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Bellamy’s Australia Ltd upgrades FY 2018 guidance

baby, milk, bellamy's

One of the biggest movers on the market in the last five trading sessions has been the Bellamy’s Australia Ltd (ASX: BAL) share price.

During this time its shares have risen a staggering 31% despite there being no news out of the organic food and infant formula company.

Well this strong run could be set to continue on Thursday after the company released a trading update which revealed that it has had a strong start to FY 2018.

According to the release, management is now targeting FY 2018 revenue growth of between 15% and 20% for its core business. This compares to its previous revenue growth target of between 5% and 10%.

Furthermore, Bellamy’s has narrowed its EBITDA margin target from between 15% and 20% to 17% and 20%.

This guidance excludes the recently acquired Camperdown business which is still expected to generate an EBITDA loss of between $1 million and $2 million.

Management has once again reiterated its view that revenue will be notably stronger in the first-half of FY 2018 due to the impact of seasonality and a delay in its CFDA registration.

Should you invest?

Whilst there certainly is an appetite for Australian infant formula in the massive China market, I do feel that the shares of Bellamy’s and a2 Milk Company Ltd (Australia) (ASX: A2M) are looking very pricey right now.

This could put them at risk of sharp declines if they fail to live up to the market’s lofty expectations.

In light of this, I would suggest investors hold off an investment on both of them at this stage and focus on other areas of the market with more compelling risk/rewards.

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Motley Fool contributor James Mickleboro has no position in any of the 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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