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How Did Bellamy’s Pan Out For Investors This Reporting Season?

Stuart Lucy

Stuart Lucy is an Investment Specialist at the Australian Stock Report, and has gained exposure to funds management and investment banking throughout his career. He draws on this experience to provide macroeconomic commentary and actionable investment insights to clients. Stuart is responsible for writing reports, is involved in delivering Macrovue webinars and provides general advice to our members on portfolio construction. Stuart currently holds RG146 General and Securities qualifications.

Bellamy’s (ASX: BAL) announced disappointing full year results this year, with full year earnings declining 49.8% to $21.7m on the back of a challenging business backdrop in China. Revenue declined 21.6% on the previous year and the company needed to contend with substantial margin compression and the loss of $18m in China label sales. The gross margin improved, but the net margin was impacted by doubling marketing spend to 10.6% of revenue and a general rise in smaller costs (reported as “other expenses”). One positive in the results however is the company announcing 10-15% net revenue growth at a consistent EBITDA margin, an outlook which signals that management believes that the worst is over for Bellamy’s. Nevertheless, with the company worth $912m and only earning $21.7m this year, it remains to be seen whether this will be enough to appease investors.

bellamys reporting season
Bellamy’s announced a sharp decline in full year profits this year (Credit: Natonic)

Bellamy’s can no longer advertise infant formula in the 0-12-month-old market segment, and China is set to favour domestic producers which it wants to obtain a 60% market share. Companies can be directly exposed to the Chinese growth story through either the daigou channel or direct business relationships. The daigou channel has been hit in recent times, with China now requiring people operating daigou businesses to acquire licences to operate daigou businesses in both China and the other country the operate in, meaning those companies are subject to the same taxation as normal businesses. This has hurt Australian businesses reliant on the daigou channel, since it increases the average effective rate of tax consumers in China pay on their goods, pricing some consumers out of the market.

This has also resulted in particularly bad effects for A2 Milk (ASX: A2M), Bubs Australia (ASX: BUB) and Blackmores (ASX: BKL). A2 Milk sold off earlier this year, as China ratcheted up regulations on the importation and advertising of foreign infant formula. For most of the milk producers, the adverse regulatory changes have been priced in. Nevertheless, stocks have still sold off as investors got increased clarity around the financial impact of the regulatory changes this reporting season.




This article has been prepared by the Australian Stock Report Pty Ltd (AFSL: 301 682. ABN: 94 106 863 978)

(“ASR”). ASR is part of Amalgamated Australian Investment Group Limited (AAIG) (ABN: 81 140 208 288 Level 13, 130 Pitt Street, Sydney NSW 2000).

This article is provided for informational purpose only and does not purport to contain all matters relevant to any particular investment or financial instrument. Any market commentary in this communication is not intended to constitute “research” as defined by applicable regulations. Whilst information published on or accessed via this website is believed to be reliable, as far as permitted by law we make no representations as to its ongoing availability, accuracy or completeness. Any quotes or prices used herein are current at the time of preparation. This document and its contents are proprietary information and products of our firm and may not be reproduced or otherwise disseminated in whole or in part without our written consent unless required to by judicial or administrative proceeding. The ultimate decision to proceed with any transaction rests solely with you. We are not acting as your advisor in relation to any information contained herein. Any projections are estimates only and may not be realised in the future.

ASR has no position in any of the stocks mentioned.

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