Suspended! The Bellamy's Australia Ltd (ASX: BAL) share price will remain frozen for as long as one week from today, despite the company being due to emerge from a two-day trading halt this morning.
Shares of the infant formula maker entered a trading halt on Monday after the company said it would make an updated announcement on its expected financial results.
This morning, Bellamy's was granted a suspension from trade by the ASX until 21 December 2016 as it sought "to manage its continuous disclosure obligations whilst it continues with a review in order to finalise an updated announcement of the impact of trading conditions on the company's expected financial results."
While updating profit expectations does not usually require a trading halt — nor often take such a long time — it was only a fortnight earlier that the company's share price plunged 43% in a single day after announcing a profit downgrade.
In its earlier announcement, Bellamy's said a huge amount of supply entering the Chinese market would see revenue fall and profit margins squeezed. However, the company described the volume issue as "temporary".
The supply surge, according to Bellamy's is a result of the impending regulatory changes in China, which will likely see tougher regulations imposed on producers.
Given many smaller operators may not meet the requirements, they are flooding the market with inventory at reduced prices according to Bellamy's.
The problem for Bellamy's was that its response to the changing market conditions was to discount its product prices after ramping up supply. While the strategy would ordinarily be considered rational (lower prices usually equals more customers), the discounting appears to have eroded its brand power and the premium it can charge.
What's more, some commentators believe the local market may also be causing headaches for Bellamy's. That would not be good news for Bellamy's shareholders.
Foolish takeaway
Shareholders have another nail biting week ahead of them, as they await the updated forecasts.
I find it very concerning that the company has taken this long to process its financial forecasts after only recently issuing a warning to the market. I would hope management has their finger on the pulse of their target markets and supply chains each and every day. My hope now is that it is 'just' a downgrade.
