Bellamy Report

I. Introduction

founded in Tasmania in 2014, is an Australian-based multinational

organic food and beverages company, focusing on baby food and

infant formula (cite). Bellamy’s products are channelled through

retail stores including supermarkets and pharmacies, as well as

direct online sales. The following analysis will examine Bellamy’s

capital market and business analysis. The capital market analysis

will evaluate Bellamy’s stock performance and the company’s

position in the capital market. On the other hand, business analysis

encompasses the external factors of Bellamy’s and its connection to

the company’s strategies and its goals.

II. Capital Market Analysis

2.1 Share Ownership

A total number of Bellamy’s outstanding shares of 95,000,392

are distributed over 6,529 shareholders. The major part of the

shareholders holds between 1001 and 5000 shares which account

for 45.21% of the total outstanding shares. The fact that the

management holds less than 1 percent of the shares mean there is

less possibility for conflict of interest (

However, the largest shareholders 0.72% is holding 68.16% of total

shares which means substantial shareholders are holding large

2118

2952 835

577 47

Number of equity securities held

1 to 1,000 1,001 to 5,000 5,001 to 10,000 10,001 to 100,000 100,001 and Over

1.34 8.38 7.01 15.12 68.16

% of shares

Figure 1.1 (Bellamy’s investor)

Figure 1.2 demonstrates the top 20 institutional shareholders as of

30 June 2015. These 20 institutional shareholders hold 63.18% of

the total outstanding shares. Black Prince Private Foundation which

holds 14 million units of shares is the largest shareholder of Bellamy

and accounting for 14.74% of total outstanding shares.

Figure 1.2 (Bellamy’s investor)

2.2 Share trading and liquidity

Table 1.1 demonstrates the average daily trading volume of shares

from 2014 to 2016 compared monthly. The trading volume had an

increasing trend after November 2015, which started rising over 1

million shares. The peak of the average volume during this period

emerged in February 2016 at 1.776 millions shares per day. The

lowest average daily trading volume month was January 2015 with

0.13 million shares being traded per day.

(Source: http://www.morningstar.com.au/)

2.3 52 weeks high and low

Table 1.2 52-Week High and Low Prices

As indicated in Table 1.2, the highest price for Bellamy is on 30

December 2015 at 16.50 AUD per share while the lowest price was

3.26 AUD which was on 23 April 2015 within 52 weeks. The bid-ask

spread for Bellamy’s share price (0.019) is slightly lower than the

average (0.028) of its peer companies which indicates sound

liquidity,

as can be seen in Figure 1.3.

BAL A2M AAC BGA CCL CGC ELD FSF GNC MGC RIC SHV TGR TWE WBA WLD 0.00% 50.00% 100.00% 150.00% 200.00% 250.00% 300.00%

52 week high as % of current 52 week low as % of current

2.4 News and disclosure analysis

Figure 1.4 shows one-year share price change from 22 April 2015-2016. (Morningstar)

The share price of Bellamy has go through a period with high

increasing rate and now it is hovering around $10 per share for 2

months, which seems like the calm before the storm.

The increasing trend for share prices in Figure 1.4 can be explained

by the continuous favorable events. For instance, on 30

_November

2015, Bellamy's Organic entered into a multi-million dollars strategic

manufacturing arrangement with Fonterra Australia

(Morningstar.com, 2016). Such news had a positive influence to the

company and caused the increment of the share price in return.

The share price started increasing since 21

_{of August when the}

price was 8.08 USD until 2

_{of December at 12.49 USD mainly due}

to Bellamy’s disclosure of its annual report. As the report disclosed,

the net profit is 7.8 million higher than 2014, which demonstrated

impressive performance, accounting for most of the share price

increase.

Although on 29

_{of January 2016, the share price started to decline}

as it was perceived to be overvalued.

