Baby formula marketer Bellamy's Australia has entered a trading halt after a horror 10 days in which its shares were smashed due to weaker-than-expected sales in China and fears of more bad news.
Tasmania-based Bellamy's was once a market darling thanks to strong demand from Chinese people wary of local dairy products and the halo around organic products. It was a product so popular it sold itself, quipped Singapore-based analyst Lloyd Moffatt.
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Bellamy's shares plunge
On December 2, Bellamy's shares fell almost 40 per cent after weak sales in China. Vision courtesy ABC News 24.
But the company's December 2 announcement that sales during China's Singles Day - the world's biggest online shopping day - were below its expectations quickly sliced more than $500 million from its market capitalisation.
After trading as high as $16.50 about this time last year, Bellamy's shares closed at $6.68 on Friday.
Questions are being asked about how much the board and chief executive knew about the company's change in fortunes ahead of the December 2 announcement, and whether Bellamy's has fulfilled its continuous disclosure obligations.
On Saturday, BusinessDay revealed confidential supermarket and pharmacy sales data showed Bellamy's market share plunged from 25 per cent of the domestic infant formula sales in April to just 12 per cent by October.
More than 95 per cent of the formula sold in Australia is bought from supermarkets or pharmacies, and more than half of it ends up in China.
Chief executive Laura McBain and chairman Rob Woolley sold down their stakes in August, at $14.55 and $14.60 a share - more than double the company's current price.
![Bellamy's shares collapsed last week on weak sales figures.](/web/20161212045326im_/http://www.theage.com.au/content/dam/images/g/s/w/o/y/r/image.related.articleLeadwide.620x349.gt8wfn.png/1481507191480.jpg)
Bellamy's will make an announcement by Wednesday regarding "the impact of trading conditions on the company's expected financial results."
Banking covenant breach?
Dean Fergie is director and portfolio manager of Cyan Investment Management. The fund manager sold its Bellamy's shares on the downgrade and said of the trading halt he would be "very surprised if it's good news".
![Bellamy's Organic CEO Laura McBain (L) and CFO Shona Ollington](/web/20161212045326im_/http://www.theage.com.au/content/dam/images/g/t/8/w/0/x/image.related.articleLeadwide.620x349.gt8wfn.png/1481507191480.jpg)
"I can only think that given the unexpected nature of the first revenue guidance, it might suggest that the company is not as fully across their numbers as one might otherwise hope," he said. "That or there has been a banking covenant breach."
"The EBITDA [earnings before interest, tax, depreciation and amortisation] drop might be an issue for the banks."
Another fund manager said, "Surely they can't have another downgrade only two weeks after the last, can they?"
"Maybe they looked under someone's desk and found more unsold tins of formula," he joked.
The rise and fall of a Tasmanian marketer
Religare analyst Lloyd Moffatt explained the rise in Bellamy's.
"Bellamy's export growth was led by Asian consumers reacting to a supply shortage of reliably safe products, by purchasing goods in Australia and shipping them by mail or by person in their luggage.
"This eventually developed into a more organised grey market where professional shoppers based overseas, dubbed Daigou, would ship commercial quantities of IMF undeclared through free-trade zones to residents or customers sourced on platforms like WeChat."
But Mr Moffatt was sceptical six months ago that the good times would continue.
"We believe that Bellamy's is a well-run company that produces a deservedly popular product. However, the recent demand spill-over from China following several dairy and infant milk formula (IMF) scandals in the country has distorted demand for IMF within Australia," he told clients in June.
"Over the past five years, the birth rate in Australia has been flat at 310,000 per annum while IMF sales have tripled; we thus believe that the company's revenue growth run-rate is unlikely to sustain, going forward."
Disclosure: The author owns a small number of shares in Bellamy's
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