Stocks’ Details
 

Bellamy's Australia Limited

Profit Booking: Bellamy's Australia Limited’s (ASX: BAL) stock plunged 9.8 per cent on May 16, 2018 as there seems to be some profit booking in line with what was seen for fellow baby formula group A2 Milk.Specifically, trading conditions as highlighted by A2 Milk may have been seen as benchmark for BAL. However, the group’s turnaround remained on track and the underlying health of the business continued to strengthen its position in the market. On the financial front, the group recorded revenue CAGR of 62.9% over the period of 1HFY14-18 at the back of volume and value growth. This growth reflects a better balance between demand and supply, reduced channel conflicts and improved marketing investment incurred during the period. Normalized EBITDA recorded significant growth at CAGR of 103.90% during the same period. Further, the group had upgraded its full year guidance for its core business with revenue growth of 30-35% and EBITDA margin in the range of 20% to 23%, excluding Camperdown. Rising demand for its product mix portfolio into the market may help the group in the long run.
 

Five Year Financial Performance (Source: Company Reports)

On the other hand, Mitsubishi UFJ Financials group and Morgan Stanley and its subsidiaries ceased to be substantial holders of Bellamy's Australia Limited. In the past one year, the stock price climbed up 241.64 per cent as at May 15, 2018 and is still trading at a high PE level. Hence, we maintain a “Sell” recommendation on the stock at the current market price of $ 17.310.
 

The A2 Milk Company Limited

Trading Update and Full Year Guidance:The A2 Milk Company Limited’s (ASX: A2M) stock tumbled 13.108 per cent on May 16, 2018 following a trading update and full year guidance which is down from the market consensus. However, the company recorded revenue growth of 70% to NZ$660 Mn for nine months ended March 31, 2018 as compared to previous corresponding period. The sales were mainly driven by strong sales growth in its nutritional products and liquid milk. This sale growth includes the impact of seasonal sales from key China selling events, weighted towards first half of the year. According to the release, the company has reaffirmed the full year 2018 guidance and expects the Group revenue in the range of NZ$900 Mn to NZ$920 Mn, which is lower than what market expected. This takes into account transition to new infant formula packaging during Q4 FY18.Gross margin percentage for the full year is expected to remain broadly consistent with 1H18, considering the benefit of throughput efficiencies and currency movements. Further, A2M expects that marketing investment will increase in the range of NZ$82-NZ$87 Mn for full year as it is planning to expand its market share in China and in US. While the group may benefit from high demand of its nutritional products in ANZ and China, along with further growth in fresh milk in the United States, the full year revenue seems to be on the downside. Meanwhile, the share price zoomed at 275.54 per cent in past oneyear and is trading at a high level. Thus, we maintain our “Expensive” recommendation on the stock at the current market price of $ 10.540, considering rising expenses and competition in China.
 

Group Revenue (Source: Company Reports)
 
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