0 1000 2000 3000 4000 5000 6000 7000 8000

Market value of the peer companies of Bellamy in the industry of consumer staples

Market Value in millions AUD

Figure 1.5

As shown in Figure 1.5, Bellamy ranks 5

_{on the list, valued at 32.7}

billion USD. On the other hand, the rising trend in average daily

trading volumes over the last 2 years indicate that stakeholders

have stronger interest in Bellamy and are more willing to invest in

Bellamy as opposed to other competitors, further increasing the

company market liquidity.

III. Business analysis

2.1 Macroeconomic Analysis:

2.1.1 Economy

Figure 2.1: Bellamy locations

(Source from Bellamysorganic.com.au)

http://investors.bellamysorganic.com.au/media/3cbb16ff/Annual

%20Report%20-%20Full%20year%20ending%2030%20June%202015.pdf

Figure 2.2 : Australia real GDP growth rate from 1995-2015

http://www.rba.gov.au/chart-pack/pdf/chart-pack.pdf?v=2016-04-25-22-41-6

As we can see from figure 2.1, the majority of Bellamy’s business located in the Australia, thus the economic growth in the Australia have a

significant impact on the growth of potential market for Bellamy. Figure 2.2 shows that Australia has gradually recovered from the economic

depression in 2008, the GDP growth rate is around 3% which indicates that the households’ expenditure will increase.

Exchange rate

Figure 2.3: Australian dollar to Chinese yuan exchange rate

(Source from XE Currency) http://www.xe.com/currencycharts/?from=AUD&to=CNY&view=5Y

(Source from XE Currency)

http://www.xe.com/currencycharts/?from=AUD&to=NZD&view=5Y

(Source from XE

currency)

http://www.xe.com/currencycharts/?from=AUD&to=SGD&view=5Y

Figure 2.6 Australian dollar to Hong Kong dollar exchange rate

(Source from XE

currency)

http://www.xe.com/currencycharts/?from=AUD&to=HKD&view=5Y

(Source from XE currency)

http://www.xe.com/currencycharts/?from=AUD&to=VND&view=5Y

Bellamy’s foreign business mainly located in

China, New Zealand

and South East Asia’s countries, so the foreign currency they

received includes the Chinese yuan, the New Zealand dollar, the

Singaporean dollar, the Hong Kong dollar and the Vietnamese dong.

Figures above shown that in general Australian dollar is depreciating

against these five currencies which may leads to the decline of

revenue measured by Australian dollar.

Society

(Source from indexmundi.com)

The demand for the Bellamy’s organic food and formula will be decreasing due to the decreasing of birth rate in Australia in terms of demographic change. To be more specifics, the data in the line chart above indicates that the birth rate has a slightly declining during the year of 2014, which increased from 14.1% to 13.2%. On the other hand, it will also have a negative impact on the households’ consumption which will leads to decreasing of Bellamy’s future potentially revenue.

http://www.indexmundi.com/facts/indicators/SP.DYN.CBRT.IN/compare#cou ntry=au

(Source from Nielsen.com) http://www.nielsen.com/content/dam/nielsenglobal/jp/docs/report/2015/20 150829%20Global%20Baby%20Care%20Report%20Revised%20FINAL.PDF Bellamy’s decision in penetrating Asia-Pacific’s market is supported by the high value sales in that area, amounting to half of the global value sales share with a 4.9% growth in Baby formula. However, there is a slight decline for Baby food’s share percentage in Asia-Pacific market.

2.1.3 Political Issues

One of the important factor in the macroeconomics that Chinese government has to imposed a new tax on goods bought online and imported from overseas, therefore, the Chinese demanded of Bellamy’s product decline for its raising price then decrease the future profit.

http://www.fool.com.au/2016/03/29/chinas-new-tax-could-derail-blackmores-limited-and-bellamys-australia-ltd-shares/

Summary of Porter’s five forces

Porter’s five forces Level of competition Rivalry among existing firms Medium

Threat of new entrants Low Threats of substitutes Low Bargain power of buyers Low Bargain power of suppliers High

