Bellamy's Australia Limited

BAL Details

Competitive intensity to persist: Bellamy's Australia Limited (ASX: BAL) is an Australian producer, supplier and marketer of 100% organic baby food and formula. It offers a wide range of organic food and formula products for babies and toddlers. Over the first half of FY18, the group has delivered a significant topline growth to $174.9 Mn, up from $118.2 Mn in 1HFY17. The topline flagged up due to strong volume growth and small contribution from the acquisition of the Camperdown Powder manufacturer business. Gross profit margin for the core business was 37%, down by 2.5 percentage points (pp) on 1HFY17. This margin reflects higher ingredient costs associated with the ageing inventory that has now been cycled through the trade, as well as a $2.2 Mn incurred costs for shortfall payments. There is a room for improvement in margins in 2HFY18 on the back of reduced unit costs of ingredients and higher realisation. EBITDA stood at $34.8 Mn in first half of the year, up on a year on year basis. Net Profit after tax (NPAT) grew dramatically to $22.4 Mn in 1HFY18 from $7.2 Mn in 1HFY17. The business delivered positive cash flow from operating activities contributing $59.1 Mn for the half year ended 31 December 2017. This was generated by solid profit performance and reduction in inventory level during the same period. On the other hand, BAL is a cash rich company with cash and cash equivalent of $85 Mn as on December 31, 2017 with virtually debt free status. Since March 28, 2018, Mitsubishi UFJ Financial Group Inc (MUFG), Macquarie Group Limited (MQG) and Morgan Stanley (MS) and its subsidiaries ceased to be substantial holders of the group.
 

Key Financial Highlights (Source: Company Reports)
 
On the other hand, the group upgraded the forecast for FY18 and now expects revenue growth and EBITDA margin to be 30-35% and 20-23%, respectively. Currently, the company is focused on completing the final phase of the turnaround plan and establishing long term and sustainable growth platform on the back of healthy trade partnership and distribution supply chain along with brand marketing and product development strategy. The stock price climbed up by 162.25 per cent in last six months but was down by 8.33 per cent on April 03, 2018 followed by a recovery of 7 per cent on April 04, 2018.  Recently, the company seems to be coming under pressure owing to the launch of Nestle’s new a2-protein only infant formula and other small players entering the market, and the rising competition is expected to pose some challenges. Further, regulatory risk is another concern regarding the CFDA approval. We think that investors can book profit in the stock given the significant run-up witnessed in stock price over the last few months, and thus give a “Sell” recommendation at the current market price of $21.21
 

BAL Daily Chart (Source: Thomson Reuters)

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.