Bellamy’s Australia Share Price Rises on Added Expertise

What happened to the Bellamy’s Australia share price?

Bellamy’s Australia Ltd [ASX:BAL] traded up as much as 4.4% on Friday, to a high of $5.22 per share.

Why did this happen to the BAL Australia shares?

As you might already know, BAL is a baby formula expert. A lot of its growth and future earnings will likely come from China as the country prizes Australian brands with the utmost quality.

And recently, BAL just got a lot more knowledgeable on its core market. As reported by The Advocate:

China expert John Ho has decided not to take his chairman’s pay as he takes the helm at embattled Bellamy’s Australia Limited.

The Hong Kong-based Australian citizen with significant business interests in Australia and China was announced as the organic baby food and formula company’s new chairman on Thursday.

Prominent business figure John Murphy has also been added to the board.

He is a former managing director of Coca-Cola Amatil Australia and Fosters Australia/Carlton & United Breweries.

What now for Bellamy’s Australia Ltd?

While it’s always a plus if a company has great management, that alone shouldn’t warrant an investment.

From its half yearly accounts, BAL showed significant signs of slowing. Revenues only grew by 12.5%, compared to 95.19% in full year FY16. Profits also dropped from $13.6 million in the first half of FY16 to $7.23 million in the first half of FY17.

The company has also increased short-term borrowings significantly to $14.6 million, which also decreased the company’s working capital figure (current assets minus current liabilities).

Doesn’t sound like the high flyer it once was.

BAL expects revenues for the second half of FY17 to be in the range of $105-120 million and for profit after tax to be 4-6% of revenues. Take the top end of that guidance; BAL is looking to earn another $7.2 million in profit.

This would put its shares trading at 36.6 times earnings. The safer option might be to sit out and wait until BAL shows more signs of picking up revenue and profitability growth.

Härje Ronngard,
Junior Analyst, Money Morning

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