The pain isn't over for Bellamy's

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The bad news isn’t over for Bellamy’s, the Tasmanian infant formula maker whose spectacular growth via China has suddenly stalled.

The company this week pushed out its CEO, Laura McBain, cut its profit guidance again and saw its share price slide to less than a third of the value of its year high of $15.38.

Hundreds of millions of dollars in market capitalisation have disappeared. A short time ago, the shares were down another 6% to $4.13, following a 19.9% fall on Wednesday and another 17.7% Thursday.

More falls could be on the way. Investment house and broker CLSA has a price target of $3.50.

The company now expects full year revenue to be in the range of $220 million to $240 million, at best flat on 2015 and well below previous analyst expectations of about $330 million.

And some analysts believe this is too optimistic.

The CLSA researchers say they are skeptical, saying revenue is likely to be about 5% lower at $219 million than the mid point of the guidance. And they see EBIT (earnings before interest and taxes) more like $21 million, down 13% from the company’s estimate.

“Looking ahead, we would require evidence of a recovery in brand perception amongst Chinese consumers, a shift in daigou sentiment (people buying domestically for consumption in China) towards BAL and an improvement in management’s route-to-market strategy and channel visibility before we can become more constructive,” CLSA analysts Shaun Weick and Scott Hudson write in a note to clients.

“Furthermore, we continue to believe that increased investment in marketing is required to drive ongoing growth in brand awareness and ensure product demand is sustainable over the medium term.”

Sales in China for the organic infant formula maker hit a speed bump when China changed regulations requiring registration.

This caused a wave of discounting which left Bellamy’s high end product sitting in warehouses unsold.

Facing overproduction and being left with stock it couldn’t sell, Bellamy’s renegotiated a supply agreement Fonterra, the world’s biggest dairy exporter, reducing production.

At the end of December the company estimates that it had inventory levels valued at between $105 million to $110 million, representing almost six months worth of revenue.

Overall, taking all supply contracts into consideration and not just the one with Fonterra, Bellamy’s will have to pay out shortfall payments between $11 million and $13 million each year for at least two years. The first payment is due in the 2018 financial year.

Much depends on whether sales will recover in China as the warehouses there empty and supply returns to more normal levels.

And the company still faces a shareholder push to change the board of directors.

Jan Cameron, the founder of adventure clothing store Kathmandu and a shareholder in Bellamy’s isn’t happy with the departure of the CEO.

“I think the board is just stunningly arrogant in not accepting any accountability for what’s gone on,” she told the ABC.

“Instead, they seem to have pushed all the responsibility for the problems onto Laura McBain and made her the scapegoat.”

Cameron is part of a group of shareholders, including the biggest shareholder, Black Prince Private Foundation with 14.48% of Bellamy’s shares, which wants to spill the board of four directors, retaining only the current chair, Rob Woolley.

A general meeting must be called to consider the spill motion before the end of next month.

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