Recommendations For Portfolio Expansion In Managing Funds, Properties, And Investments

Core Activities and Histories of Blackmores Limited and Bellamys

The main intent of the report is to make recommendations to the client for their consideration of expansion of portfolios including managing funds, properties, cash and fixed interest and share investments. The selected companies for the assessment are Blackmores Limited and Bellamys which are both listed under ASX 200. The first section of the report has stated about the core activities along with their histories. The main people involved in the governance of the firms have also included in the discussion of the study. The most significant aspect of discussion has been stated with computation of the key performance ratios in the past four years. Moreover, the study has also identified the impact of the variable TA/OE on the relationship between owners’ Equity and ROA.

Blackmores is considered as the top brand for delivering the services associated to natural approach to health, based on its product specialisation in nutrients, minerals, vitamins and herbal products. The health supplement company was founded in 1930s by Maurice Blackmore after its first inauguration of the health food store situated in Australia, Brisbane. The core operations of the company can be seen with wide range of minerals, herbal and vitamin products which are sold across 17 different markets in the Asia-Pacific region (Blackmores.com.au, 2018). 

The history of Bellamys can be traced back since its establishment by David Bellamy in 2003 at the Northern Tasmania. The company acted as an early entrant of organic food market which produced Australia’s first certified organic baby food formula in 2005. The origination of the company was done by a small group of investors who were later on acquired by Tasmanian Pure Foods Ltd in 2007. On June 2014, Tasmanian Pure Foods was renamed Bellamy’s Australia. The main operations of the company can be depicted with producing organic infant formula (Investors.bellamysorganic.com.au, 2018).

The significant ownership of some of the subsidiaries of the company with having more than 20% of shareholdings can be identified with Pat Health Limited (100%) and Pure Animal Wellbeing Pty Limited (100%). In addition to this, Blackmores is also committed to produce FIT-BioCeuticals Limited is adding an ownership of 100%. Lastly, New Century Herbals Pty Limited and Global Therapeutics Pty Limited is also depicted with ownership of 100% (Renz, 2016).

The main ownership percentage of the entities with more than 20% of shareholdings for the company can be identified with Camperdown Vchina Brands Pty Ltd (51%), Camperdown TMP Brands Pty Ltd (51%), Comarco Pty Ltd (51%), Camperdown AIMI Brands Pty Ltd (51%) (Barr & McClellan, 2018).

In the given question shows:

EBIT x NPAT x TA = NPAT

 TA  EBIT OE   OE

This is similar to Return on Assets  (EBIT)  =  (NPAT / Total Assets) as

EBIT x NPAT x TA = NPAT

 TA  EBIT OE   OE

This leads to the value:

NPAT

 TA

Key Performance Ratio for Blackmores Limited

 Table: Key performance ratio of Blackmore’s limited in the last four years

(Source: Blackmores.com.au, 2018)

The assessment of return on assets for Blackmore’s limited in the last four years have shown a fluctuating trend. This depicts that the company needs to utilise its available assets in a better way to generate more revenues. The return on owners’ Equity have been identified with the increasing trend in compared to the previous year which is seen as a positive sign. The gearing ratio has maintained a stagnant position therefore, the company needs to finance its assets in a better way by utilisation of the debt capital (Karadag, 2015).

Ownership of Subsidiaries of Blackmores Limited and Bellamys

Key Performance Ratio for Bellamys

Table: Key performance ratio of Blackmore’s limited in the last four years

(Source: Investors.bellamysorganic.com.au, 2018)

The return on assets have clearly shown a decreasing trend in compared to the previous years. This states that the company is not able to generate sufficient revenue from the fixed and current assets. Therefore, it should consider whether investment opportunities for generating more revenues through asset utilisation. Secondly, the return on owners’ Equity have been also identified with a declining trend which clearly shows that the owners’ Equity needs to be improved in a significant manner. Lastly, the gearing ratio is also identified with a decreasing trend which clearly shows that Bellamys has not been able to finance its assets with the use of liabilities (Zietlow et al., 2018).

The total assets under the liquid is of a company can be funded by using liabilities which are meant for the dates used for representing money as a reinvested profit. Therefore, the equation total assets by total Equity signifies the contribution of current assets and fixed assets in terms of shareholders equity which are obtained from issuing of shares in the market. The main impact in the return on asset can be seen with in what way return on asset and return on owners’ Equity have impacted on overall value captured by the firm. Moreover, ROE is generally less as there is lesser scope of obtaining funds from shares issued to the public rather than returns pertaining to the assets such as property plant and equipment (McKinney, 2015)

Blackmore’s limited

Some of the significant announcements made by the company which is having a considerable impact on the share price can be depicted its announcement of acquiring 100% shares in Catalent Australia, a tablet and soft-gel capsule manufacturing facility in Victoria with an amount of $43.2 million in 2019 (Petty et al., 2015).

Bellamy’s

As per the annual report publisher 2017, Bellamy’s has clearly stated its strategic acquisition of Camperdown with the recent reinstatement of CNCA which provides the part where to CFDA registrations in China (Andreou, Louca & Panayides, 2014).

The beta of BlackMores Ltd. is computed as 0.754 and -3.06 for Bellamys.

Table: CAPM of Blackmores limited and Bellamy

(Source: As created by the author).

An investor needs to consider the rationale of decision for conservative investment based on the required rate of return computed with CAPM. Based on the assessment through CAPM it can be identified that the required rate of return for Blackmore’s Ltd is in a much better position when compared to Bellamys. Therefore, an investor should not consider conservative investment option in Blackmore’s Ltd. On the other hand, it is recommended not to invest in Bellamys as per the present financial depictions (Attig et al., 2016).

