Bellamy’s Australia Ltd

BAL Details
Rising inventory in China impacted the group’s volumes: Bellamy's Australia Ltd (ASX: BAL) stock lost over 38.6% in the last four weeks (as of January 10, 2017) impacted by the weak business update from the group in the month of December 2016. The group had reported that their volumes on China will be disrupted till the regulatory registrations in China are finished. Non-reputed brands which are not able to get registration are offloading their inventory at cheap prices, and this impacted brands like Bellamy’s in terms of volumes growth. Prior to the December update, Bellamy’s stated to strengthen their sales channels into China to position themselves for long term opportunities in the China market. The group had reported for 25% growth in fiscal year of 2017 year to date as of November 20, 2016 over the same period of last year. The group reported their ongoing performance in Australia as well as South East Asia. In South East Asia, the group’s brand is growing rapidly in Singapore, further strengthening their position as a leading organic infant milk formula in the market beating their peers, Danone and Wyeth sales in the pharmacy channel. In Australia, the group had extended their space presence. At Coles, the group more than doubled in terms of space while their organic food range is present at over 400 more Coles stores nationally. BAL has also enhanced their cereal manufacturing capacity in first half of 2017 to further strengthen their organic baby cereal brand in Australia position.

Voluntary suspension: BAL recently had requested for an extension on their trading halt till January 13, 2017 and this further raised concerns among the investors regarding the possibility of more negative news coming-in from the group. The group requested this extension as they were negotiating with major suppliers/manufacturers to asses a possible impact on their financial performance.

Trading Resumed: The stock resumed trading on January 11, 2017 but slipped by a total of 19.9% at the close of trading. The group also updated about its sales performance and expects revenue for 1H 17 to be in the range of $115m to $120m while full year FY17 revenue is expected to be in the range of $220m to $240m. Lower than expected demand for infant milk formula, increased inventory levels, excess ingredients and shortfall payments to suppliers have impacted the performance. The profits for FY17 are also said to be falling below last year’s value while gross profit margin is expected to be in the range of 35% to 38%. On the other hand, the estimated sales data from China has indicated for stability in BAL’s online market share with slight growth since January 2016. The group now aims to focus on production cuts to manage inventory levels. BAL has also proceeded with renegotiation on the manufacturing contract with supplier FONTERRA UNIT NZX. The group further announced about CEO, Laura McBain, leaving the company amidst the recent events. Given the recent updates, we think it might be better to wait and watch out for the stock performance going forward. We give a ‘Hold’ recommendation on the stock at the current price of $ 5.35
 

BAL Daily Chart (Source: Thomson Reuters)

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