Bellamy’s Australia Limited

Approval of ViPlus Dairy’s Formula-Series Registration Amendment By SAMR: Bellamy’s Australia Limited (ASX: BAL) is an ASX-listed Tasmanian food brand business offering a range of organic food and formula products for babies and toddlers which are Australian-made and certified organic. BAL has more than 30 products, tailored according to the requirement of babies and toddlers.

The company recently notified that Fort Canning Investments Pte Ltd and each of the associate entities have become its substantial holder with voting rights of 6.94%. BAL updated about the approval of ViPlus Dairy’s formula-series registration amendment by SAMR. However, Bellamy’s organic formula-series application is pending for approval.

1H19 Results Highlights: Group revenue for the period stood at $129.6 million as compared to $174.9 million in pcp. Normalised EBITDA for 1H19 stood at $26 million as compared to $34.9 million in the corresponding period last year. Group gross margins improved to 43.1% in comparison with 36.5% in the 1H18. Normalised overhead for the period came in at $30 million as compared with $29 million 1H18, demonstrating continued control of back-office costs. On the statutory front, overhead rose significantly to $42 million due to a one-off amount $12 million inventory provision for the rebrand. 


Normalised Group EBITDA (Source: Company Reports)

A number of factors flagged red for the performance in 1H19 which include a prolonged delay in SAMR registration impacting Chinese-label sales, the decision to run-down trade inventory prior to the Australia-label rebrand, and an observed slowdown in overall category performance.

The company is retaining the robust balance sheet with group cash increasing to $95 million, zero debt levels as well as continued access to the $40 million working capital debt facility. The zero debt levels might attract the attention of the market players moving forward.

Outlook: At the time of releasing the 1H19 results, the Management provided the FY19 guidance in the shadow of further delay in SAMR registration. FY19 Group Revenue is expected in the range of $275 million to $300 million, allowing for slower trading prior to the rebrand and during the lunar new year holiday. FY19 Normalised Group EBITDA is expected to be 18% to 22% of the top-line, representing lower forecast revenue and increased investment in marketing and the China team over the coming period.

The Management narrated the confidence in rebrand, new product pipeline, continued food growth and successful SAMR registration. Despite of the inherent risks of industry and markets, the medium-term outlook for the business remains attractive and supported by fundamentals, differentiated position and an aggressive three-year growth strategy.

Stock Recommendation: At the current market of $10.290, the stock is available at a higher price to earnings multiple of 41.080x. The stock has zoomed 34.96% in the last one month.

Evolving from Australia’s no. 1 organic brand to Australia’s no. 1 organic portfolio, the business of BAL is well-placed to capitalize on macro trends of Chinese and Australian label. Taking cues from the delay in SAMR registration, 1H19 and early 3Q trading performance, the management had guided FY19 revenue to be in the range of $275 million to 300 million and FY19 EBITDA margin to be in the range of 18% to 22%.

With the confidence of the Management in medium-term rebrand, portfolio opportunity, strong margins, debt-free status of the balance sheet, recently received approval for ViPlus Dairy’s formula-series registration amendment, etc., the company is on a pathway to achieve more than $500 million revenue by FY21. Although, the stock has seen a sharp rise in the stock in the past 1 month, we are of the view that the stock still has potential in the upward direction, however, entry-level should be taken care of. Hence, considering the aforesaid factors and current trading levels, we give a “Speculative Buy” recommendation on the stock at the current market price of $10.290 (up 0.587% as on 29 July 2019).

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.