I am currently traveling in Asia for work and have deliberately stopped into retail outlets across the region the last 2 weeks to gauge the market penetration of Bellamy's. In aggregate I have probably seen first hand around 30 plus retail stores. While I have certainly found Bellamy's represented on shelf space, what has really surprised me is the myriad of other brands represented (both Australian and from other countries). This crowdedness is not something I have witnessed in my previous channel checks, having traveled to Asia regularly for work for many years now.
While there has been considerable discussion on China license approvals in recent months, I think this noise has caused investors to miss the key issue for Bellamy's. That is a real structural change in competitor dynamics across their category. Bellamy's enjoyed many years of success in being an early mover in their space, however today the market structure looks considerably different. Today there are considerably more competitors within the various Bellamy verticals, with a number of well funded competitors now servicing the same channels.
Ultimately these structural changes are going to lead to lower growth rates or market share for Bellamy's and hence the stock will trade on a lower multiple to reflect this. If you look at the likely margins and growth rates for the business going forward and how that compares to current market multiples, I would suggest the stock's fair value is closer to $8.00 (even if they are successful in obtaining a new China sales license).
BAL Price at posting:
$9.74 Sentiment: None Disclosure: Not Held
