‘Too risky’: Bellamy’s shares sink further amid broker downgrades

10/08/2019 Posted by admin

Bellamy’s on Wednesday revealed that lower than expected sales in China would have a significant impact on its earnings. Photo: Kate GeraghtyShares in troubled Bellamy’s have lost further ground on broker downgrades after the baby formula supplier on Wednesday confirmed chief executive Laura McBain would leave the company and warned of lower annual earnings.
Nanjing Night Net

Bellamy’s shares slid another 17.8 per cent on Thursday to $4.40, adding to Wednesday’s 20 per cent drop after the shares resumed trading following a five-week suspension.

The latest two-day plunge in the share price has reduced the company’s already diminished value by about one-third, or more than $200 million, to just $425.5 million.

On December 1, a day before the company shocked investors with an initial sales warning, its shares were trading at $12.13, valuing the company at nearly $1.2 billion.

Bellamy’s on Wednesday revealed that the lower than expected sales in China would have a significant impact on its earnings, with annual earnings before tax and interest expected to be in the range of $22 million to $26 million, down sharply from $54.3 million a year earlier and well below analyst expectations of $46 million.

In a further sign of turmoil, chief executive Laura McBain and chief financial officer Shona Ollington are leaving the company. Bellamy’s has appointed Andrew Cohen as the acting chief executive.

OrdMinnett is among the brokers that downgraded the stock after its announcement, saying Bellamy’s had changed from structural growth to significant turnaround.

“With significant finished goods inventory on hand, flat sales for three halves expected, lower long-term gross margins than originally forecast, a weaker balance sheet and a channel strategy in need of overhaul, we see the risk profile with BAL as too great to justify investment and as such downgrade to ‘sell’,” OrdMinnett head of research Nicholas McGarrigle said in a note to clients.

“We see the current financial year 2017 PE [price-earnings] multiple of 25x [times] as unreasonably high.”

​The broker also axed its price target from $7.26 to $3.72.

Goldman Sachs put its rating (neutral) and price target ($5.35) under review, saying it needed more detail from the company on its ability to raise debt in the event of a further slowdown in revenues.

“While we do not believe that the brand is permanently impaired, we do hold concerns on whether BAL will be able to regain its lost market share, and hence whether it will be able to return to an appropriate level of growth to meet its guidance for shortfall payments and/or avoid further inventory build as well as allay concerns of an equity raising in the near future,” the bank’s analysts said.

Chairman Rob Woolley on Wednesday would not disclose whether the company was considering a capital raising or if there had been any takeover approaches for Bellamy’s. This story Administrator ready to work first appeared on Nanjing Night Net.

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