The insane rally in Blackmores shares is because of its infant formula deal

Australia making slow but sure progress. Photo: Getty Images/Stephen Chernin

Blackmores shares are going wild today.

The company is holding its AGM and has updated the market with a bunch of news. Shares have rallied around 25%, with the price breaking through $200 briefly.

One of the announcements was that Blackmores is entering into a partnership with Bega, the dairy company, “to develop and manufacture a range of nutritional foods, including high quality infant formula, through Bega’s subsidiary Tatura.”

Infant formula is a lucrative line of business. Demand is enormous in Asia, where Blackmores already has an established presence.

To give you an idea of the demand, Australian supermarkets have had to introduce rationed buying of infant formula because people were buying it in bulk and selling it on to Chinese buyers over the internet for big profits. You can only buy three or four tins in a lot of places.

Chris Kallos, healthcare equities analyst at Morningstar, had a share price target of around $140 in its “bull case” scenario.

“I think what they are doing is quite strategic. Infant formula is an attractive add-on,” Kallos told Business Insider. “Infant formula is an attractive add-on,” he said.

Bega shares are also rallying hard today and were up more than 18% a short time ago.

Blackmores is likely to start running into capacity constraints for the production of its existing products. The infant formula business, through a partnership, creates a potential new growth area for the company.

Sales to Chinese consumers for Blackmores in the past quarter were estimated at $55 million, or about one-third of sales.

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