Blackmores share price continues slide on softer Chinese market

Shares in Blackmores continue to slide as analysts warn the company’s outlook points to a ‘severe deceleration’.

Blackmores chief executive Christine Holgate. Picture: John Feder

Shares in vitamin maker Blackmores have continued their slide on the Australian market as analysts warn that the company’s outlook points to a “severe deceleration”.

Despite the company this week recording an annual net profit of $100 million, a 115 per cent rise on last year, investors have punished the stock on concerns about Chinese sales.

Shares in the company lost $31.25 to close at $129.50 when it announced its results on Wednesday and that slump continued yesterday, with the stock down a further 4.2 per cent at $124.06.

Goldman Sachs responded to Blackmores’ results by slashing its 12-month price target on the company from $164.50 to $120. JPMorgan also cut its price target on the stock, from $175 to $135.

Blackmores had flagged at its results that the Australian wholesale market had softened in ­recent weeks and it warned of a fall in first quarter sales for 2017.

Company chief executive Chris­tine Holgate said the weak market reflected a change in the buying habits of the Chinese but there had been no fall in demand from people wanting to purchase health products.

Goldman Sachs analyst ­Andrea Chong said while the ­investment bank had expected some softness given the regulatory disruption in China, Blackmores’ outlook pointed to a more “severe deceleration”. She said excess inventory in the channels selling into China and destocking because of regulatory uncertainty had fuelled the weak outlook.

“Visibility beyond the first quarter of 2017, and whether earnings decelerate further, is limited given a lack of clarity on inventory levels in the channel,” Ms Chong said.

JPMorgan analyst Russell Gill said the extent of the inventory build-up, which would affect ­future sales, was much larger than the investment bank had ­anticipated.

“Given the opaqueness of Blackmores’ distribution channels, it is difficult to retain confidence in the near-term sales profile of the business,” he said.

But Mr Gill said the longer-term thematic of foreign, particularly Chinese, consumer demand for Australian products, ­espec­ially in the health and wellbeing category, would continue.

Goldman Sachs cut its earnings per share forecast on Blackmores for next year by 20 per cent but Ms Chong said the bank continued to believe the long-term potential for Blackmores to continue to grow in China remained sizeable. “However, while there remains regulatory overhang in China, we believe the risk is that the near-term trend of earnings is negative as customers retreat from the category,” she said.

Goldman Sachs, in a client ­report on Blackmores, also highlighted that the investment bank’s Tmall/Taobao tracker, which indicates retail sell-through, suggested a weakening in demand for the vitamin/health supplement category last month, and also for Blackmores.

“Visibility on sell-in and ­inventory levels remains limited,” the report said.