A vertically-integrated formulator, packager and distributor of vitamins and supplements across Australia, Singapore, Malaysia and broader Asia. Trading at 7.3× EV/EBIT with a partially franked 5.7% dividend yield, no debt and a strong net cash position, Vita Life Sciences offers a well-capitalised growth story at a reasonable valuation.
Vita Life Sciences formulates, packages, distributes and sells vitamins, minerals, herbs and superfoods under the Herbs of Gold, VitaHealth and VitaScience brands, marketed through pharmacy and health food channels. The business operates across Australia, Singapore, Malaysia, Thailand, Vietnam, Indonesia and China, with its largest revenue contributions coming from Malaysia and Singapore.
| Metric | Dec 16 | Dec 17 | Dec 18 | Dec 19 | Dec 20 | Dec 21 | Dec 22 | Dec 23 | Dec 24 | Dec 25 |
|---|---|---|---|---|---|---|---|---|---|---|
| Cash flow (cents) | 7.1 | 9.0 | 6.7 | 3.7 | 14.3 | 11.1 | 5.1 | 23.7 | 11.1 | 28.9 |
| Earnings (cents) | 5.1 | 4.5 | 3.8 | 5.4 | 11.6 | 15.6 | 13.1 | 16.6 | 15.8 | 18.4 |
| Dividends (cents) | 3.2 | 3.2 | 3.2 | 3.8 | 4.2 | 5.8 | 6.0 | 9.0 | 10.0 | 14.0 |
| Franking (%) | — | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 64 |
| Return on capital (%) | 14 | 11 | 10 | 13 | 24 | 27 | 19 | 21 | 17 | 18 |
VLS management are in the enviable position of having no debt, excess cash on the balance sheet and a business that has been growing well in recent years. As a result, management have been able to more than double their dividend payments, while also embarking on significant share buy-back programs (note: around 1 million, or approximately 1.7% of shares, were repurchased in the previous program, with capacity to repurchase up to 15% of shares on issue in the current program). It should be noted that share repurchase programs are only a good form of capital allocation if companies are not paying over the odds for these repurchases. At current valuations, it would seem reasonable for management to repurchase shares — but we are of the strong opinion that small, illiquid companies should preference franked dividends over repurchases in all instances. The reason being that with low liquidity, shareholders may not see the benefits (e.g. share price appreciation), as there are fewer buyers available for the stock, which potentially rules out institutional investors. It should also be noted that these repurchases will be offset by significant long-term incentive plan share payments for directors.
While selling vitamins and herbal medicines in a highly competitive industry against bigger, more well-known brands (think Blackmores and Swisse) may seem like a challenging business model, VLS have proven the quality of their multi-national distribution approach through solid returns on capital. FY2025 was indeed their best year in terms of earnings and free cash flow, and a recent guidance announcement suggests they are on course to improve slightly upon this. For a small company, VLS must grow their underlying earnings to see any significant share price appreciation, and there is always the risk that recent growth may have been more cyclical than sustainable. We do note that historically operating cash flows are not always as consistent as we ordinarily like to see, but a FCF yield over 10% is often a good marker of value and intrigue, and we are buoyed by the recent guidance flagging continued cash generation. While established markets have been performing well, if their China foray continues to be a drag on earnings, then it would be prudent of management to divest from this market rather than trying to make it work — this is something we will continue to monitor.
So, is there value in VLS? We certainly think so, given its solid returns and an EV/EBIT of 7 times. We are attracted to the growth pathway it is on, and even if this slows or stagnates, the company is in a strong, profitable position to continue paying franked dividends at attractive yields to compensate. We also feel that VLS could be a target for a takeover given the size of the company and these attractive metrics. Time will tell, but watch this space.