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$13.23 bellamy's australia limited

BAL price target $12, page-10

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travelightor

744 Posts.

238

24/12/16

15:09

Post #: 21550814
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Originally posted by pslally ↑

I have suffered losses in companies whose share price crashed and took huge losses and decided to move forward.

Bought Vocation shares in 2014 after they fell 90% but realised that VET business model was flawed and it was not going to recover. Sold shares at a loss and a few months later it went into liquidation.

Bought Dicksmith shares in 2015 after they fell a lot. Realised that DSH was carrying a lot of inventory and had lots of debt. Debt can bring a company down if there is a downturn in demand. Sold shares at a loss and a few months later it went into liquidation.

Bought Slater Gordon shares in 2015 around $1 mark and sold them at 90 cents. Bought back again around 60 cents and sold them 38 cents. Bought back again around 33 cents and sold them again at 30 cents. Price is 23 cents now. Hint - I wont be buying SGH anymore.

During GFC, bought MacBank around $30 and sold them and then bought back again around $20 and some more around $15-16. It was "world is going to end" scenario. Macbank is still here. It is making billions in profits and shares are trading well and it is a market darling again.

Another "world is going to end" scenario. Earlier this year, bought BHP shares in $22 range. Sold them when price dropped below $20 and bought them back when when price dropped in $14-15 range. A few months later, BHP is actually doing quite well and share price has almost doubled and it is on track to become a market darling again.

WOR was targeted by short sellers too and was being heavily sold. People were telling me oil price will never recover. I bought WOR shares around $16 and sold them at a loss. Price fell even more so bought them back at $9 and sold them at a loss again. Price dropped even more to below $4 so I bought them all back again. Another "world is going to end" scenario. This week WOR traded above $10. Oil price is actually doing quite well and WOR share price has almost trippled.

I can add TLS, MND, FMG and many other shares to this list and it will go on and on.

Now coming to BAL.

Bought BAL shares around $14 in Aug 2016 and sold them at a loss in Oct 2016. Price dropped to $7 in Dec 2016 after the surprise downgrade. I got an opportunity to buy back my shares so I bought them.

BAL is not the same as VET which had a flawed business model.
BAL is not the same as DSH which was polished by PE firm for ASX listing and had massive debt.
BAL is not the same as SGH which bought a billion dollar business and funded it with massive debt.

BAL is not the same as MQG which has a great management team and number one investment bank in Australia.
BAL is not the same as BHP which is more than 100 year old and the largest resources company in the world .
BAL is not the same as WOR which is one of largest professional services company listed on ASX.

BAL is unique and different in many aspects. It produces organic products for babies. Their products are in demand in Australia and overseas. BAL does not have any debt like DSH or SGH. BAL is not relying on government payments like VET. BAL is not a mature company like MQG or BHP or WOR and their management does not have as much experience as the management teams at MQG, BHP or WOR.

BAL carried high inventory on their balance sheet at 30th June 2016 but their inventory is quite different to DSH inventory. Baby formula is a consumable product. It has regular demand as it is consumed 2-3 times each day by millions of babies. It is s not easy to change baby formula once a baby gets used to it.

No trading in BAL shares prevents short sellers from spreading rumors which normally creates panic selling by shareholders. Short sellers target listed companies and take positions and at the sniff of bad news create panic so that they can profit from sharp decline in prices.

We should support the BAL management for putting the shares on halt while they are trying their best and ensuring that negotiations with suppliers are not hampered by sharp decline in their share prices. At the same time the management is focusing in on the peak sales season in January and February.

The banks have nothing to lose because BAL has no debt. FMG survived with huge debts. BAL has 100% chance to get through this temporary blip. The suppliers will eventually need to give up a little bit because you don't want to kill a goose that lays golden egg each day. You will only get one golden egg if you kill the goose. I remember FMG giving shares in lieu of payment to suppliers and contractors. Those suppliers and contractors who held on to the FMG shares must be very happy.

BAL as a listed company is in the early stages of its life cycle. If is not a technology company which has little revenues, trades at ridiculously high PE and needs to raise constant capital to fund its operating losses. It is not bank or a mining company that requires huge capital investment.

I will buy more BAL shares as soon as it resumes trading. Those who sell BAL shares after trading resumes will only assist the short sellers in making more profits. More than 50% of BAL shares are tightly held by large investors. This is a very strong point. BAL will be a market darling again.

A large company could launch a takeover offer for BAL if share price crashes further. We should support the management and prevent this company from being taken over by a predator for cheap. I wont be surprised if investment banks are not already working out the numbers and started recommending BAL take over.

BAL's organic products are unique and their profitability is quite high. BAL does not need to invest large amounts of money into advertising and marketing because their products benefit from free word of mouth advertising from millions of mums.

My price target for BAL is $12 and I know it will get there in next 12 months. Only need to stay calm and wait patiently like the other times.

Expand

A thumb up from me for the effort and honesty that you showed in your post. If only HotCopper has more posters like you who are willing to share stories of winners as well as losers, then everybody will benefit from learning from each other's mistakes and experiences.

I agree with some of your points. I do however have one question.

What makes January and February special months, ie peak sales period? I can't imagine babies drinking more milk simply because it's January or February.

As for the likelihood of BAL recovering, this is something that I personally can't predict accurately.

Everything depends on the next announcement that they will make regarding the outcome of their negotiations with their suppliers.

I can envisage a scenario where BAL survives this obstacle as much as I can imagine another scenario where BAL goes under.

The problem with your argument regarding it's in the best interest of BAL's suppliers' interest to keep supporting BAL, is the fact that these suppliers, in their other capacity, are also BAL's competitors. Therefore, it's also possible that they will use this opportunity to suffer short term pain in order to take out a major competitor.

When BAL resumes trading, I will probably do nothing and watch from the sideline, and try to learn something from this debacle.

Happy to be corrected if there's any hole in my reasoning.

BAL Price at posting: $6.68 Sentiment: None Disclosure: Not Held
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