Here’s why the Bellamy’s Australia Ltd share price exploded today

Credit: Bellamy's

In response to the sharp fall endured by its share price over the last month or so, Bellamy’s Australia Ltd (ASX: BAL) has provided the market with an update prior to the release of its official half-year earnings results on 19 February 2016.

Indeed, there was limited information provided in the update, but what was given was certainly enough to excite investors. The shares were trading 6.2% lower at $10.45 just prior to the announcement, but have since rebounded 21% to a high of $12.65.

Bellamy’s said its unaudited accounts for the six-months ended 31 December 2015, suggested revenue of $105 million and earnings before interest and tax (EBIT) of $19 million.

In case you were wondering why the market responded so positively to the update, those first-half figures compare to the $131.7 million in revenue and $12.3 million in EBIT for the whole of the 2015 financial year. It would also represent an increase of 80% compared to the $58.3 million in revenue generated during the first half of FY15. Needless to say, that’s a huge increase.

Shares of Bellamy’s rival, a2 Milk Company Ltd (Australia) (ASX: A2M), have also surged 6.4% higher after the announcement with investors hoping for a similar show of strength when it reports its earnings results this month.

In addition to those figures, Bellamy’s said it expects stronger revenues in the second half of the year, with plenty of potential to grow even more in the periods beyond that. It signed a new manufacturing agreement with FONTERRA ORD UNIT (ASX: FSF) (“Fonterra”) late in November which should help it to better meet the skyrocketing levels of demand around the globe.

The announcement said: “Bellamy’s expect the first deliveries from Fonterra to take place in late FY2016 and therefore the benefit of these additional volumes are expected to be realised in FY2017.”

Although Bellamy’s shares are by no means cheap based on traditional valuation metrics, it certainly has the potential to grow bigger and better over the coming years. Investors with a long-term horizon should certainly keep their eyes on this growth story.

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Motley Fool contributor Ryan Newman owns shares of Bellamy's Australia. Unless otherwise noted, the author does not have a position in any stocks mentioned by the author in the comments below. You can follow Ryan on Twitter @ASXvalueinvest.

The Motley Fool Australia owns shares of Bellamy's Australia. 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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