In early trade the Bellamy's Australia Ltd (ASX: BAL) share price has tumbled lower after releasing its full year results.
At the time of writing the organic infant formula company's shares are down 6% to $10.50.
Here's how Bellamy's performed in FY 2018 compared to a year earlier:
- Revenue increased 37% to $329 million.
- Gross profit rose 41% to $129 million.
- Gross margin widened to 39%.
- Normalised EBITDA increased 65% to $71 million.
- Normalised net profit after tax rose 67% to $47 million.
- Diluted earnings per share of 37.2 cents.
- Outlook: 10% sales growth in Australian-label business.
Overall I thought this was a strong result from Bellamy's and not far behind that of rival A2 Milk Company Ltd (ASX: A2M) in terms of quality.
Bellamy's core infant formula business achieved revenue growth of 33% to $320 million in FY 2018 and was primarily volume driven. Second half revenue would have been stronger had the company's SAMR (formerly known as the CFDA) registration not been delayed.
In addition to this, a recent slow-down in Chinese cross-border market growth for infant formula and changes in the availability and ecommerce pricing of competing products also impacted its second half performance.
Unfortunately, the latter headwinds are expected to result in tough trading conditions in FY 2019. In light of this, management has provided guidance of just 10% growth in revenue from its Australian-label business this year. This growth is expected to be predominantly achieved in the second half of the year, meaning flat revenues in the first half.
This isn't expected to weigh on its margins, thankfully, with management expecting group EBITDA margins to be in the range of 22% to 25% in FY 2019.
However, revenue and margins could be given a major lift if and when the company is granted its SAMR registration. This will allow it to sell Chinese-label products on the China mainland.
Looking further ahead, management believes that the foundations have been laid to build a $500 million revenue business by FY 2021.
Should you buy the dip?
While its guidance for FY 2019 is admittedly a touch underwhelming, I think investors ought to look beyond this and to the medium term.
Over the medium term I feel Bellamy's would be a great investment option. As a result, I would suggest investors consider snapping up shares on today's weakness.
After all, if management can achieve its target of $500 million in revenue by FY 2021, I think it's safe to presume that its share price will be notably higher than where it stands today.
