What Spooked Bellamy’s Australia Ltd (ASX:BAL) Shareholders

Trading in embattled infant formula maker Bellamy’s Australia Ltd (ASX:BAL) resumed today along with the company’s latest business update, which sent shares down nearly 20%. After a month-long suspension, the company’s revised-down full-year guidance and cut-in-half profitability expectations did little to boost investors’ confidence.

Some hard measures were taken to fix the responsibility of the recent fallout. Laura Mcbain lost her position as the CEO, effective immediately. Shona Olignton, the company CFO, has been replaced. The company will remain in a difficult spot until demand stabilizes in China, where expected regulatory changes have caused local infant formula makers to flood the market, selling products at throwaway prices.

Lower demand has caused increased inventory levels and shortfall payments to suppliers amid rising ingredient-cost. This has also brought it on the verge of facing a working capital crisis, indicating a dividend cut, but credit-facilities with banks has allowed avoiding external capital raising. Thanks to a high shelf life of its products and active inventory management, it’s so far avoided inventory write-downs, which could further hurt profits.

The company plans overhaul of its supply chain and sales-channels in the wake of expected lower production levels due to weak demand in the key China-market. It has successfully renegotiated manufacturing arrangement with major supplier Fonterra to extend minimum volume commitments for a further three-year period in addition to current five-year contract. It’s a battle, which would be fought on multiple fronts and there is no room for any more bad judgements.

Debt-troubles

Another stock snubbed by investors is Paladin Energy Ltd (ASX:PDN). The company operates uranium mines in Australia and Africa. While a debt at more than three times its market capitalization was a good enough reason to worry, the company’s latest announcement to restructure that excessive debt, “reducing its debt obligations and extending the maturity of the remaining debt”, sent shares nosediving. However, the proposal is highly conditional as it requires the support of 75% of each of 2017 and 2020 convertible bondholders to go through.

asx-pdn-historical-debt-simply-wall-st

PDN’s inability to sell 24% stake in Langer Heinrich Mine to meet its debt maturities to the tune of US$212 million due in April this year has resulted in the company opting for this Restructure Proposal, which includes issuing US$145 million in new equity issues. Thus, reducing its current debt of US$382 million by the same amount, but substantially diluting exiting shareholders’ equity. The company expects that a rebound in Uranium prices, which are trading at 12-year lows in the wake of weak demand from utilities in the US, in the near future would improve its financial condition significantly. That remains to be seen. Clearly, its survival seems dependent on quite an uncertain outcome.

CEO-trouble

asx-pry-ceo-and-management-team-simply-wall-st

Healthcare services provider Primary Health Care’s (ASX: PRY) shares plunged on the announcement that CEO Peter Gregg “has been served with a Local Court attendance notice by the Australian Securities and Investments Commission (ASIC)”. ASIC has alleged infringement of Section 1307(1) (falsification of books) of the Corporations Act by Mr Peter’s actions while serving as an officer of Leighton Holdings Limited. Well, this is a significant risk to the company’s reputation and shareholders are awaiting the board to provide guidance on how the company would tackle every possible outcome.