Blackmore’s Ltd distributed dividend of 305 cents per share in 2018 and 270 cents in 2017. This depicts an average increment of 12.96% growth in the dividends of the company. On the other hand, due to poor financial performance below Ms did not distribute any dividend in the last two years (Banerjee et al., 2016).

Performance Analysis of Blackmores Limited

Table: Gordon’s growth model

(Source: As created by the author)

A comparison of expected share price and current share price can be accurately predicted with the use of Gordon’s growth model.  Blackmore’s Ltd is making progressive financial performance, the share price is expected to increase from $ 142.00 in 2018 to $ 149.82 in 2019. On the other hand, due to deteriorating performance of Bellamy’s, the expected share prices is discerned to go down from $ 6.78 to $ 6.64 (Martin, 2016). 

The trends of capital market for both the companies cannot be identified as preferred optimal capital structure as there is fluctuations in terms of both equities and liabilities in the last four years.

The amendments made in the gearing ratio for Blackmore’s Ltd can be identified with increasing the total assets. On the other hand, the amendments made by Bellamy’s can be clearly depicted in terms of decreasing the liabilities and also increasing the total assets of the company (Cashin et al., 2017). 

The decision to invest in the company needs to be considered by analyses of performance ratios for both the companies. The computation of performance ratios constitutes of profitability ratios liquidity ratios, financial leverage ratio, efficiency ratio and market value ratio (Burger, Kaufman & Atkinson, 2015).

Table: Profitability Ratios of Blackmore’s Ltd

(Source: Blackmores.com.au, 2018)

Based on the assertions of profitability ratio it can be seen that the company has been able to increase its net profit margin, ROI and ROA significantly from 2017 to 2018. Therefore, investors may expect this performance to go up even further in the future (Ward & Forker, 2017).

Table: Liquidity Ratios of Blackmores

(Source: Blackmores.com.au, 2018)

The liquidity of the company is also seen to decreasing to a negligible amount compared to the previous year. However, there is significant scope of improvement as the company is able to utilise its assets in a better way (Mulherin & Aziz Simsir, 2015).

Conclusion

The overall depictions of the study have stated that Blackmore’s limited in the last four years have shown a fluctuating trend. This depicts that the company needs to utilise its available assets in a better way to generate more revenues. However, owners’ Equity have been identified with the increasing trend in compared to the previous year which is seen as a positive sign. The gearing ratio has maintained a stagnant position therefore, the company needs to finance its assets in a better way by utilisation of the debt capital. The important aspects of decision to invest in the company needs to be identified with company has been able to increase its net profit margin, ROI and ROA significantly from 2017 to 2018. Therefore, investors may expect this performance to go up even further in the future. Moreover, the liquidity of the company is also seen to decreasing to a negligible amount compared to the previous year. However, there is significant scope of improvement as the company is able to utilise its assets in a better way. 

References

Andreou, P. C., Louca, C., & Panayides, P. M. (2014). Corporate governance, financial management decisions and firm performance: Evidence from the maritime industry. Transportation Research Part E: Logistics and Transportation Review, 63, 59-78.

Attig, N., Boubakri, N., El Ghoul, S., & Guedhami, O. (2016). The global financial crisis, family control, and dividend policy. Financial Management, 45(2), 291-313.

Banerjee, A., Duflo, E., Imbert, C., Mathew, S., & Pande, R. (2016). E-governance, accountability, and leakage in public programs: Experimental evidence from a financial management reform in india (No. w22803). National Bureau of Economic Research.

Barr, M. J., & McClellan, G. S. (2018). Budgets and financial management in higher education. John Wiley & Sons.

Blackmores.com.au. (2018). Annual & half-year reports. [online] Available at: https://www.blackmores.com.au/about-us/investor-centre/annual-and-half-year-reports [Accessed 26 Sep. 2018].

Burger, R. H., Kaufman, P. T., & Atkinson, A. L. (2015). Disturbingly weak: The current state of financial management education in library and information science curricula. Journal of Education for Library and Information Science, 56(3), 190-197.

Cashin, C., Bloom, D., Sparkes, S., Barroy, H., Kutzin, J., O’Dougherty, S., & World Health Organization. (2017). Aligning public financial management and health financing: sustaining progress toward universal health coverage. World Health Organization.

Investors.bellamysorganic.com.au. (2018). Investor Centre. [online] Available at: https://investors.bellamysorganic.com.au/Investors/?page=annual-reports [Accessed 26 Sep. 2018].

Karadag, H. (2015). Financial management challenges in small and medium-sized enterprises: A strategic management approach. EMAJ: Emerging Markets Journal, 5(1), 26-40.

Martin, L. L. (2016). Financial management for human service administrators. Waveland Press.

McKinney, J. B. (2015). Effective financial management in public and nonprofit agencies. ABC-CLIO.

Mulherin, H., & Aziz Simsir, S. (2015). Measuring deal premiums in takeovers. Financial Management, 44(1), 1-14.

Petty, J. W., Titman, S., Keown, A. J., Martin, P., Martin, J. D., & Burrow, M. (2015). Financial management: Principles and applications. Pearson Higher Education AU.

Renz, D. O. (2016). The Jossey-Bass handbook of nonprofit leadership and management. John Wiley & Sons.

Ward, A. M., & Forker, J. (2017). Financial management effectiveness and board gender diversity in member-governed, community financial institutions. Journal of business ethics, 141(2), 351-366.

Zietlow, J., Hankin, J. A., Seidner, A., & O’Brien, T. (2018). Financial management for nonprofit organizations: Policies and practices. John Wiley & Sons.

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