Stocks’ Details

Bellamy’s Australia Limited

JPMorgan Chase & Co. increased its stake in BAL from 6.71% to 7.76%:Bellamy’s Australia Limited (ASX: BAL) is an ASX listed Tasmanian food brand business. The Group offers a range of Organic food and formula products for babies and toddlers, which are all Australian-made and certified Organic. The company recently announced a change in directors’ interest wherein JPMorgan Chase & Co. and its affiliates, increased its stake in the company from 6.71% to 7.76%, effective from August 29, 2019.

FY19 Key Highlights:Revenue from ordinary activities for the period decreased by 19% to $266.24 Mn. Profit from ordinary activities after tax attributable to the owners of Bellamy's Australia Limited decreased by 48.9% to $22.11 Mn.Net tangible assets per ordinary security for the period was reported at 169.88 cents per share as compared to 147.62 cents per share in the previous period.


FY19 Key Financial Metrics (Source: Company Reports)

What to expect:As per the release, the Management expects 10-15% group’s net revenue growth at an EBITDA margin consistent with last year. With new product launches, revenue growth is anticipated to accelerate in H2FY20.With investments in marketing and China capability, gross margin is expected to continue to grow in the coming times. Company remains confident in its growth strategy and medium-term target of $500 Mn revenue but has deferred this target beyond FY21 given the ongoing SAMR registration process.

Stock Recommendation:BAL’s share generated a positive YTD return of 8.83% and is currently trading below the average of 52-week high and low levels of $11.960 and $6.710, respectively. Its EBITDA margin and net margin for FY19 stood at 17.6% and 8.1%, better than the industry median of 12.5% and 5.5%, respectively, implying decent fundamentals for the company. Current ratio for FY19 at 3.32x is better than the industry median of 1.40x, which implies that the company is in a better position to address its short-term obligations.Hence, considering the aforesaid facts and current trading levels, we recommend a “Speculative Buy” rating on the stock at the current market price of $8.570, up 3.753% on September 5, 2019.

The A2 Milk Company Limited

FY19 Total revenue increased by 41.4% on previous year:The A2 Milk Company Limited (ASX: A2M) is engaged with infant’s and children’s nutritional products and has market capitalisation of $10.09 billion. The company recently released the full-year results for FY19.Total revenue for FY19 increased by 41.4% to $1,304.5 million as compared to previous year. EBITDA for the period increased by 46.1% to $413.6 million. Net profit after tax for the period increased by 47% to $287.7 million. Basic earnings per share (EPS) for the period increased by 45.4% to 39.3 cents.EBITDA to sales margin for the period was reported at 31.7%. Operating cash flow at the end of the period was reported at $289.1 million with closing cash balance at $464.8 million. During the period, US milk revenue more than doubled and distribution expanded to 13,100 stores. Australian fresh milk revenue growth came in at 10.7% with market share of 11.2%. Infant nutrition market shares strengthened to 6.4% in China with Group infant formula revenue reported at $1,063.8 million, which was an increase of 46.9% on the previous year.


FY19 Performance Snapshot (Source: Company Reports)

What to expect:The company expects continued growth in revenue across key regions supported by increasing brand and marketing investment in China and the US. Full year FY20 EBITDA as a percentage of sales is expected to be broadly consistent with 2H19 EBITDA margin of 28.2%, reflecting an increased full year marketing investment to ~12% of sales. The company is likely to continue investing in organisational capability to support future growth. FY20 Gross margin percentage is expected to be broadly consistent with FY19.

Stock Recommendation:A2M’s share generated a positive YTD return of 31.92%. Gross margin, EBITDA margin and net margin for FY19 stood at 54.7%, 32.3% and 22.1%, better than the industry median of 38.7%, 12.5% and 5.5%, respectively, implying decent fundamentals for the company. Its current ratio for FY19 stood at 3.29x, better than the industry median of 1.40x. Its ROE for FY19 stood at 42.8%, better than the industry median of 12.8%. The stock is currently trading above the average of 52 weeks high and low levels of $17.300 and $8.140, respectively. On July 31, 2019, the stock made its fresh 52 weeks high level of $17.300, and since then it has corrected by 18.03%. Hence, considering the aforesaid facts and current trading levels, we suggest investors to keep a close watch on the stock at the current market price of $14.180, up 3.353% on September 5, 2019 and wait for the better entry levels.
 