1. Rivalry among existing firms

The above figure exhibits that comparing to the period between 2010 and 2013, which there was a significant increase in the market size of baby food, the baby food in Australia stagnated in current retail value terms in 2015, one of the biggest factors dragging the rise at the moment is the negative sentiment caused by the Chinese

government’s proposal to restrict the importation of food, including baby food that is being sold to consumers via websites or social media accounts offshore. Overall, the trend indicates that the baby food market is in the growth phase of its lifecycle with a declining speed. At the same time, the seven famous national baby food brands constitute almost 90% of the total market share which shows that baby food is a highly concentrated industry. Moreover, baby foods could be

differentiated by the quality of the material used, the taste, the physical appearance, the flavours produced and the packaging. The differentiation advantage is easy to be created. Thus the overall rivalry among existing firms is medium.

http://search.proquest.com.ezproxy.lib.monash.edu.au/docview/173152 2056?accountid=12528&rfr_id=info%3Axri%2Fsid%3Aprimo

2.

Threat of new entrants

The baby food is operated in a fast moving consumer goods industry, which means the brand loyalty is highly relevant to consumers’

decision making process on range. Consumers’ trust and perceptions of quality regarding to an infant food product is the key to success. Brand loyalty and reputation is a more significant factor in the infant food category than many other grocery categories due to consumers’ heightened desire to trust that products will be safe and healthy to feed their children. With respected to high level of capital intensity, limited shelf space and factors of brand loyalty, it can be concluded that barriers to entry and expansion are high in the relevant markets, hence the threat of new entrants are relatively low.

http://www.foodonline.com/doc/baby-food-manufacturing-in-australia-industry-market-research-report-now-updated-by-ibisworld-0001

3. Threats of substitutes

Generally, the major substitute of infant formula is through

breastfeeding, which could have been produced at home, but according to the research conducted on August 3, 2015, there were 1.5 million Australians have babies and 1 in 5 of these parents bought baby food in the last four weeks (ref). it can be seen from the chart above, there are in total 67% of the parents who buys baby food with children from age zero to two in the home. The breast milk is not as cheap and antiseptically as commercially processed infant formula. One of the most benefits which canned baby foods provided is their convenience, along with the unique certified organic formula. Hence, the threats of substitutes are low.

http://ausfoodnews.com.au/2015/08/03/first-time-parents-most-likely-to-buy-the-baby-food-packaged-australian-findings.html

The buyer group of Bellamy’s is concentrated as the domestic sales in Australia is the cornerstone of the business and Bellamy’s has entered into dire t sales agreements with several chain store customers in Australia including Coles, Woolworths, Costco and Sigma/Chemist warehouse. However, the products purchased from Bellamy’s are differentiated because Bellamy’s baby formula product is the first and only Australian made organic baby formula available in the domestic market, not even to mention that the products has been reported been scarce in Australia for months that parents were desperate to find the Tasmanian formula brand at the shops, although there was a declining in the growth of demand for Bellamy’s, it is still in a growing trend. Hence, the bargaining power of buyers is low.

http://www.smh.com.au/money/food-for-thought-investment-opportunities-in-the-dining-boom-20151016-gkbfj9.html

5. Bargaining power of suppliers

Bellamy’s have identified some of the best quality sources of organic raw materials and have established a broad network of suppliers including large multinational organizations, family owned operations and privately owned international businesses. Amongst those suppliers, the most important supplier is TMI, which is the producer of all the company’s baby formula and forecasted to generate 85%of sales in the coming year. Bellamy’s is also a mutual significant customer of TMI. With this large amount of manufacturing arrangements of baby formula between TMI and Bellamy’s, the switching costs are relatively high, and in conclude, the bargaining power of suppliers are high.

http://www.asx.com.au/asxpdf/20140801/pdf/42r788qx6jk6rz.pdf

2.3 Corporate strategy analysis

The main competitive strategy for Bellamy is innovated enabling value-based products differentiation through providing the highest organic food.

