Is the Bellamy's takeover a signal to invest in infant formula?

Yesterday, Bellamy's Australia Ltd (ASX: BAL) received a takeover bid at a price of $13.25 per share. Is now the time to invest in infant formula?

On Monday it was announced that China Mengniu Dairy Company had made a takeover bid for Bellamy's Australia Ltd (ASX: BAL) at a price of $13.25 per share. This price represented a 59% premium compared to the last close price of $8.32. Unsurprisingly, this news caused the price of Bellamy's shares to skyrocket.

If the takeover is successful, Bellamy's shares will no longer trade on the ASX. However, for Australian investors looking to gain exposure to the growing infant formula market there are still plenty of other options. These include A2 Milk Company (ASX: A2M), Bubs Australia Ltd (ASX: BUB), Synlait Milk Ltd (ASX: SM1) and Wattle Health Australia Ltd (ASX: WHA).

a woman

Is it the right time to invest in infant formula?

Prior to the Bellamy's takeover announcement, I did not believe the market price for Bellamy's shares constituted good value and therefore I would not have recommend investing. I hold a similar view for the remaining infant formula companies listed on the ASX. I am also concerned by the level of competition present in this industry.

The ASX listed infant formula companies must compete with a host of international competitors including Nestle, the world largest producer of infant formula. This is bad news for investors as competition usually drives down prices, margins and earnings of competing companies. Smaller companies can also be driven out of business by larger companies, which can survive for longer on lower margins.

Some of the ASX listed infant formula companies have attempted to distinguish themselves from the competition and I believe this is a smart move. a2 milk, for example, specialises in A1 protein-free milk products while Bubs' infant formula is derived from goats' milk. Unfortunately, it's hard to know at this stage if this product differentiation will lead to any form of long-term competitive advantage.

Foolish takeaway

ASX listed infant formula companies do have an opportunity to grow sales and earnings as they expand overseas. However, I would not recommend investing due to shares prices which, in my opinion, do not accurately reflect the challenges these companies face from heavy competition.

Investing in Clover Corporation Limited (ASX: CLV) might be a worthwhile alternative investment if a sensible price becomes available. Part of Clover's business is selling nutritional powders for use in infant formula. An investment would therefore offer exposure to this growing industry but from a slightly different perspective.

Mitchell Perry has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of Clover Limited. The Motley Fool Australia owns shares of A2 Milk. The Motley Fool Australia has recommended BUBS AUST FPO. 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 Scott Phillips.

More on ASX Share Market News

A man sits in casual clothes in front of a computer amid graphic images of data superimposed on the image, as though he is engaged in IT or hacking activities.
Broker Notes

Top brokers name 3 ASX shares to buy next week

Brokers gave buy ratings to these ASX shares last week. Why are they bullish?

Read more »

A woman crosses her hands in front of her body in a defensive stance indicating a trading halt.
ASX Share Market News

ASX 200 defensive sectors outperform amid volatile trading

Investors favoured utilities, healthcare, and ASX REITs last week.

Read more »

A man and woman sit next to each other looking at each other and feeling excited and surprised after reading good news about their shares on a laptop.
Opinions

Buy, hold, sell: BHP, Westpac, and Zip shares

I weigh up the outlook for three popular shares to see which ones I would buy today.

Read more »

Five young people sit in a row having fun and interacting with their mobile phones.
Share Gainers

Here are the top 10 ASX 200 shares today

It was a happy end to the trading week this Friday.

Read more »

Female miner standing smiling in a mine.
Broker Notes

3 ASX mining shares with 43% to 322% upside ahead: brokers

The miners remain on an upward trajectory despite the broader market weakening in 2026.

Read more »

A woman stretches her arms into the sky as she rises above the crowd.
Broker Notes

9 ASX 200 shares upgraded by brokers this week

Brokers have increased their ratings on Northern Star, Challenger, Rio Tinto, and other stocks.

Read more »

Small kid giving a thumbs up.
Broker Notes

6 ASX shares to buy in today's weak market: experts

Brokers have reaffirmed their buy calls on Xero, NextDC, IAG, PLS, and other shares this week.

Read more »

A man stands at the bottom of a spiral staircase looking up.
Broker Notes

6 ASX shares downgraded by experts this week

Brokers reduced their ratings on AMP, SKS Technologies, Fortescue, and other stocks. 

Read more »