Wattle Health Australia Limited

Cash Balance at the end of FY19 was reported at ~$28 million:Wattle Health Australia Limited (ASX: WHA) is engaged with the sustainable Australian goodness of certified organic and natural health and wellness products, affordable and widely available to families across the globe. The company recently informed the market that it is in the final stage of finalisation of negotiations on a debt funding facility for its proposed acquisition of Blend & Pack (B&P).It anticipates signing a binding debt funding facility by September 6, 2019. B&P is the largest independent (by volume) CNCA (Certification and Accreditation of the Peoples Republic of China) accredited dairy manufacturing facility in Australia which manufactures for leading domestic and international brands from its state-of-the-art manufacturing facility in Victoria.

FY19 Key Financial Highlights:Sales revenue for the period was reported at $795,000, as compared to $1,441,000 in the previous year. The downfall in revenue was largely due to discontinuation of the conventional nutritional dairy product range, to be replaced by the Company's organic product offering, which will due in market in the first quarter of financial year 2020. Administrative, marketing and employment-related expenses increased, mainly in connection with the preparation and constructing the consolidated entity's organic spray drying plant, which commenced construction during the year. Resultantly, loss from ordinary activities after tax attributable to the owners of Wattle Health Australia Limited was reported at $9.9 Mn for the period. Company’s strong balance sheet was underpinned by cash balance with net assets of the group ~$51 million and cash at bank of ~$28 million.


FY19 Income Statement (Source: Company Reports)
What to expect:The company in FY19 undertook many efforts to become one of the only vertically integrated organic nutritional dairy company in the world that puts the company in a strong position to capitalise on the fastest growing segment in the dairy sector, both domestically and internationally. The company is confident that FY20 will bring growth and opportunities, being in a strong position to build on its significant achievements in a short period of time.
Stock Recommendation:WHA’s share is presently trading close to its 52 weeks low level of $0.400, and therefore, presents an opportunity for accumulation. Its profitability margins for H1FY19 have improved over FY18. Its current ratio for H1FY19 stood at 12.94x, better than the industry median of 1.49x, which implies that the company is in a better position to address its short-term obligations. Hence, considering the aforesaid facts and current trading levels, we recommend a “Speculative Buy” rating on the stock at the current market price of $0.400, up 3.896% on September 5, 2019.
 

Bubs Australia Limited

FY19 Total Gross Revenue increased by +160% on previous year:Bubs Australia Limited (ASX: BUB) offers a great range of organic baby food and goat milk infant formula products. Since the acquisition of NuLac Foods Pty Ltd, the range of products have been expanded to the goat milk and fresh dairy products. The company recently announced the issuance of new shares i.e. 1,237,697 ordinary shares at 10c per share on exercise of Options and 2,974,272 ordinary shares at $1.15 per share to Chemist Warehouse under agreement with issue date on 2 September 2019 and 29 August 2019, respectively.

FY19 Key Highlights:Total group gross revenue for the period increased by +154% to $46.8 million as compared to previous year. Total group net revenue for the period increased by 160% to $43.9 million as compared to previous year. Group reported statutory net loss of $35.5 million, which includes a non-cash one-off expense of $20.4 million under the Chemist Warehouse equity agreement and $5.9 million, payable to the NuLac Foods Vendors. Cash reserves at the end of the period was reported at $23.3 million.


Quarterly Gross Sales Revenue (Source: Company Reports)

What to expect:To meet the growing future demand, the company has involved itself into major equity investment by C2 Capital Partners, of which Alibaba Group is an anchor investor.It is involved in 100% acquisition of Deloraine Dairy, a CNCA licensed infant formula processing facility. It has established a Joint Venture with Beingmate, a leading Chinese owned enterprise in infant nutrition.

Stock Recommendation:BUB’s share generated a whopping YTD return of 164.84%. Its profitability margins for H1FY19 have improved over previous corresponding period. Its current ratio for H1FY19 stood at 3.17x, better than the industry median of 1.49x, which implies that the company is in a better position to address its short-term obligations. The stock is currently inching towards its 52-week high of $1.615. Hence, considering the aforesaid facts along with decent set of results for FY19 and current trading levels, we recommend a “Speculative Buy” rating on the stock at the current market price of $1.230, up 2.075% on September 5, 2019.
 

