Is Bellamy’s (ASX: BAL) seemingly rebounding?

The infant formula stock, Bellamy’s Australia Ltd (ASX: BAL) that witnessed a share price fall of over 9.6 percent to about $12.77 last week as at July 06, 2018 with a monthly drop of 25%, saw the trend changing this week with rise that brought the stock back to about $12.94, as at July 11, 2018, and further to $13.27 on July 12, 2018. This could be because the stock seems to be tagging along with the major stocks that were seen rebounding and diverse opinions emerging on it with regards to the pending CFDA approval in China. Factors including the baby infant formula category being valued at more than US $50 billion, growing urbanization and rising incomes, have fueled the growth of nutritional milk powders lately.

Bellamy’s recently cited the inadequate supply of the local organic milk to produce its products, as it was criticized for not using greater number of local dairy producers. The infant formula group then inked three new organic milk deals and has now taken more control of its supply chain and cost structure. The agreement signed with Fonterra organic milk pool by partnering with local farmers to convert existing conventional Tasmanian farms to organic will facilitate the development of an organic milk pool in Tasmania.

Most importantly, the strategic arrangements which are in place, include:

1. Arrangement with Fonterra Australia Private Limited, which is being done to provide support to infant formula production at Fonterra’s Darnum Site by development and conversion of a Tasmanian organic pool of milk.
2. A multi-year agreement with affiliate of Australian Consolidated milk (ACM) to secure its access to Australian sourced organic fresh milk.
3. An agreement with Tatura Milk Industries Limited (TMIL) for having organic milk into production based on the TMIL’s supply base

These arrangements are expected to back sustainable farming in Australia under the steps taken by BAL.

The long-term agreement with Fonterra will be supported by Bellamy’s with an initial investment of $5.5 million to assist the installation of processing assets to facilitate processing and handling of organic milk. Also, the new multi-year agreement with ACM makes ACM a secure end customer for organic milk and provides Bellamy’s a guaranteed access to ACM’s organic milk allowing ACM to continue investing in converting farmers.

The baby-food maker’s revenue was said to be higher for the first half than the second half of 2018, which was driven by the winter consumption in China and Chinese New Year-driven demand. However, the Camperdown business has been slated to drag the performance with a loss of A$1-2 million now.

While the initial days of this week showcased some rebound, ASX: BAL has seen a performance change or a rise of staggering 102.5% over the past 12 months. The price to earnings ratio of the stock is at 98x and the earnings per share stands at AUD 0.132. With market capitalization of $1.47 billion, post some wipe-out due to price reductions based on erupting challenges, the company would be a watch among its peers.

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