BAL - Bellamy's Australia

[galumay]

some investment advisor and he was using this company as an example of where people blindly follow company produced fundamental data that sound good but in reality the company has no supporting foundations

These advisors have 20/20 hindsight! Probably was one of the advisors pumping BAL when it was all the rage!

 

[So_Cynical]

So whos buying Bellamys tomorrow?

 

[galumay]

So whos buying Bellamys tomorrow?

Not touching them with my barge pole even!

 

[Boggo]

These advisors have 20/20 hindsight! Probably was one of the advisors pumping BAL when it was all the rage!

Yes, I guess there are people who rely on others for their investment decisions and fall for that sort of selling.

He didn't sound like someone who had made a killing though

 

[McLovin]

Premium and niche is probably where they should aim. I think they can achieve margins much higher than 10% with a premium positioning. What they don't have is much economies of scale because they don't manufacture themselves.

I don't know. They've got no real competitive advantage that I can see, and the big multinationals like Danone/Unilever have the scale and distribution in to Asia. How premium can you get when every process of your product is controlled by external parties? It's not like they invest in genetics to create cows that produce better whey, and like you say they have no economies of scale in manufacturing. To me it just seems like a near commodity product and in the long run competition will erode margins.

 

[McLovin]

The deal with FSF is also interesting in that, there seems to plant a poison bill for any future change of control transactions. But is that really the case? If FSF terminates the contract on this provision, does it mean BAL is no longer up for the shortfall payment? IF so, doesn't it just give a 3rd party an incentive to buy a large stake in BAL in hope of triggering this clause? I am somewhat confused what FSF thinks it can achieve.

I was thinking more about this. Even more strange is that FSF too a second mortgage over BAL's assets as part of the contract extension. But if the contract can be terminated by someone lobbing in an offer what's the point of the lien? They won't get paid out if there's a takeover. I guess if they fail FSF gets $110m in milk formula?

 

[Garpal Gumnut]

As a chartist I have only ever seen such a loss in value, lead to extinction and tears.

Firstly in Dec.16 you have a fall in value of 50%.

Then after a trading halt, in the last few days a further loss on huge volume.

I doubt if the Vatican Bank still has a holding. Prayer only goes so far.

gg

 

[Huskar]

They say there is a direct correlation between number of babies in an annual report and performance over the following period. BAL certainly proves it - I understand that that is what they sell but every 2nd page has cute little eyes peering at you.
Call me contrarian but I am interested in this as a turnaround. McLovin you mentioned that this is a commodity product but I disagree - I have seen myself how important it is in China / Hong Kong / wider Asia to find quality products. And Australia (+ NZ) has done remarkably well in building a reputation for quality that will take a long time for Chinese producers to meet. Even European and American producers are seen more sceptically.
Looking at the balance sheet now for FY16 the leap in inventories (x3 cf with doubling of revenues) is a giveaway that product was not selling as fast as it should. Some sort of writedown or at least a shakeout looks likely in the short term. But that is not a company killer unless it is poorly handled...
We will see

 

[skc]

As a chartist I have only ever seen such a loss in value, lead to extinction and tears.

Your chart's volume looks wrong. Volume should be 0 during the suspension.

Call me contrarian but I am interested in this as a turnaround. McLovin you mentioned that this is a commodity product but I disagree - I have seen myself how important it is in China / Hong Kong / wider Asia to find quality products. And Australia (+ NZ) has done remarkably well in building a reputation for quality that will take a long time for Chinese producers to meet. Even European and American producers are seen more sceptically.
Looking at the balance sheet now for FY16 the leap in inventories (x3 cf with doubling of revenues) is a giveaway that product was not selling as fast as it should. Some sort of writedown or at least a shakeout looks likely in the short term. But that is not a company killer unless it is poorly handled...
We will see

I also don't think infant formula has to be a commodity product. Being a parent myself... we make lots of decisions involving babies/kids based on brand and reputation. Sustained premium positioning is a viable strategy in infant formula... whether BAL can achieve that is the $B question.