Synlait Milk Limited

H1FY19 Revenue from Ordinary Activities increased by 7% on PCP:Synlait Milk Limited (ASX: SM1) is a New Zealand based company that combines expert farming with state-of-the-art processing to produce a range of nutritional milk products for the global customers. The company recently was informed by the Supreme Court that there will be an oral hearing prior to a decision on whether leave to appeal the reinstatement of the land covenants on its Pokeno site by the court of appeal will be granted or not. A hearing date has yet to be agreed by the parties. In another update, the company informed the market that it will release its annual report for FY19 on September 12, 2019.
H1FY19 Key Highlights:Revenue from ordinary activities for the period was reported at $470.95 Mn, which was a 7% increase on previous corresponding period. Profit from ordinary activities after tax attributable to security holders decreased by 10% to $37.32 Mn as compared to the previous corresponding period. Basic earnings per share for the period was reported at 20.82 cents per share as compared to 23.05 cents per share in the previous corresponding period.


Bottom-line Performance (Source: Company Reports)

What to expect:As per the release, the company aims to achieve on-farm reduction of GHGs (greenhouse gas) by 35% per kgMS, reduce water consumption by 20% per kgMS and reduce nitrogen loss by 45% by 2028. For this, it is investigating methane reduction measures and will pilot an on-farm methane inhibitor later this year. The company has set its targets for its manufacturing sites including reductions of GHGs and water consumption by 50% and 20% per kgMS, respectively. A major step towards reducing off-farm GHGs by 2028 was made with the commissioning of New Zealand’s first large-scale electrode boiler earlier this month at Synlait Dunsandel.

Its full year canned infant formula (IFC) volume guidance has been estimated between 41,000 – 45,000 MT, with significantly higher volumes forecast to be delivered in the second half of FY19 as compared to the second half of FY18.

Stock Recommendation:SM1’s share generated a positive YTD return of 1.17%. Its gross margin, EBITDA margin and net margin for H1FY19 stood at 18.2%, 15.0% and 7.9%, lower than the industry median of 40.9%, 18.8% and 11.6%, respectively. The stock is currently trading below the average of its 52-week high and low levels of $12.280 and $7.400, respectively. Hence, considering the aforesaid facts and current trading level, we recommend investors to keep a close watch on the stock at the current market price of $8.640 on September 5, 2019, and wait for the right entry position.

 
  Comparative Price Chart (Source: Thomson Reuters)

Disclaimer
 
The advice given by Kalkine Pty Ltd and provided on this website is general information only and it does not take into account your investment objectives, financial situation or needs. You should therefore consider whether the advice is appropriate to your investment objectives, financial situation and needs before acting upon it. You should seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice. Not all investments are appropriate for all people. Kalkine.com.au and associated pages are published by Kalkine Pty Ltd ABN 34 154 808 312 (Australian Financial Services License Number 425376). The information on this website has been prepared from a wide variety of sources, which Kalkine Pty Ltd, to the best of its knowledge and belief, considers accurate. You should make your own enquiries about any investments and we strongly suggest you seek advice before acting upon any recommendation. Kalkine Pty Ltd has made every effort to ensure the reliability of information contained in its newsletters and websites. All information represents our views at the date of publication and may change without notice. To the extent permitted by law, Kalkine Pty Ltd excludes all liability for any loss or damage arising from the use of this website and any information published (including any indirect or consequential loss, any data loss or data corruption). If the law prohibits this exclusion, Kalkine Pty Ltd hereby limits its liability, to the extent permitted by law to the resupply of services. There may be a product disclosure statement or other offer document for the securities and financial products we write about in Kalkine Reports. You should obtain a copy of the product disclosure statement or offer document before making any decision about whether to acquire the security or product. The link to our Terms & Conditions has been provided please go through them and also have a read of the Financial Services Guide. On the date of publishing this report (mentioned on the website), employees and/or associates of Kalkine Pty Ltd do not hold positions in any of the stocks covered on the website. These stocks can change any time and readers of the reports should not consider these stocks as advice or recommendations.