report on Bellamy's corporation's analysis...
I. Introduction founded in Tasmania in 2014, is an Australian-based multinational organic food and beverages company, focusing on baby food and infant formula (cite). Bellamy’s products are channelled through retail stores including supermarkets and pharmacies, as well as direct online sales. The following analysis will examine Bellamy’s capital market and business analysis. The capital market analysis will evaluate Bellamy’s stock performance and the company’s position in the capital market. On the other hand, business analysis encompasses the external factors of Bellamy’s and its connection to the company’s strategies and its goals.
II. Capital Market Analysis 2.1 Share Ownership A total number of Bellamy’s outstanding shares of 95,000,392 are distributed over 6,529 shareholders. The major part of the shareholders holds between 1001 and 5000 shares which account for 45.21% of the total outstanding shares. The fact that the management holds less than 1 percent of the shares mean there is less possibility for conflict of interest ( morningstar.com.au, 2016). However, the largest shareholders 0.72% is holding 68.16% of total shares which means substantial shareholders are holding large control
Number of equity securities held 577
1 to 1,000
1,001 to 5,000
10,001 to 100,000
100,001 and Over
5,001 to 10,000
% of shares 1.34
1 to 1,000
1,001 to 5,000
10,001 to 100,000
100,001 and over
5,001 to 10,000
Figure 1.1 (Bellamy’s investor)
Figure 1.2 demonstrates the top 20 institutional shareholders as of 30 June 2015. These 20 institutional shareholders hold 63.18% of the total outstanding shares. Black Prince Private Foundation which holds 14 million units of shares is the largest shareholder of Bellamy and accounting for 14.74% of total outstanding shares.
Figure 1.2 (Bellamy’s investor)
2.2 Share trading and liquidity Table 1.1 demonstrates the average daily trading volume of shares from 2014 to 2016 compared monthly. The trading volume had an increasing trend after November 2015, which started rising over 1 million shares. The peak of the average volume during this period emerged in February 2016 at 1.776 millions shares per day. The lowest average daily trading volume month was January 2015 with 0.13 million shares being traded per day.
2.3 52 weeks high and low Table 1.2 52-Week High and Low Prices
As indicated in Table 1.2, the highest price for Bellamy is on 30 December 2015 at 16.50 AUD per share while the lowest price was 3.26 AUD which was on 23 April 2015 within 52 weeks. The bid-ask spread for Bellamy’s share price (0.019) is slightly lower than the average (0.028) of its peer companies which indicates sound
BAL A2M AAC BGA CCL CGC ELD FSF GNC MGC RIC SHV TGR TWE WBA WLD 52 week high as % of current
52 week low as % of current
Figure 1.3 52-Week High and Low Relation of these peer companies.
2.4 News and disclosure analysis
Figure 1.4 shows one-year share price change from 22 April 2015-2016. (Morningstar)
The share price of Bellamy has go through a period with high increasing rate and now it is hovering around $10 per share for 2 months, which seems like the calm before the storm. The increasing trend for share prices in Figure 1.4 can be explained by the continuous favorable events. For instance, on 30 th November 2015, Bellamy's Organic entered into a multi-million dollars strategic manufacturing
(Morningstar.com, 2016). Such news had a positive influence to the company and caused the increment of the share price in return. The share price started increasing since 21 th of August when the price was 8.08 USD until 2nd of December at 12.49 USD mainly due to Bellamy’s disclosure of its annual report. As the report disclosed, the net profit is 7.8 million higher than 2014, which demonstrated impressive performance, accounting for most of the share price increase. Although on 29th of January 2016, the share price started to decline as it was perceived to be overvalued.
2.5 Analyst’s coverage
Market value of the peer companies of Bellamy in the industry of consumer staples
Market Value in millions AUD
As shown in Figure 1.5, Bellamy ranks 5th on the list, valued at 32.7 billion USD. On the other hand, the rising trend in average daily trading volumes over the last 2 years indicate that stakeholders have stronger interest in Bellamy and are more willing to invest in Bellamy as opposed to other competitors, further increasing the company market liquidity.
III. Business analysis 2.1 Macroeconomic Analysis: 2.1.1 Economy Economic growth
Figure 2.1: Bellamy locations
(Source from Bellamysorganic.com.au) http://investors.bellamysorganic.com.au/media/3cbb16ff/Annual %20Report%20-%20Full%20year%20ending%2030%20June%202015.pdf Figure 2.2 : Australia real GDP growth rate from 1995-2015
(Source from Reserve Bank of Australia)
http://www.rba.gov.au/chart-pack/pdf/chart-pack.pdf?v=2016-04-25-22-416 As we can see from figure 2.1, the majority of Bellamy’s business located in the Australia, thus the economic growth in the Australia have a significant impact on the growth of potential market for Bellamy. Figure 2.2 shows that Australia has gradually recovered from the economic depression in 2008, the GDP growth rate is around 3% which indicates that the households’ expenditure will increase.
