Baby formula company Bellamy's Australia has entered a trading halt after a horror 10 days in which its shares were smashed due to weaker-than-expected sales in China and fears of more bad news.
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Bellamy's was once a market darling. But its December 2 announcement that sales during China's Singles Day - the world's biggest online shopping day - were below its expectations quickly sliced more than $500 million from its market capitalisation.
After trading as high as $16.50 about this time last year, it closed at $6.68 on Friday.
On Saturday, Fairfax Media raised questions about whether the company had fulfilled its continuous disclosure requirements, citing supermarket and pharmacy sales data that showed Bellamy's market share plunged from 25 per cent of the domestic infant formula sales in April to just 12 per cent by October.
More than 95 per cent of the formula sold in Australia is bought from supermarkets or pharmacies, and more than half of it ends up in China.
Bellamy's will make an announcement by Wednesday.
Dean Fergie is director and portfolio manager of Cyan Investment Management. The fund manager sold its Bellamy's shares on the downgrade and said of the trading halt he would be "very surprised if it's good news."
"I can only think that given the unexpected nature of the first revenue guidance, it might suggest that the company is not as fully across their numbers as one might otherwise hope," he said. "That or there has been a banking covenant breach."
"The EBITDA [earnings before interest, tax, depreciation and amortisation] drop might be an issue for the banks."
Another fund manager said, "Surely they can't have another downgrade only two weeks after the last, can they?"
"Maybe they looked under someone's desk and found more unsold tins of formula," he quipped.
Disclosure: The author owns a small number of shares in Bellamy's
This story first appeared on The Sydney Morning Herald.
