Bellamy’s Australia Ltd (ASX: BAL)

Bellamy’s Australia Ltd stock has surged about 114% in last six months, as at November 24, 2017 post a very challenging phase that took the infant formula company on the brink of near bankruptcy. Chinese regulatory changes had posed a lot of challenge to the group’s earlier stellar performance.

The group had to make some changes at board and now has been at the foot-front in terms of regaining the lost lustre. With stabilising sales, resetting of cost base, positive operating cashflow, 2H17 revenue and earnings result exceeding top end of guidance, and positive start to FY18, the group appears to be tracking well on its turnaround strategy.

The group is now having a market capitalization of $1.34 billion, not very far-fetched from the $1.5 billion of market cap near the end of 2015. The group is estimated to be trading about 5x of its revenue. Bellamy’s growth, however, pivots on the application for the China Food and Drug Authority (CFDA) licence, which is due to be lodged in the upcoming months. Through this, the group would be able to continue with selling of products into China. It is being said that the group is wary of the earlier challenges and is being a little conservative with earnings forecasts. BAL now expects its revenue growth to be 15-20%, up from its previous guidance of between 5-10%, and this excludes the Camperdown facility. Further, EBITDA margin of between 17-20% has now been indicated and this is up from previous guidance of 15-20%.

However, it is important to note that competitor a2 Milk company also had a stellar run-up of about 128% in last six months. Further, players like Bubs Australia and Wattle Health have also emerged lately with good stock price movements.

Thus, Bellamy’s success against its competitors, hinges on CFDA registration, expansion of Camperdown facility, and emerging as a long-term manufacturer of infant formula. Given the scenario, we vouch for a wait and watch approach.
 

FY18 Focus (Source: Company Reports)

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