Slippery slope of Bellamy’s…
What Mattered Today
It was all about Material stocks with strong moves overseas being backed up with a decent rally in Asian Futures trading today and this obviously flowed through to decent buying in resource stocks; RIO up +3.89%, BHP put on +2.6% to close at $26.02 – while Bellamy’s (BAL) came out of a trading halt after lunch and closed down 20% - more on that later as it was a better overall result than many feared. We were reasonably active again today, buying Newcrest (NCM) as a short / medium term investment , while we also put out a short term trade in RIO Tinto (RIO) using options – a further explanation of the positon can be found below
We had a range today of +/- 31 points, a high of 5791, a low of 5760 and a close of 5771, up +10pts or +19%. Volume was still below average but starting to graft up a tad…
ASX 200 Intra-Day Chart
ASX 200 daily chart
Bellamy’s (BAL); What a dog this stock has been in recent times for many (not us!) with the last traded price on the 9th Dec of $6.68 versus todays close of $5.35 after they re-entered the boards following a prolonged suspension. The CEO is gone, they’ve appointed a new Acting CEO in Andrew Cohen who was already with the company, and they’ve downgraded earnings fairly substantially – FY17 earnings now expected by in the range of $22M-$26M versus prior consensus of $46M. The issue stems from onerous contracts signed with suppliers to fulfil surging demand from China – and when the demand slowed they ended up with huge amounts of inventory + take or pay contracts for a lot more.
Their financial position became stretched and management lost control of the business it would seem. The stock was fairly well short sold and todays move from the lows seems more like short covering rather than legitimate buying. Considering the company’s current cash + forecasted operational performance over the next 12 months, it seems they’ll soon tap the well for more capital. There was certainly a trade in it today, and we had a decent discussion within the MM Team on whether or not to put a BUY alert out on it if was to drop through ~$4.00, however we thought the risk was simply too high, and the timing too difficult (unfortunately).
Bellamy’s (BAL) Daily Chart
Sectors
ASX 200 Movers
What Matters Overseas
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