Bellamy's Australia to get creamed following update

There are a number of positives from Bellamy's Australia Ltd (ASX: BAL) latest update but that won't be enough to save the company from a painful share price fall when it resumes trading on 24 July.

| More on:
a woman

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

It's more anxious waiting for shareholders in Bellamy's Australia Ltd (ASX: BAL). At least they can take some comfort from this morning's company update, although it's unlikely to save the stock from an ugly sell-off when it does resume trading on 24 July. The recent trading halt will allow management time to assess the shock license suspension for its Chinese plant, Camperdown Powder, on its recent capital raise.

The Chinese authorities suspended Camperdown's Certification and Accreditation of the People's Republic of China (CNCA) license last Friday in response to a "third party" complaint relating to "historical filings and records", and previous quality issues relating to Camperdown's processing facility.

As Bellamy's only bought the facility three days before the license suspension, it's safe to assume that the complaint isn't directly related to the quality of Bellamy's products. Also, CNCA has not made any adverse findings against Camperdown and the agency is only making enquires at this stage.

This development certainly won't send Bellamy's to the wall and should have a fairly limited impact on its profits, as the suspension of Camperdown won't impact on the production of the company's Australia and Chinese label products. It will only impact on the manufacture of third party products at that facility.

Bellamy's only intends to start producing its own products at Camperdown from the second half of FY18 and this means it should have sufficient time to seek a satisfactory outcome with CNCA.

While all of that is good news, investors are still likely to flee when the stock resumes trading later today. The license suspension may not be due to mismanagement on Bellamy's part, but it certainly brings into question its due diligence process when it was undertaking the $28.5 million acquisition.

Management had also just completed a 5-for38 entitlement offer and will need time to assess the impact of Camperdown's suspension on the capital raise as I am sure there will be a few angry investors who would be asking for their money back.

Indeed, acquisitions can be deadly. Look at law firm Slater & Gordon Limited (ASX: SGH) if you need a reference. Ironically, I have a feeling lawyers from Slater & Gordon (and its rivals) will be circling Bellamy's for a potential class action.

As I said, Camperdown isn't in the same category as Slater & Gordon's Quindell acquisition (at least it doesn't seem to be at this stage), but given that Bellamy's has suffered a string of high profile setbacks, this latest debacle is a very bad look for the company.

The incident also highlights the complexities of operating in China with other ASX-listed companies, such as casino operator Crown Resorts Ltd (ASX: CWN), running foul of its relatively opaque laws.

The other important question investors will be asking is whether Bellamy's will need to do a write-down of its brand-new acquisition. We won't know that answer until later as it really depends on when Camperdown can return to normal operations and if the suspension will have any lingering impact on customer confidence.

This may prove to be a good buying opportunity for Bellamy's stock for those with a long-term view, but I think the stock belongs in the "too hard" basket for now. The fact is, there are better opportunities elsewhere and you only need to look below for some ideas from our experts at The Motley Fool.

Motley Fool contributor Brendon Lau has no position in any stocks mentioned. The Motley Fool Australia owns shares of Crown Resorts Limited. 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.

More on ⏸️ Investing

Close up of baby looking puzzled
Retail Shares

What has happened to the Baby Bunting (ASX:BBN) share price this year?

It's been a volatile year so far for the Aussie nursery retailer. We take a closer look

Read more »

woman holds sign saying 'we need change' at climate change protest
ETFs

3 ASX ETFs that invest in companies fighting climate change

If you want to shift some of your investments into more ethical companies, exchange-traded funds can offer a good option

Read more »

a jewellery store attendant stands at a cabinet displaying opulent necklaces and earrings featuring diamonds and precious stones.
⏸️ Investing

The Michael Hill (ASX: MHJ) share price poised for growth

Investors will be keeping an eye on the Michael Hill International Limited (ASX: MHJ) share price today. The keen interest…

Read more »

ASX shares buy unstoppable asx share price represented by man in superman cape pointing skyward
⏸️ Investing

The Atomos (ASX:AMS) share price is up 15% in a week

The Atomos (ASX: AMS) share price has surged 15% this week. Let's look at what's ahead as the company build…

Read more »

Two people in suits arm wrestle on a black and white chess board.
Retail Shares

How does the Temple & Webster (ASX:TPW) share price stack up against Nick Scali (ASX:NCK)?

How does the Temple & Webster (ASX: TPW) share price stack up against rival furniture retailer Nick Scali Limited (ASX:…

Read more »

A medical researcher works on a bichip, indicating share price movement in ASX tech companies
Healthcare Shares

The Aroa (ASX:ARX) share price has surged 60% since its IPO

The Aroa (ASX:ARX) share price has surged 60% since the Polynovo (ASX: PNV) competitor listed on the ASX in July.…

Read more »

asx investor daydreaming about US shares
⏸️ How to Invest

How to buy US shares from Australia right now

If you have been wondering how to buy US shares from Australia to gain exposure from the highly topical market,…

Read more »

⏸️ Investing

Why Fox (NASDAQ:FOX) might hurt News Corp (ASX:NWS) shareholders

News Corporation (ASX: NWS) might be facing some existential threats from its American cousins over the riots on 6 January

Read more »