Marcus Reubenstein of APAC News looks behind the acquisition of Bellamy’s and Lion Dairy by Chinese giant China Mengniu and asks whether criticism of those deals on foreign ownership grounds is justified?
Shares in the organic infant formula company Bellamy’s Australia ended nearly 55% higher yesterday as the board and management decided being independent was all too hard and revealed a sell-out to a giant Chinese dairy group.
Not unexpectedly shares in dairy products group, Bellamy’s Australia took a whacking yesterday after the annual meeting heard a warning for weaker revenues and earnings in the first half of 2018-19 and possibly for the full year.
Morgans suspects that second half trading has stayed subdued, although rising e-commerce platform prices are a positive sign. The broker also notices increased shelf space from some competitors while Bellamy's Australia has a less favourable position in some stores.
The company has taken control of the ViPlus Dairy formula. As a result, Bellamy's can now begin selling a conventional formula in off-line channels in China. The formula will be sold at a discount to existing super premium brands and targeted at tier 3 and 4 cities.
The share price has appreciated 41% year-to-date, believe it or not, and Citi analysts counter it is time for a pause, hence why the downgrade to Neutral from Buy. The broker remains a supporter of the company and the chosen strategy.
The government has implemented a new rule in the form of Country of Origin Labelling, which comes into effect on July 1 and basically ensures the true extent of Australian produce within a product is documented. Yesterday’s announcement from Bellamy’s of new strategic arrangements with milk producers will increase Bellamy’s Australian organic milk supply.