Blackmores Limited profit growth appears unhealthy: More fish oil?

What: Vitamins and supplements supplier Blackmores Limited (ASX: BKL) has reported a tiny 1.8% jump in net profit for the 2014 financial year to $25.4 million, and shares are trading up 2.5% in late afternoon trading.

Blackmores manufactures and sells a wide range of vitamins, herbal and nutritional supplements, under the Blackmores and BioCeuticals brands. The company also sells animal health products, and is expanding into new countries in Asia. Macau and Cambodia were added to the list this financial year.

So What: Pleasingly, Blackmores Australia returned to profitability in the second half of the year, and says it maintained the number one brand in the market. But the company is still competing against some major competitors such as Swisse, and faces ongoing margin pressure from the big supermarkets Coles – owned by Wesfarmers Ltd (ASX: WES) and Woolworths Limited (ASX: WOW).

But it’s offshore where Blackmores could have its best success. Asia saw sales growth of 11% despite political turmoil in Thailand, its largest export market.

Now What: Blackmores has declared a dividend of 83 cents for the second half, bringing the full year dividend to $1.27 – the same as in 2013. That equates to a yield of 4.4%, fully franked.

Net debt has decreased by $14.6 million to $54.4 million, which is pleasing, but both return on assets and equity ratios fell for the fourth year in a row, showing Blackmores is struggling to do more with each dollar of shareholders’ funds. ROA fell to 17%, and ROE to 24.4%, which are still decent.

Perhaps the company has turned a corner, which it will need to do to justify its P/E ratio of 18.8x. But at current prices, we don’t see the shares as cheap, and there are better options out there, such as this stock, recently rated our top dividend stock for 2014/15.


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Motley Fool writer/analyst Mike King owns shares in Woolworths. You can follow Mike on Twitter @TMFKinga

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