary supplements category in NZ (By sales revenue)
- Nutra-Life (established in 1967)
- Wagner (established in approximately 1980)
- Aussie Bodies (established in 1991) #1 brand in the sports nutrition category in Aus (by sales revenue)
- Musashi (established in 1987)
- Balance (established in 1985) [1] page 9

Management: Ryan Dalmeida started with Vitaco Group in March 2009 and has been the Chief Executive Officer of the Vitaco Group since October 2014 and Executive Director since July 2015. DAlmeida has been involved in the food and nutrition industry for 20 years, with previous experience at Retail Food Group Limited in Australia and the United Kingdom and also at Weight Watchers for 8 years. Currently owns 357,400 shares in VIT (0.3% of total). Management with current shareholdings in VIT are: Greg Richards – 95,239 (0.1%), Katrina Onishi – 47,620, Emmet Hobbs – 47,620 and Sandy Lockhart – 142,858 (0.1%).

Financials:
Pro Forma Historical Results [1] Page 64

	Column 1	Column 2	Column 3	Column 4	Column 5	Column 6
0	A$ millions	FY13 (12m Jun 13)	FY14 (12m Jun 14)	FY15 (12m Jun 15)	Forecast Results FY16 (12m Jun 16)	Statutory Forecast Results (15m to June 16)
1	Net revenue	146.2	148.4	172.4	211.3	255.7
2	Gross margin	64.1	69.1	75.1	88.5	107.7
3	EBIT	15.1	16.9	17.5	20.0	2.5
4	NPAT	9.9	11.0	11.1	12.7	(9.7)

The Statutory Forecast Results include a number of one-off costs including: (a) one-off estimated transaction expenses associated with the Offer of $13.2 million; (b) one-off transaction and integration costs attributable to the Musashi acquisition of $9.4 million (of which $7.9 million will be paid by the Group before 30 June 2016); and (c) a one-off non-cash write off of a deferred tax asset ($3.1 million) due to the capital reorganisation of the Vitaco Group.

Overall excluding the one off costs for the 15 months to June 16 in regards to the Musashi purchase and the expenses related to the offer I think VIT very solid earnings and growth, assuming a clean integration of Musashi I believe VIT will continue to have very strong financials and cash flows.

Balance Sheet: Overall VIT’s inventory and intangible assets combined make up $142.9M of VIT’s 203.8M worth of assets in the Pro Forma Historical Balance Sheet at 31 March 2015. Total liabilities came to $69.9M. But the Vitaco Group expects to have a nil cash balance at Completion of the Offer as compared to the pro forma cash balance of $6.9 million as at 31 March 2015 [1] Page 71. So with that taken into account, and excluding intangible assets and Inventory from the balance sheet VIT have a total of $53.7M worth of assets compared to $69.9M worth of liabilities. In my opinion I think VIT’s balance sheet is just a little to risky for my liking, I think if something were to happen to their current inventory or to their intangible assets (goodwill) it could have some serious consequences.

Summed up my basic likes and dislikes about VIT:

What I like:

-Diversification: Vitaco holds quality products, diversified brands, each distributing via different channels, targeting different consumer groups. Vitaco has diversity across vitamins, sports nutrition and health foods including well known consumer brands. Again more diversification = less risk.
-Industry: Collectively the nutrition, health and wellness industry had an estimated global market size of approximately US$570 billion as of 2014 [2]. The Australian and New Zealand vitamins and dietary supplements market alone is estimated to be the seventh largest market globally with an estimated market size of A$2.3 billion as of 2014 [3]. For the ten years from 2004-2014 the Sports Nutrition, and Vitamins & Dairy Supplements industries had a CAGR of 12.0% and 8.7% respectively [1] page 23. As consumers’ take on an increasingly proactive approach to a healthier lifestyle, increase knowledge of the benefits associated with the use of vitamins and dietary supplements products, and as population age demographic shifts older there will be an increased focus on nutritional and dairy supplements to improve health, wellbeing and quality of life.
-Management: As noted above, have skin in the game. Always a plus in my opinion

Enough of the positives, here's what I don't like:

-Goodwill of the Brand: The business of Vitaco is heavily reliant on its reputation of their brands, if one of Vitaco’s brands were to receive adverse publicity due to quality control reasons, product safety or something similar will most certainly impact the future operating and financial performance of the company (Tip: See the whole Patties Foods debacle [4]). VIT’s intangible assets make up $105.8M over half of their total assets, the goodwill of their brands is a crucial asset to being a profitable business and if something were to happen to it ten there could be some hefty impacts on future business performance.
-Balance Sheet: As noted above in the balance sheet section, excluding intangible assets and Inventory from the balance sheet VIT have a total of $53.7M worth of assets compared to $69.9M worth of liabilities which is not as healthy as I would’ve liked.

Overall: I like the overall look of VIT, from the strong earnings to diversification and ability to capitalise on future trends, but the balance sheet and reliance of goodwill of there brands is just a small cause for concern in my opinion so until it gets cleaned up and improved I will be happily watching on the sidelines.

If you’ve read this far, thank you so much !
Keep in mind I am not a professional and this is my own research and my own opinion!

Notes:
[1] Vitaco Prospectus: http://www.vitaco.com.au/Modules/LSDocumentManager/DocumentDownload.aspx?DocumentId=150
[2] Euromonitor International, Consumer Health system, 2015 edition: Vitamins and Dietary Supplements, Sports Nutrition; Health and Wellness, Packaged Food system 2015, from trade sources/statistics.
[3] Euromonitor International, Vitamins and Dietary Supplements in Australia report, June 2015; Euromonitor International, Vitamins and Dietary Supplements in New Zealand report, June 2015. NZ$ converted to A$ at the 31 December 2014 exchange rate. Euromonitor International Consumer Health system, 2015 edition: Vitamins and Dietary Supplements, from trade sources/statistics.
[4] Patties Foods http://www.abc.net.au/news/2015-12-07/patties-foods-drops-creative-brands-berries/7006966

Helpful Links & Recent/relevant Articles:
Stocks to buy in January: https://www.morgans.com.au/Blog/2016/January/Stocks-to-buy-in-January.aspx
Management: http://www.reuters.com/finance/stocks/companyOfficers?symbol=VIT.AX