Is the Bellamy’s Australia Ltd share price in the buy zone after today’s announcement?

Credit: Bellamy's

The Bellamy’s Australia Ltd (ASX: BAL) share price will be one to watch today after the infant formula company made several key announcements.

At the time of writing its shares are still in a trading halt but look set to open around 2% lower.

What happened?

According to the release Bellamy’s has signed a binding agreement to acquire Camperdown Powder Pty Ltd. A CNCA licensed powder products blending and canning line in Braeside, Victoria.

For a total consideration of $28.5 million, Bellamy’s will hold a 90% interest in a newly formed entity that will hold the issued capital of Camperdown.

This acquisition doesn’t come as a great surprise. Earlier this year the company advised that it had lost its slot at the Bega Cheese Ltd (ASX: BGA) Derrimut canning line, putting its future sales into China in jeopardy.

As well as this Bellamy’s has entered into a binding agreement to further reset its supply contract with FONTERRA UNIT NZX (ASX: FSF) for a one-time consideration of $27.5 million.

This agreement will see the removal of anticipated shortfall payments over the life of the contract.

Management expects this to result in increased operating flexibility to direct canning to Camperdown and introduce volume based rebates and a modified bulk formula price.

In order to accomplish this Bellamy’s has launched a fully underwritten $60.4 million, 5 for 38 pro rata accelerated non-renounceable entitlement offer of new ordinary shares.

Earnings downgrade.

The company also took this opportunity to advise that it has revised its earnings before interest and tax (EBIT) guidance for the second-half of FY 2017.

Due to one-off costs associated with the acquisition and revision to the Fonterra agreement, management has revised its $9 million to $13 million profit guidance to a loss of between $9.5 million and $14 million.

Should you invest?

Whilst this could prove to be a great move by the company that puts it back on the right path, until there is proof of a recovery I would suggest investors stay clear of its shares and consider rival a2 Milk Company Ltd (Australia) (ASX: A2M) instead.

Alternatively these high-quality growth shares could be even better options for investors if you ask me.

Each is growing like wildfire and has shown no signs of slowing.

Top 3 ASX Blue Chips To Buy In 2017

For many, blue chip stocks mean stability, profitability and regular dividends, often fully franked..

But knowing which blue chips to buy, and when, can be fraught with danger.

The Motley Fool's in-house analyst team has poured over thousands of hours worth of proprietary research to bring you the names of "The Motley Fool's Top 3 Blue Chip Stocks for 2017."

Each one pays a fully franked dividend. Each one has not only grown its profits, but has also grown its dividend. One increased it by a whopping 33%, while another trades on a grossed up (fully franked) dividend yield of almost 7%.

The names of these Top 3 ASX Blue Chips are included in this specially prepared free report. But you will have to hurry. Depending on demand - and how quickly the share prices of these companies moves - we may be forced to remove this report.

Click here to claim your free report.

Motley Fool contributor James Mickleboro has no position in any stocks mentioned. The Motley Fool Australia owns shares of A2 Milk. 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.

Two New Stock Picks Every Month!

Not to alarm you, but you’re about to miss a very important event! Chief Investment Advisor Scott Phillips and his team at Motley Fool Share Advisor are about to reveal their latest official stock recommendation. The premium “buy alert” will be unveiled to members and you can be among the first to act on the tip.

Don’t let this opportunity pass you by – this is your chance to get in early!

Simply enter your email now to find out how you can get instant access.

By clicking this button, you agree to our Terms of Service and Privacy Policy. We will use your email address only to keep you informed about updates to our website and about other products and services we think might interest you. You can unsubscribe from Take Stock at anytime. Please refer to our Financial Services Guide (FSG) for more information.