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Brokers down on Blackmores Limited despite profit increase

Credit: Bradley Stemke

Broker expectations were not met by Blackmores Limited (ASX: BKL) March quarter report, despite a profit jump of 19% for the first nine months of FY18 to $52 million for the health product retailer.

Shares in Blackmores have been on a slide downwards since late 2017, with Morgans unconvinced Blackmores growth profile is justified by its elevated valuation multiples with the broker reducing its net profit forecasts for FY18 by 3.9% and FY19 by 7.7%.

The March quarter report saw Blackmores log a revenue lift of 7.3% with sales in China notably on the increase by 21% but overall sales figures below expectations given changes in trading terms.

Blackmores acquired Victoria’s capsule manufacturer Catalent in the quarter for $43.2 million with hopes the move will prove lucrative in the future.

But while demand for Blackmores products remains strong, the company is yet to leverage growth in its Chinese market like peers in similar spaces such as A2 Milk Company Ltd (ASX: A2M) and Bellamy’s Australia Ltd (ASX: BAL).

Brokerage firm CLSA have downgraded Blackmores from buy to outperform, reducing its price target on the stock from $169 to $137.50.

Ord Minnett still has a buy on Blackmores based on overall strong demand and all eyes will be on the company’s upcoming reports as it rounds out FY18.

Blackmore's has revolutionised the health product market in its time, but check out 3 Revolutionary Aussie Companies to Back for 2018

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Motley Fool contributor Carin Pickworth has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Blackmores Limited. The Motley Fool Australia owns shares of A2 Milk. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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