Re: inventory at end of FY16... I think it was flagged by various commentators but the management response was that it was deliberate. Supply was tight and demand was going to keep surging... what a terrible mistake it would be if BAL can't sell all that customers wanted to buy. The $68m inventory is about 20% of the projected FY17 sales forecast ($340m I think)... which is not that different to prior periods. Also there may be some seasonality in inventories supplies that they decided to lock up early. So imo it was something worth monitoring and questioning but I wouldn't have concluded that sales growth had slowed.

 

[McLovin]

Call me contrarian but I am interested in this as a turnaround. McLovin you mentioned that this is a commodity product but I disagree - I have seen myself how important it is in China / Hong Kong / wider Asia to find quality products. And Australia (+ NZ) has done remarkably well in building a reputation for quality that will take a long time for Chinese producers to meet. Even European and American producers are seen more sceptically.

Hey Husk.

I did say "near commodity", I do think there is some differentiation, I just don't think it matters that much in the long run. I totally agree with you about Australia's food reputation in Asia, but BAL imports much of their milk from Europe, and many of their other ingredients are from other parts of the world. The only thing they guarantee on their website is that no ingredients come from China. Those ingredients are then turned into formula by a NZ company in Victoria. They're more an Australian marketing company than an Australian food company. They're big selling point is they're made in Australia and that they're organic. Organic is good, but A2M is now the biggest seller into China and it's not organic. So did Chinese buyers ever care about it being organic or just that it came from Australia?...This is what I mean about it being a near commodity. How hard would it be for me to replicate the BAL business? It's not super hard to source organic milk and toll manufacture it into infant formula. High margins incentivise competition. There is nothing I've seen, yet, that leads me to think the last couple of years are indicative of what they next ten will look like.

 

[Garpal Gumnut]

Your chart's volume looks wrong. Volume should be 0 during the suspension.



.

I apologise for that chart.

I've always been a believer that breast is best for babies, and I am quite sure my old mate Xi Jinpeng who I met in Fujian shortly after the millenium celebrations would agree.

Powdered milk is a risky product to export particularly to China where cleanliness is next to Maoism.

Nonetheless I abhor fundamental analysis but note that if ole Ji decided every Chinese mum tomorrow should breast feed, rather than bottle feed their infants, there would be a weeping and gnashing of teeth in the dairies and the holders of BAL.

I will attempt to post a better chart tonight, but it may be worth considering going to the pub today if the price shoots down through $4.00 on high volume and have a bottle.

 

[Huskar]

Hey Husk.

I did say "near commodity", I do think there is some differentiation, I just don't think it matters that much in the long run. I totally agree with you about Australia's food reputation in Asia, but BAL imports much of their milk from Europe, and many of their other ingredients are from other parts of the world. The only thing they guarantee on their website is that no ingredients come from China. Those ingredients are then turned into formula by a NZ company in Victoria. They're more an Australian marketing company than an Australian food company. They're big selling point is they're made in Australia and that they're organic. Organic is good, but A2M is now the biggest seller into China and it's not organic. So did Chinese buyers ever care about it being organic or just that it came from Australia?...This is what I mean about it being a near commodity. How hard would it be for me to replicate the BAL business? It's not super hard to source organic milk and toll manufacture it into infant formula. High margins incentivise competition. There is nothing I've seen, yet, that leads me to think the last couple of years are indicative of what they next ten will look like.

Agree with what you've said here, and when you talk about replacement value not being overly demanding that does get me worried as a longer term hold. I have not looked into it much further for now as investigating a few other names.

As an aside, the top and bottom 10 returning stocks of 2016 was an interesting list: http://www.thebull.com.au/premium/a/64825-top-10-and-bottom-10-stocks-for-2016.html.

And by comparison the best/worst of FY16: http://www.thebull.com.au/premium/a/61299-the-best-and-worst-performers-for-fy-2016.html.

 

[notting]

Didn't pay its bribes to the Chinese properly and not even this could get them back in ~

Bellamy's Australia has put its shares in a trading halt as it determines the impact of the suspension of a key licence by Chinese authorities overnight at its recently acquired Victorian cannery, Camperdown Powder.

