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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.

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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.

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