Exchange rate Figure 2.3: Australian dollar to Chinese yuan exchange rate
(Source from XE Currency) http://www.xe.com/currencycharts/?from=AUD&to=CNY&view=5Y
Figure 2.4: Australian dollar to New Zealand dollar exchange rate
(Source from XE Currency) http://www.xe.com/currencycharts/?from=AUD&to=NZD&view=5Y
Figure 2.5 Australian dollar to Singaporean dollar exchange rate
(Source from XE currency) http://www.xe.com/currencycharts/?from=AUD&to=SGD&view=5Y
Figure 2.6 Australian dollar to Hong Kong dollar exchange rate
(Source from XE currency) http://www.xe.com/currencycharts/?from=AUD&to=HKD&view=5Y Figure 2.7 Australian dollar to Vietnamese dong exchange rate
(Source from XE currency) http://www.xe.com/currencycharts/?from=AUD&to=VND&view=5Y Bellamy’s foreign business mainly located in China, New Zealand and South East Asia’s countries, so the foreign currency they received includes the Chinese yuan, the New Zealand dollar, the Singaporean dollar, the Hong Kong dollar and the Vietnamese dong. Figures above shown that in general Australian dollar is depreciating against these five currencies which may leads to the decline of revenue measured by Australian dollar.
Society Figure 2.8 Australian’s birth rate, crude (per 1,000 people)
(Source from indexmundi.com) The demand for the Bellamy’s organic food and formula will be decreasing due to the decreasing of birth rate in Australia in terms of demographic change. To be more specifics, the data in the line chart above indicates that the birth rate has a slightly declining during the year of 2014, which increased from 14.1% to 13.2%. On the other hand, it will also have a negative impact on the households’ consumption which will leads to decreasing of Bellamy’s future potentially revenue. http://www.indexmundi.com/facts/indicators/SP.DYN.CBRT.IN/compare#cou ntry=au
(Source from Nielsen.com) http://www.nielsen.com/content/dam/nielsenglobal/jp/docs/report/2015/20 150829%20Global%20Baby%20Care%20Report%20Revised%20FINAL.PDF Bellamy’s decision in penetrating Asia-Pacific’s market is supported by the high value sales in that area, amounting to half of the global value sales share with a 4.9% growth in Baby formula. However, there is a slight decline for Baby food’s share percentage in Asia-Pacific market.
2.1.3 Political Issues One of the important factor in the macroeconomics that Chinese government has to imposed a new tax on goods bought online and imported from overseas, therefore, the Chinese demanded of Bellamy’s product decline for its raising price then decrease the future profit.
Summary of Porter’s five forces Porter’s five forces
Level of competition
Rivalry among existing firms
Threat of new entrants
Threats of substitutes
Bargain power of buyers
Bargain power of suppliers
1. Rivalry among existing firms
The above figure exhibits that comparing to the period between 2010 and 2013, which there was a significant increase in the market size of baby food, the baby food in Australia stagnated in current retail value terms in 2015, one of the biggest factors dragging the rise at the moment is the negative sentiment caused by the Chinese
government’s proposal to restrict the importation of food, including baby food that is being sold to consumers via websites or social media accounts offshore. Overall, the trend indicates that the baby food market is in the growth phase of its lifecycle with a declining speed. At the same time, the seven famous national baby food brands constitute almost 90% of the total market share which shows that baby food is a highly concentrated industry. Moreover, baby foods could be differentiated by the quality of the material used, the taste, the physical appearance, the flavours produced and the packaging. The differentiation advantage is easy to be created. Thus the overall rivalry among existing firms is medium. http://search.proquest.com.ezproxy.lib.monash.edu.au/docview/173152 2056?accountid=12528&rfr_id=info%3Axri%2Fsid%3Aprimo
2. Threat of new entrants
The baby food is operated in a fast moving consumer goods industry, which means the brand loyalty is highly relevant to consumers’ decision making process on range. Consumers’ trust and perceptions of quality regarding to an infant food product is the key to success. Brand loyalty and reputation is a more significant factor in the infant food category than many other grocery categories due to consumers’ heightened desire to trust that products will be safe and healthy to feed their children. With respected to high level of capital intensity, limited shelf space and factors of brand loyalty, it can be concluded that barriers to entry and expansion are high in the relevant markets, hence the threat of new entrants are relatively low. http://www.foodonline.com/doc/baby-food-manufacturing-in-australiaindustry-market-research-report-now-updated-by-ibisworld-0001
3. Threats of substitutes
Generally, the major substitute of infant formula is through breastfeeding, which could have been produced at home, but according to the research conducted on August 3, 2015, there were 1.5 million Australians have babies and 1 in 5 of these parents bought baby food in the last four weeks (ref). it can be seen from the chart above, there are in total 67% of the parents who buys baby food with children from age zero to two in the home. The breast milk is not as cheap and antiseptically as commercially processed infant formula. One of the most benefits which canned baby foods provided is their convenience, along with the unique certified organic formula. Hence, the threats of substitutes are low. http://ausfoodnews.com.au/2015/08/03/first-time-parents-most-likelyto-buy-the-baby-food-packaged-australian-findings.html
4. Bargaining power of buyers
