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Why the Bellamy’s Australia Ltd share price is going nuts today

The Bellamy’s Australia Ltd (ASX: BAL) share price has surged 7.5 per cent to $6.18 today after the baby formula business returned to the ASX boards after a voluntary trading halt put in place while the business raised capital.

The company has raised $64 million via a 5 for 38 non-renounceable entitlement offer to institutional and retail investors at $4.75 per share, which represented a considerable 17.5% discount to the last closing price of the stock at $5.76 on June 9.

Despite the dilutionary impact of the capital raising the stock rocketed to a near 6-month high today, which goes to show the Bellamy’s share price moves in mysterious ways.

The proceeds of the capital raising will be put towards an acquisition and paying off supplier Fonterra in exchange for being able to reset supply contracts. Evidently the market likes the news, although in my opinion Bellamy’s shares are now starting to look on the expensive side given the valuation, relatively heavy share dilution, and recent track record of serious problems.

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Motley Fool contributor Tom Richardson has no position in any stocks mentioned.

You can find Tom on Twitter @tommyr345

The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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