Bellamy's Australia Limited (ASX: BAL) highlights about its full year sales report for its baby formula which remains at its lower end of the guidance report. This will result in the fall of revenue by 15% in the first half of FY2019. It appears that there might be a fall in the stock price ahead of a brand upgrade.
Bellamy’s, company based in Launceston has applied an application 10 months ago in regard to the selling of Chinese-labelled product in China. However, there is no update regarding the application and company is still waiting to hear from Beijing about its application which is still in pending status from the State Administration for Market Regulation.
In the month of August Andrew Cohen who is the chief executive officer at Bellamy's expected that they might gain the certification this calendar year. However, he was unable to provide any update in the company’s annual general meeting held in Tasmania on Wednesday.
Mr. Cohen who is the CEO of the company also repeated to shareholders that the financial performance of manufacturing of the baby food and formula for 2018-19 will be impacted by the slower category growth as well as the competitive trading environment. The stock price tumbled by 51¢, or 6 per cent, to $7.98 as the results were disappointing. The trading environment seems to be more competitive and more challenging in 2018-19 as a result of both availability and trade pricing for local as well as global investors. He also assures his shareholders that these changes are the short-term challenge. However, the original segment potential of the company remains significant. The cross-border ecommerce channel remains relevant for both organic formula and food, especially in China
Mr. Cohen also focused that the company at present need to first look at reducing the inventories with the distributors before launching fresh product in the second half. If achieved so the company will have a positive impact on the sales and the first half of FY19 will be able to generate revenue from sales between $10 million to $15 million.
In order to maintain the brand’s integrity in China, the company had already taken provision since the distributor owns the China-labelled stock. In order to prevent the sale of two labels (one new and one discounted) simultaneously, Bellamy's must buy that stock back. The company is now extending its formula range to include fresh local Australian milk for older children and also pregnant or breastfeeding mothers. Apart from this a new premium branding of food is launched. Mr. Cohen also added that the company has already launched the new premium branding for food. Considering the Chinese preferences, the company made a further launch of fortified with GOS pre-biotic, enhanced cereal range, a new exotic fruit pouch and a sugar-free custards range.
The sales of baby formula reached $302 million in fiscal 2018 which was $203 million in fiscal year 2017.The EBITDA will remain normalized excluding any further write-downs for the brand upgrade for the entire year and continue to range between 22% to 25%. It is expected that the second half of the year will show a stronger performance once normal trading patterns return. The current market price of the share is A$7.36 with market capitalization of A$813.98 million and PE ratio 18.32x.
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