Shares in Bellamy’s, the maker of organic infant formula whose spectacular grown in China has hit a speed bump, have been downgraded to a sell by Citi.
The company has gone into a trading halt while it considers the latest blow to its business from China.
Canning factory Camperdown Powder, which has just been bought by Bellamy’s as a way of ensuring a smooth supply route into China, has had its license suspended by Chinese authorities.
Citi sees the suspension of Camperdown’s CNCA (Certification and Accreditation Administration of the People’s Republic of China) license as a frustrating setback for Bellamy’s.
However, Citi doesn’t expect the suspension to break Bellamy’s business model because 84% of infant formula sales are English label, which should not be directly impacted by Chinese licensing.
Citi’s 12-month target price for Bellamy’s is $5.75 per share. The shares last traded at $6.74.
“We rate the stock as high risk to reflect the uncertainty around the success and timing of the turnaround strategy,” says Citi.
Bellamy’s spectacular growth via China suddenly stalled late last year following regulatory changes.
The fallout from falling sales claimed the scalp of CEO Laura McBain, stripped millions of dollars from the market capitalisation and sparked a shareholder revolt which ended with a change in the board of directors.
The company in February posted a 47% drop in first half profit to $7.236 million following problems with sales of its organic infant formula in China.
Bellamy’s is forecasting a 2017 EBIT (earnings before interest and taxes) loss of $9.5 million to $14 million.
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