Bega stays confident about dairy formula trade, but Bellamy’s still in lockdown

Bega executive chairman, Barry Irvin, said there continued to be strong consumer demand for infant formula in China and other Asian markets.

Its organic infant formula sub-category was also strong despite signs of short-term oversupply and price discounting in the “infant and growing up” dairy powder categories.

He said regulatory changes in China and the evolution of supply channels had led to market disruption in recent months, but the company had not changed its profit guidance expectations set in October.

However, troubled Bellamy’s shares will stay suspended from trade on the Australian Securities Exchange (ASX) for another three weeks pending "negotiations with key supplier/ manufacturers".'

The organic baby food and formula maker told the ASX it wanted to clarify underlying demand for its products and the state of its finances.

Bellamy's shares last traded at $6.68 on December 9, but won't resume trading until January 13 unless a statement is released to the market before then.

Bellamy’s share price has more than halved from the $15.48/share peak of a year ago and this year’s $14.90 highs in July.

Trading has been suspended as management seek to clarify the full impact of a slide in sales of its products.

The latest extension of its trading suspension marks a widening of a review that began when Bellamy's first sought a suspension earlier this month to prepare an "updated announcement of the impact of current trading conditions on the company's trading results".

Two days later, Bellamy's said "a review" of its business was underway, which has now been broadened to encompass negotiations with suppliers and manufacturers.

Investor concerns weighed on other stocks with a large exposure to China such as vitamins maker Blackmores, which hit the lowest level since mid-2015, although A2 Milk gained seven cents to $2.02 and Bega Cheese rose 10c to $3.98 early today.

Citi analysts told clients in a recent note that Bellamy's was facing several company-specific issues such as under investment in marketing relative to its rivals, product discounting which has damaged its brand image, and poor distribution.

"Bellamy's cut pricing during Singles Day this year and its Chinese pricing remains 50 per cent to 63pc cheaper than A2 Milk," Citi analysts said in the note.

Bega, which supplies infant formula to a number of customers with products sold in Australia and overseas, has reported to the ASX that while infant formula was an important division for the company, it had a large multi-product market base.

The company was continuing to discuss volume forecasts and supply arrangements with Bellamy’s. 

Bega infant formula and nutritional partnership with Blackmores has also been a trouble spot for the company this year as it failed to live up to sales and profit expectations after launching into Asia in January.