Shares of Bellamy’s Australia Ltd [ASX:BAL] have fallen sharply in value by 6.35% today, sitting at $16.82 at time of writing.
Bellamy’s, an Australian owned producer of organic baby formula and other dairy products, has benefited recently from the rising popularity of exporting baby formula to China.
What’s behind Bellamy’s rise and fall?
As one of Australia’s premier suppliers of baby formula to Asian markets, Bellamy’s (along with The a2 Milk Company) has enjoyed a recent upswing in its share value due to China’s voracious need for imported baby formula.
This desire for quality formula is driven largely by China’s own food safety scandals and limited choices. China — and much of the global market — view western food as infinitely safer and better value.
However, Bellamy’s has had a complicated relationship with the Chinese market. Tougher regulations on importation have led to lower-than-expected sales in the region. The effects of these regulations were keenly felt in 2016.
These regulations have resulted in high controversy, with grey-market groups buying up the formula in Australia to sell back at home at higher margins.
The company has also received fines from ASIC in late 2017 for breaching its continuous disclosure obligations to shareholders. Bellamy’s denied the allegations but paid $66,000 to avoid further costs.
This, after a board restructure, a CEO sacking and a near bankruptcy, had a profound effect on investor sentiment.
What’s next for Bellamy’s Australia?
Despite Bellamy’s cycle of rising and declining share prices, the company is continuing to expand its organic milk supply with further development and production in Tasmania. This could restore faith for shareholders in the long run.
Of more interest to shareholders will be the continuing regulations in the Asian region, and whether Bellamy’s can maintain Chinese import approval — which will undoubtedly affect the company’s profit forecast.
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