Fund managers and analysts are preparing for the worst after Bellamy’s asked for a three-week extension to a trading suspension.
One fund manager warned that shareholders could be left with almost worthless scrip when Bellamy’s resumes trading on January 13.
“You have to think as an equity holder in Bellamy’s, if they do a big rights issue or something similar, where is this money going to go?
“Am I paying for the class action that Maurice Blackburn is going to be running? Who knows how big that liability is?’’ Avoca Investment Management chief investment officer Jeremy Bendeich told The Australian.
“So I would say it is unlikely to trade again with much value for current equity holders.
“We warned them for a year that infant milk powder was the next iron ore (boom and bust) … and the day of the first profit downgrade from Bellamy’s I thought this just doesn’t make any sense to me.’’
Pressure is also expected to rise dramatically on Bellamy’s chief executive Laura McBain as well as the board, with a management upheaval likely to follow. Ms McBain has declined to comment since shares went into a trading halt earlier this month.
Bellamy’s horror run started earlier this month with a profit downgrade, a share price slump and a series of threatened class action lawsuits, and will now push on well into next month.
Investors, who have seen the stock go from its float price of $1 to a high of $16.50 last year and now free-fall to $6.68, will be forced to wait until January 13 for the stock to resume trading.
The original trading halt was struck on December 12. In a brief statement to the ASX yesterday, the former market darling said that it needed to conclude negotiations with its suppliers before it could update the market.
“Bellamy’s requests that its securities remain suspended from trading pending negotiations with key suppliers/manufacturers in order to determine the impact of those negotiations on the company’s expected financial results,” Bellamy’s warned. This statement triggered an immediate response from a2 milk and Bega Cheese as the two companies attempted to unshackle themselves from Bellamy’s and reassure investors that their balance sheets and profitability remained intact.
Bega Cheese, which is a key supplier to Bellamy’s, confirmed it remained in close talks with the company.
It indicated it would not be hurt by a collapse of the company, and that its business was much broader than just infant formula.
“While infant formula is important to us, Bega is a large multi-product dairy company with a strong ongoing profitable business in multiple categories,” chairman Barry Irvin said.
“Bega Cheese supplies infant formula to a number of customers, with product destined for both Australian and international markets. “There continues to be strong consumer demand for infant formula in China and in other Asian markets.”
Bega reaffirmed its forecasts, saying guidance put forward at its AGM remained “its position”.
A2 Milk, whose own share price has fallen about 20 per cent since Bellamy’s problems became public, also issued a statement reaffirming that it was expecting to deliver revenue of $NZ155.2 million ($148m) in the first four months of fiscal 2017, almost double last year’s corresponding reading of $NZ79.2m.
The company added its operating cash flow “remained strong”, with the publishing of the figures deemed necessary given a flood of investor inquiries.
“The company notes the higher level of recent commentary and interest from shareholders relating to the infant formula market,” a2 Milk said.
“In this context, the company wishes to confirm that, consistent with the trends communicated at the AGM, the business continues to trade very strongly, reflecting, in particular, significant year-on-year growth in its infant formula business.”
Investors warmed to the commentary from both companies yesterday.
Shares in Bega Cheese rose 15c to $4.03 and a2 Milk gained 12c to $2.07.
Since Bellamy’s shock profit downgrade this month the company has seen more than $600 million sliced from its market capitalisation.
Source: TheAustralian
Link: http://www.theaustralian.com.au/business/companies/bega-cheese-a2-milk-reassure-investors-as-bellamys-woes-deepen/news-story/7cc020c075a760721336cfc25cf16e2f
