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Why Bellamy’s Australia Ltd reported a monster first half

Bellamy's baby food
Credit: Bellamy's

It’s been an amazing 12 months for some our our largest packaged food (PF) producers. These companies share space in the consumer staples sector which has fallen by 10% during the same time. The following table illustrates the share price performance of five of our biggest PF shares. Lets take a look:

Company 12 month performance
Bellamy’s Australia Ltd (ASX: BAL) 430.97%
Capilano Honey Ltd (ASX: CZZ) 91.92%
Freedom Nutritional Products Ltd (ASX: FNP) 18.71%
Bega Cheese Ltd (ASX: BGA) 12.70%
Buderim Group Ltd (ASX: BUG) 7.14%

(Source:Commsec)

Bellamy’s is the clear winner in this category with a staggering 431% increase, followed by Capilano with a 92% rise.

Such has been the success of Bellamy’s sales that major supermarkets are now working with the company to limit the amount of infant formula shoppers can buy.

An overwhelming demand for safe and clean infant formula in China has resulted in Australian supermarkets being stripped bare of formula, which has in turn been selling at exorbitant prices online.

Bellamy’s says getting stock on the shelves for Australian families proved a major challenge in the lead up to November’s Singles Day in China, one of the world’s largest online shopping days.

The company ended up directing Aussie parents to buy from its online shop, which led to a huge lift in its online sales.

Chief finance officer Shona Ollington says Bellamy’s wants major retailers to introduce rationing.

“Naturally we can’t police that but we did encourage it and some of those measures have been brought in which has been a great outcome,” she said.

Some Woolworths Limited (ASX: WOW) and Wesfarmers Ltd (ASX: WES) owned Coles supermarkets are limiting sales to four or even two tins per customer, displaying notices on shelves that cite “supply issues”.

Ms Ollington said the company’s online presence in China has ramped up since launching its flagship store only a few months before Singles Day 2015.

“The awareness of our online store has grown since then and we are confident we will have supply in place to manage consistency within Australia, and also manage those spikes in sales during those promotional periods in China,” she said.

“The Hong Kong and Chinese consumer makes up about 15% of our total revenue and that is continuing to grow.”

Australia remains Bellamy’s strongest market, contributing more than 80% of group revenue, while it has grown its market share in Singapore.

The Tasmanian company, which also sells baby and toddler food, distributes to Malaysia and Vietnam and has plans to expand to other south east Asian nations. The priority is further expansion in Australia and China, however.

Bellamy’s achieved a four-fold increase in profit in the half year to December due to strong demand from its two biggest markets.

To help keep up with the burgeoning demand for baby formula, the company has taken steps to increase its supply chain, including talking to Australian farmers about converting to organic farms.

The group also signed a five-year contract with Fonterra in December to help ramp up its production of formula.

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Motley Fool contributor John Hopkins has no position in any stocks mentioned. Unless otherwise noted, the author does not have a position in any stocks mentioned by the author in the comments below. 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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