Bellamy's Australia Ltd (ASX: BAL) has delivered an incredible performance this year, generating outstanding year to date returns of around 175.8%. Investors got excited seeing the company reporting a strong first half of 2015 performance during February 2015 for the first time subsequent to its IPO. The group’s revenue surged 141.4% during the period to $58.3 million, from $24.1 million in first half of 2014, driven by Bellamy’s huge marketing efforts and increasing brand awareness across the retailers. Consequently, the EBIT rose 117.9% to $4.4 million, from $2 million in the corresponding period of last year, in spite of the one-time capital cost of $0.27 million. The net profit after tax surged 137.3% on a year over year basis to $3.2 million, as the costs of doing business as a percentage of sales decreased.


First half of 2015 performance (Source: Company Reports)

The group now holds over 14.1% of the Australian retail formula market, as the company’s new retailers addition and distribution efforts paid off. The firm has launched organic formula and   improved food range in over 160 target stores during this period. The firm launched baby food pouch range in Costco and Big W. As a result the domestic revenue soared 179.9% to $50.2 million, as compared to just $17.9 million in first half of 2014. Meanwhile, the new supplementary milk drink is not performing as per the company’s expectations. However, the strong performance of the company’s other products has offset this decline. Bellamy has also built a strong brand presence across Asian regions like China and Singapore. The group is aggressively growing its sales and distribution network in China as well as improved the range of its products across all major supermarkets in Singapore over the last six months. Accordingly, the export revenue saw a year over year increase of 30.1% to $8.1 million during first half of 2015. 



Domestic and Export revenue highlights (Source: Company Reports)
 
As per other highlights, the firm has successfully improved its costs as a percentage of sales, which decreased by 1.3 percentage points. Meanwhile, the gross profit margin fell by 2.2 percentage points to 33.2% as compared to 35.4% in the corresponding period of last year. Therefore the company is seeing to revise prices by leveraging its growing demand for organic formula ingredients and expects to see these benefits during fiscal year 2015. Coming to the balance sheet highlights, the cash at bank surged to $16.9 million in the first half of 2015, from $0.8 million and the net cash flow movement improved to $12.5 million from $(1.9) million in 1H14. But the operating cash flow fell to $(10.3) million from $1.4 million in the corresponding period of 2014, as the receivables rose by $13 million, while the inventory levels surged $4.6 million on the back of growing revenues.  The net assets and net tangible assets surged by 297% and 299% respectively, on a year over year basis to $43 million and $42.7 million.

Quite recently, Bellamy entered into an agreement with Tatura milk industries Ltd, which is a wholly owned subsidiary of Bega Cheese Ltd to provide Bellamy’s organic formula products. The group’s management also confirmed that its second half of 2015 performance is line with its first half of 2015 results. The firm now estimates a full year net profit after tax in the range of $7.6 million to $8.3 million, driven by its domestic sales. This guidance was much higher as compared to its previous guidance estimate in December of reaching a full year net profit after tax over $6 million.


Bellamy Daily Chart (Source - Thomson Reuters)

The shares of Bellamy's Australia touched an all-time high of $5.2 on July 8^th, but could not sustain this level and immediately fell below the psychological $5.0 mark. Although the stock has delivered such a massive returns this year driven by its first half of 2015 performance, we believe that the future potential growth of the company is also already factored in its current price levels. Moreover, it is better to be cautious before further investing in the stock, given its expensive valuation. Bellamy’s P/E ratio is 160.61, which is way higher as compared to its peer group, hinting that the stock might be overvalued.

Base on the foregoing, we give an “Expensive” recommendation to the stock at the current price levels of  $4.57.

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