Bellamy’s Organic (BAL) is Australia’s leading producer of Australian-made organic baby food products.
BAL was one of Australia’s top-performing shares in 2015. BAL debuted on the ASX with an IPO price of $1.00 per share in 2014. It has since risen 1,140 per cent to circa $12.40 per share.
BAL’s growth has been buoyed through surging demand for Australian-made organic infant formula, largely from China.
BAL suggest that, due to global demand over recent years, the cost of organic milk is now three times the cost of conventional milk.
Morgans recently provided a number of research updates explaining recent company developments.
Morgans highlight that BAL has implemented large price rises (+20%) across its infant formula range in Australia. Only one month of price rises were included in BAL’s recent 1H16 result.
Alongside 1H16 sales of $105.1m, NPAT grew 286% to $13.7m. This was in line with Morgans most recent forecast. The broker attributes: strong publicity and brand name; increased sales; distribution efficiencies; and online channels.
Moving forward, Morgans suggest the contribution of recent price rises will be amplified. The broker believes 2H16 will permit BAL to increase production and also anticipates strategic investments in growth opportunities.
Morgans suggest additional tailwinds supporting double-digit growth include: new products and packaging; a strong balance sheet; improvements in cash flow and working capital; beneficial consumer and industry dynamics.
Noting potential risks, Morgans remain mindful of competition, raw material supply, brand damage, e-commerce regulations, and proposed legislation which would require Chinese labels on formula before distribution to China.
On this last point, BAL commented they are well placed to benefit from packaging changes through greater control over their online trading.
For FY16, the broker recently forecast $246.8M in revenue and upgraded NPAT forecasts by 35% to $33.1m.
Morgans retain an “Add” recommendation and raise their target price 19.8% to $16.65. This represents circa 34% upside to Wednesday’s closing price.
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