Vitaco Holdings
About the author:
- Author name:
- By Belinda Moore
- Job title:
- Senior Analyst
- Date posted:
- 20 October 2015, 9:31 AM
- Sectors Covered:
- Agriculture, Food & Beverage, Travel and Chemicals
Vitaco Holdings (VIT) manufactures and distributes a range of products servicing the domestic nutrition, health and wellness industry as well as offshore markets (particularly Asia). VIT owns well-known brands such as Heatheries, Wagner, Nutra-Life, Aussie Bodies, Musashi, Balance, Bodytrim and Abundant Earth. The company operates in growth categories including vitamin and dietary supplements (44% of FY16 revenue), sports nutrition (38%) and health products (18%).
On a per capita basis, Australians and New Zealanders are among the largest consumers of sports nutrition and vitamin and dietary supplements (V&DS) in the world. According to Euromonitor International, over the 10 years to 2014, the Australian V&DS market grew at a CAGR of 8.7%. From 2009-2014, the Australian sports nutrition category in which VIT is the market leader (20% market share) grew at a CAGR of 14%. Growth is assisted as sports nutrition products increasingly become a regular part of consumers' diets.
Healthy growth for years to come
VIT is benefiting from favourable industry fundamentals such as increasingly health focused consumers, growing sports participation and gym attendance rates and an aging population. The company is also benefiting from:
- China's demand for 'clean and green' products manufactured in Australia and New Zealand (the majority of VIT products are manufactured in Auckland);
- the rise of cross-border e-commerce; and
- a falling AUD.
We believe that VIT is well placed to report strong double digit growth for many years to come as:
- consumers increasingly demand nutrition products;
- it launches new products;
- expands its distribution network both in Australia and overseas (Asia, Brazil and the UK);
- achieves margin expansion from in-sourcing products; and
- integrates Musashi.
What we think
We have a positive investment view on VIT due to its diversified portfolio of well-known brands, leverage to favourable industry dynamics, growth opportunities and solid earnings growth. Given FY17 includes the removal of duplicated costs following the Musashi acquisition, we are focused on multiples this year.
Trading on an FY17F PEG of 0.6x, VIT is attractively priced for its growth profile. Share price catalysts include profit upgrades, expansion in new markets/products, further accretive acquisitions and corporate activity. The main risks are rising input costs, adverse FX, competition, loss of a major contract, the power of the major retailers/pharmacy chains, acquisition risk and regulatory changes to the grey market trade in China.
We initiate coverage with an Add recommendation.
More information
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Disclaimer(s): Analyst owns shares.
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