In order to make products more differentiable, Bellamy’s strategy is to adopt a control system that focuses on products creativity. Through this system, it improves the quality and variety of products provided, for

example, all of Bellamy’s products has been passed test of qualified organic food before its sale (ref). It would be guaranteed superior product quality provided and offering benefits beyond conventional baby food and formula by Bellamy (ref). Also, Bellamy is the first and only certified

organic baby food brand in Australia, the products’ peculiarity is also one of the strategies allowing Bellamy to be different from its competitors. However, the single-minded focus on organic foods could be argued by category sales leader that there is not enough products diversification. Hence, the competitive advantage may not sustain for a long time (ref).

Moreover, Bellamy’s has highly experienced management team small but functional, it is easy to enhance the flexibility of Bellamy to address future change in the baby food industry (ref).

IV Conclusion

After careful analysis of Bellamy’s capital market and its business,

Bellamy’s position in the capital market can be considered to be

relatively strong. Firstly, the healthy distribution of shares between

the shareholders as well as dominant institutional shareholders

allow for a more balanced and no agency cost related to managers

having too much ownership. Moreover, the relatively increased

traded shares volume and relatively lower bid-ask spread further

signifies the soundness of the liquidity of the company. There has

generally also been a positive outlook on the management

decisions, such as the arrangement with Fonterra Australia. The

share price increase itself is boosted due to the stellar performance,

due to a significantly higher profit than previous years. Further

increasing the expectation of the investors.

From the Business analysis perspective, due to Bellamy’s nature as

a multi-national company, there are high exchange rate risks faced

by the company. Although there is a generally positive outlook in

Australia and other countries’ recovery from the global financial

crises, combined with the their pursue in the Asian market which

holds the majority of market value sales share. ……(exchange rate

trend). However, this advantage is offset by the negative stance in

the demography in Australia as birth rates decline, decreasing the

customer base in the future as well as tightening the competition in

the already concentrated market.

Another aspect of business analysis is the Porter’s five forces, which

identifies the driving forces that determine the profitability of

Bellamy, proves that Bellamy is positioned well due to the low threat

of new competitors or product substitutes. Although there is a

medium level of rivalry, due to Bellamy’s product differentiation,

they can manage to retain t

Lastly, the analysis on the corporate strategy shows that Bellamy’s

competitive advantage in product differentiation has enabled

Bellamy’s to stay ahead of its competitors despite the strict

environment. They achieve this through their organic products

which are not easily imitated by the other companies. The thorough

………… (last words)

References:

(Source: http://www.morningstar.com.au/) (Source from Bellamysorganic.com.au)

Bellamys Australia Limited. (2015). Annual Report 2014-15 Bellamy’s

Australia Limited. Retrieved from

http://investors.bellamysorganic.com.au/media/3cbb16ff/Annual

%20Report%20-%20Full%20year%20ending%2030%20June%202015.pdf Reserve Bank of Australia. (2016). The Australian Economy and Financial

Markets. Retrieved from

http://www.rba.gov.au/chart-pack/pdf/chart-pack.pdf?v=2016-04-25-22-41-6 Xe. (2016). http://www.xe.com/currencycharts/?from=AUD&to=CNY&view=5Y http://www.indexmundi.com/facts/indicators/SP.DYN.CBRT.IN/compare#cou ntry=au http://www.nielsen.com/content/dam/nielsenglobal/jp/docs/report/2015/20 150829%20Global%20Baby%20Care%20Report%20Revised%20FINAL.PDF http://www.fool.com.au/2016/03/29/chinas-new-tax-could-derail-blackmores-limited-and-bellamys-australia-ltd-shares/ http://www.asx.com.au/asxpdf/20140801/pdf/42r788qx6jk6rz.pdf http://search.proquest.com.ezproxy.lib.monash.edu.au/docview/173152 2056?accountid=12528&rfr_id=info%3Axri%2Fsid%3Aprimo http://www.foodonline.com/doc/baby-food-manufacturing-in-australia-industry-market-research-report-now-updated-by-ibisworld-0001

http://ausfoodnews.com.au/2015/08/03/first-time-parents-most-likely-to-buy-the-baby-food-packaged-australian-findings.html

http://www.smh.com.au/money/food-for-thought-investment-opportunities-in-the-dining-boom-20151016-gkbfj9.html