Bellamy's: The upgrade cycle isn't over
About the author:
- Author name:
- By Belinda Moore
- Job title:
- Senior Analyst
- Date posted:
- 10 September 2015, 10:35 AM
- Sectors Covered:
- Agriculture, Food & Beverage, Travel and Chemicals
Over coming years, we believe that Bellamy's (BAL) is well positioned to benefit
from the increasing demand for organic food and beverage, price rises,
increased organic ingredients supply, the launch of new products,
entering into new distribution agreements in Australia and overseas
and increased ranging with its existing customers.
This will have a
twofold impact of driving top line growth and margin expansion
driven by increasing scale and greater sales through low cost online
channels.
We have made material upgrades to our forecasts and
maintain an Add rating with a new price target. Clients should login to view the price target.
Strong brand name and premium status = pricing power
In our view, BAL's growing market share and premium status should allow it to
push through price rises. BAL's top line growth should also be well supported
as its percentage of Chinese sales rise given their higher than average selling
price (A$40/tin through online channels and A$80/tin through the retailers, a
significant premium to Australian sales at cA$22/tin).
With scale and a greater
penetration of low cost channels eg. online, we believe that BAL's margins will
rise driving greater than expected earnings growth.
We make another round of large earnings upgrades
Following a review of our model and the implementation of price rises and the
lifting of our margin assumptions, we have increased our FY16/17/18 NPAT
forecasts by 17%/29%&33% respectively. Our new FY16 NPAT forecast of
A$19.4m represents 109% growth on the pcp.
We highlight that our forecasts
do not include BAL entering new markets in South East Asia (eg. Indonesia
and/or Thailand), the US, Europe and the Middle East or developing new
products outside of the baby category, all of which are targeted by management
over coming years.
Investment view
Trading on an FY16 PEG of only 0.3x, we believe that BAL is attractively priced
for its growth profile. We continue to rate this company highly and believe that
the upgrade cycle is far from over.
We reiterate our Add recommendation with
a new price target (login to view price target).
More information
Morgans clients can login to access further analysis on Bellamy's Australia (BAL). If you are interested in becoming a client, please contact your nearest Morgans office.
Disclaimer(s): Analyst owns shares.
The information contained in this report is provided to you by Morgans Financial Limited as general advice only, and is made without consideration of an individual's relevant personal circumstances. Morgans Financial Limited ABN 49 010 669 726, its related bodies corporate, directors and officers, employees, authorised representatives and agents ("Morgans") do not accept any liability for any loss or damage arising from or in connection with any action taken or not taken on the basis of information contained in this report, or for any errors or omissions contained within. It is recommended that any persons who wish to act upon this report consult with their Morgans investment adviser before doing so.