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.