Peter Fay
Peter Fay, Director of Research with brokerage firm Invast Australia, says while the decision by China to end its one child policy is welcome news for Blackmores and Bega Cheese given the announcement of a new joint venture into the highly lucrative infant formula market, investors buying Blackmores stock at this stage need to be cautious.
“For us, it’s a trading stock rather than a buy-and-hold proposition,” said Mr Fay.
“We saw stocks in Danone rise as much as 3% in Paris and Nestlé up as much as 0.7% on the back of this news. Whilst this increase is not overly significant, it did come on a day when European markets were broadly lower and the hype around Blackmores’ Chinese performance is much greater than it is with these two multi-nationals.”
Mr Fay said caution must be shown after Blackmores surged 13% yesterday to close at $175.51 after hitting a record high of $200.04 after the group said it was confident of delivering strong full-year profit growth after a surge in first-quarter sales. Bega Cheese rose 15% to close at $5.70 after hitting a record high of $6.02.
“These gains represent a meteoric 100% rise in the last three months for Blackmores, so investors are likely to want to start booking some profits,” said Mr Fay. “Already we’ve seen the stock fall in trade today as some investors recoup spectacular gains; our first support is at around the $156 level.”
“If you keep your stops tight and look at technical levels such as previous highs and lows and try trading the momentum, there is the potential for some good short-term trading profits to be made,” Invast said in a note on the stock last week.
Mr Fay said that after 2013’s loosening of the one child policy for certain demographic areas, birth rates did not rise anywhere near what was expected. “With China’s increasing middle class and the fact China’s loosening of policy mainly effects the more urbanised areas, where birth rates are traditionally lower, this policy is likely to be less effective at raising the birth rate than the Chinese government hopes,” Mr Fay said.
China’s birth rate of around just 1.7 births per women is low, even by developed country standards. Australia’s total birth rate in 2014, for example, was 1.80 babies per woman, down from 1.88 in 2013, according to figures released yesterday by the Australian Bureau of Statistics (ABS).
“Australia is a comparatively tiny market so even small gains in the birth rate in a country as populous as China can have a big impact on the demand for highly trusted Australian food and health items,” said Mr Fay.
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