Today VSC held their AGM which i attended. Most of the directors were there and the MD lead the presentation. As this was my first meeting ever i didn't know what to expect. My aim was to gain a better understanding of the business and get a better foundation as to what their future growth prospects are like. From my understanding, the company isn't expecting as much of an increase in NPAT as previous years (which have been around 100% p.a.) They are targeting 19% revenue growth CAGR (from memory). But they did hint towards strong growth in the medium term (3-5yrs the MD Eddie said).
From what i gathered, this is their reasoning: they sell a premium product (gross margin of about 65-70%) and Eddie himself said we stay away from commodity like products such as Fish Oil, which was music to my ear because we all know what happens when a product is a commodity... yep, competes on price which is something i want to stay away from. Thus, they only sell to health food stores and won't engage in price competition by selling to major pharmacists such as Chemist Warehouse. They spend copious amounts of money on training their staff within the context of product knowledge and aim to attract loyal customers which doesn't happen overnight. Thus, as they expand in Asia and setup a solid footprint, they want the demand to come to them (gives them more bargaining power over pricing).
The management is extremely professional and on face value seem to be ensuring the company succeeds and is acting in the best interests of the company. This would also make sense seeing as management are substantial shareholders.
They have reaffirmed their EBIT forecasts for FY14. I believe the company could offer some interesting long-term value but still, more work needs to be done. The stock is trading on a P/E of about 19 and a P/B of about 5.56 indicating it's quite expensive. However, no debt, a strong balance sheet with about 50% representing cash and cash equivalents and an Asian market with over 2 billion people which as a whole are getting wealthier and more health conscious is interesting to say the least. They even hinted towards expanding into the Middle East but can't be done yet because the company is so small, they don't have the management experience/knowledge to exploit opportunities over there.... yet.
Two things strike me as suspicious at the moment. Firstly, they have revenue growing at around 20% but a 100% increase in the bottom line. Is this likely to continue or? This question was asked by a fund manager today in the meeting and the CEO replied by saying it will but might not be as strong as in recent years. Lastly, i'm suspect of why they are buying back stock at a P/E of 19, indicating a earnings yield of around 5.2%. Does this mean they aren't finding opportunities elsewhere to generate at least that amount? This one is playing on my mind.
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