Last month, it raised $60 million to help fund the purchase of the cannery, which was supposed to deliver the company a key licence to allow its products to be sold into China, where regulations change in 2018.

 

[Wysiwyg]

BAL and A2M put-in take-out short sells after Nestle entering the Chinese market?

 

[leyy]

My buy order was triggered today for BAL, avg price $15.85 with an initial stop at $13.30 for both personal & SMSF accounts.

It has had a reasonable retracement of circa 30% from its all time high of $23 (March 2018), with reasonable support at $16

reason for purchases;

business is transforming and has good turnaround with lower cost base, very strong brand in china top two brands are (A2M + Bellamy's)

strong positive cash flow $59M 1H18 in last report, no debt

guidance upgraded in Feb 18

I feel that the stock decline was healthy and presented a good buying opportunity.

No real bad news over the last few months.

Although could be wrong, only time will tell.

 

[MikesLM]

https://www.thesun.co.uk/news/healt...by-milk-formula-new-babies-ill-parents-claim/

(also search BBC news via Google for another article on this matter)

There are current potential health and safety concerns in the UK over Danone's Aptamil infant formula product. Parents have claimed their babies have become SICK over the new Aptamil formulation. There appears to be concerns also over the quality of the new formulation (milk becomes clumpy and curdles). Also, Danone has become stingy and reduced its Aptamil product size from 900g to 800g for the SAME price!

Questions to think about:
- Would this potential healthscare for Danone's Aptamil scare parents including Chinese parents importing Aptamil (e.g. via daigou) to not buy the product - at least in the short term - until or unless safety concerns are resolved?

- Would parents in China (and other markets) turn to more trusted Australian IF products such as Bellamy's organic infant formula (which is a direct competitor)? Therefore, this would at least mean higher sales of Bellamy's IF at least in the short term such as 1H2019 (and build higher customer base for the long term).

- Can these UK Aptamil concerns spill over into other markets where Aptamil and Bellamy's are competing leading to more sales of Bellamy's product?

This concern might in part explain today's strong buying activity and rebound of Bellamy's shares.

 

[leyy]

Bellamy's is getting absolutely smashed, it has dropped close to 60% since its all time high in March this year.

There hasn't been any market announcements for the massive drop, There has been a few rumors and speculation that there may be delays for CFDA approval for their infant formula to sell in China which accounts for less than 10% of total revenue ($18M in sales).

I got stopped out at $13.50 with my recent entry.

I am watching this very closely as i think the market has overreacted with the potential CFDA delay.

I have placed some buy orders in the market waiting for this to turnaround and pop.

 

[leyy]

I have re-entered this week at $9.70 and there seems to be quite a bit of interest up 15% in the last two days. A2M and other similar providers have all reported well with strong growth and positive outlook, so I expect BAL to be in a similar position if not better.

BAL is reporting tomorrow so i guess the market is feeling positive in anticipation for a good result and an update on the CFDA approval.

If BAL can meet guidance, FY18 revenue growth to 30-35% and FY18 EBITDA margin to 20-23% (excluding Camperdown) the market should respond well.

 

[leyy]

BAL announcement this morning. Good results, guidance achieved, although the major concern is outlook is softer with moderate growth for FY19 with forecast of 10% revenue growth with EBITDA margins consistent at circa 23%, this is for Australian labels excluding china label pending SMRA approval.

No further updates on CFDA approval which is now known as SMRA. See figure 2. for details regarding the largest and most comprehensive restructure of the Chinese government. Bellamy's is confident in getting SMRA approval but respect and understand that this may be a complex and long process given the SMRA restructure.


Figure 1, Highlights

Figure 2, SMRA.

 

[bigdog]

12 month high $23.07 and low of $6.91

Close yesterday at $7.23 Bellamy’s Australia Ltd (ASX: BAL) share price has fallen more than 30% from its August 31 closing price of $10.96.

The big falls have been subsequent to an October 24 trading update that warned of a weaker-than-expected start to financial year 2019.

As such the stock’s falls may be well deserved and little to do with the wider macro-economic environment.