Bellamy’s: What went wrong?
Bellamy’s: What went wrong?

Bellamy’s Australia Ltd (BAL)

Re-commenced trading yesterday following voluntary suspension – 11 January ’17:

BAL has been experiencing severe price volatility that has resulted in a decline in the share price of around 55% since early December, with the share price falling from $12.13 to $5.35 at close of trade yesterday. Until yesterday, BAL was in suspended trading pending further disclosures to the market and renegotiation of major supplier contracts.


Today’s trading – 12 January ‘17

 Today, 12 January ’17 BAL has fallen a further 20% and has now appointed Credit Suisse as their Adviser. At circa 3pm on 12 January ’17, BAL is trading at $4.47


What is causing this volatility?

The company reported it had experienced a temporary volume dislocation in Chinese sales; though continued to paint a positive long term picture for volume growth. Today’s announcement represents a rapid deterioration in expectations from the last update at the company’s AGM around a month ago, where no guidance/trading update was provided. Whilst the performance update is disappointing, the company still faces positive tailwinds over the medium to long term, though there remains concern over regulatory risk in China.


Sales & profit position:

From yesterday’s  announcement, the company has indicated that sales estimates have fallen by circa 50% from a high point of $400m to $200m. This revised sales forecast remains flat or marginally lower than the FY16 revenue of $244m. The company expects FY17 EBIT (Earnings before interest and tax) margin to drop to 10% (vs 22% in FY16) and is indicating a guide for EBIT between $22m to $26m. The Company’s cash (net of debt) position at 31 December 2016 is approximately $1.0m and according to management, is expected to remain within debt covenants.


What can be done?

The Board have announced that the current CEO Laura McBain will be replaced, and Chief Operating Officer Andrew Cohen will manage the company in the interim. This is not unexpected given recent events. The Chief Financial Officer has also been replaced. The Board is also assessing the rest of the Executive team to establish their suitability to guide the company through this challenging period.

There have been media reports of shareholder class actions due to the company’s failure to disclose material information sooner, and an attempt by a group of large shareholders to take control of the board following the perceived failure of the existing management team.


Current position:

At the current price point, BAL is paying a 2.22% dividend fully franked, and although it is likely to be a slow recovery process, we believe that if the Board can install a strong management team who can demonstrate a commitment to positioning the company to build on the medium to long term opportunities in the Asian region, that BAL has potential to recover their value over the longer term.


Our view – wait:

Although investors should be prepared for further volatility whilst the company remains in this transitional phase, I recommend that you maintain your holding pending individual discussion at your next review meeting. In addition, we await some research reports that we have commissioned which are currently all under review.


Please don’t hesitate to contact the office if you have any questions.




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