Bellamy’s Australia Ltd (ASX:BAL): The Recovery Continues

Organic infant-formula maker Bellamy’s Australia Ltd (ASX:BAL) continues to quickly regain the lost ground in the aftermath of regulatory changes in China. BAL’s big capital expenditures, when it was overwhelmed by the demand in China a year ago and saw significant potential of rapid market share gains, ended up tremendously increasing its operating leverage, primarily due to shortfall payments to its suppliers as the Chinese demand for its products fizzled out amid a regulatory overhaul. Investors found the sudden operational risk and lower demand in China as a threat to the company’s long-term profitability — BAL shares broke below $4-mark in Mar’17 after trading above $12-mark few months ago. To turn China into its major growth engine, BAL has taken a number of bold and creative steps since. This involved a boardroom shake-up that resulted in the appointment of former chief operating & strategy officer Andrew Cohen as CEO and a $27.5 acquisition of a blending and canning line, Camperdown, which had the Chinese regulatory approval for exports. BAL was set to face another major setback as Chinese authorities suspended Camperdown’s license recently, making it ineligible for exports. Camperdown management had appeared confident about reinstatement of license, citing that the suspension was caused by an unidentified complainant. Bellamy’s announced Thursday that they have regained the CNCA license for the facility, removing the last of the regulatory hurdles in China. ASX:BAL Bellamy's Australia Past and Future Earnings by Simply Wall St Analysts covering the company expect BAL to take a few years before it generates similar level of EPS returns as a year ago. Dilution in equity is also behind a subdued EPS outlook in the short-term — earlier this year, to fund its turnaround efforts, BAL had issued $60 million worth of shares at a major discount to then share price of $5.76. As BAL appears set to enter China again, despite the dilution, shares currently trade near the $9-mark, rising nearly 8% on Thursday and more than 100% in less than six months. Find more turnaround plays in Can They Turn The Tide