The buyer group of Bellamy’s is concentrated as the domestic sales in Australia is the cornerstone of the business and Bellamy’s has entered into dire t sales agreements with several chain store customers in Australia including Coles, Woolworths, Costco and Sigma/Chemist warehouse. However, the products purchased from Bellamy’s are differentiated because Bellamy’s baby formula product is the first and only Australian made organic baby formula available in the domestic market, not even to mention that the products has been reported been scarce in Australia for months that parents were desperate to find the Tasmanian formula brand at the shops, although there was a declining in the growth of demand for Bellamy’s, it is still in a growing trend. Hence, the bargaining power of buyers is low. http://www.smh.com.au/money/food-for-thought-investmentopportunities-in-the-dining-boom-20151016-gkbfj9.html
5. Bargaining power of suppliers
Bellamy’s have identified some of the best quality sources of organic raw materials and have established a broad network of suppliers including large multinational organizations, family owned operations and privately owned international businesses. Amongst those suppliers, the most important supplier is TMI, which is the producer of all the company’s baby formula and forecasted to generate 85%of sales in the coming year. Bellamy’s is also a mutual significant customer of TMI. With this large amount of manufacturing arrangements of baby formula between TMI and Bellamy’s, the switching costs are relatively high, and in conclude, the bargaining power of suppliers are high. http://www.asx.com.au/asxpdf/20140801/pdf/42r788qx6jk6rz.pdf
2.3 Corporate strategy analysis The main competitive strategy for Bellamy is innovated enabling valuebased products differentiation through providing the highest organic food.
In order to make products more differentiable, Bellamy’s strategy is to adopt a control system that focuses on products creativity. Through this system, it improves the quality and variety of products provided, for
example, all of Bellamy’s products has been passed test of qualified organic food before its sale (ref). It would be guaranteed superior product quality provided and offering benefits beyond conventional baby food and formula by Bellamy (ref). Also, Bellamy is the first and only certified organic baby food brand in Australia, the products’ peculiarity is also one of the strategies allowing Bellamy to be different from its competitors. However, the single-minded focus on organic foods could be argued by category sales leader that there is not enough products diversification. Hence, the competitive advantage may not sustain for a long time (ref).
Moreover, Bellamy’s has highly experienced management team small but functional, it is easy to enhance the flexibility of Bellamy to address future change in the baby food industry (ref).
IV Conclusion After careful analysis of Bellamy’s capital market and its business, Bellamy’s position in the capital market can be considered to be relatively strong. Firstly, the healthy distribution of shares between the shareholders as well as dominant institutional shareholders allow for a more balanced and no agency cost related to managers having too much ownership. Moreover, the relatively increased traded shares volume and relatively lower bid-ask spread further signifies the soundness of the liquidity of the company. There has generally also been a positive outlook on the management decisions, such as the arrangement with Fonterra Australia. The share price increase itself is boosted due to the stellar performance, due to a significantly higher profit than previous years. Further increasing the expectation of the investors. From the Business analysis perspective, due to Bellamy’s nature as a multi-national company, there are high exchange rate risks faced by the company. Although there is a generally positive outlook in Australia and other countries’ recovery from the global financial crises, combined with the their pursue in the Asian market which holds the majority of market value sales share. ……(exchange rate trend). However, this advantage is offset by the negative stance in the demography in Australia as birth rates decline, decreasing the customer base in the future as well as tightening the competition in the already concentrated market. Another aspect of business analysis is the Porter’s five forces, which identifies the driving forces that determine the profitability of Bellamy, proves that Bellamy is positioned well due to the low threat of new competitors or product substitutes. Although there is a medium level of rivalry, due to Bellamy’s product differentiation, they can manage to retain t
Lastly, the analysis on the corporate strategy shows that Bellamy’s competitive advantage in product differentiation has enabled Bellamy’s to stay ahead of its competitors despite the strict environment. They achieve this through their organic products which are not easily imitated by the other companies. The thorough ………… (last words)
(Source: http://www.morningstar.com.au/) (Source from Bellamysorganic.com.au) Bellamys Australia Limited. (2015). Annual Report 2014-15 Bellamy’s Australia Limited. Retrieved from http://investors.bellamysorganic.com.au/media/3cbb16ff/Annual %20Report%20-%20Full%20year%20ending%2030%20June%202015.pdf Reserve Bank of Australia. (2016). The Australian Economy and Financial Markets. Retrieved from http://www.rba.gov.au/chart-pack/pdf/chartpack.pdf?v=2016-04-25-22-41-6 Xe. (2016). http://www.xe.com/currencycharts/?from=AUD&to=CNY&view=5Y http://www.indexmundi.com/facts/indicators/SP.DYN.CBRT.IN/compare#cou ntry=au http://www.nielsen.com/content/dam/nielsenglobal/jp/docs/report/2015/20 150829%20Global%20Baby%20Care%20Report%20Revised%20FINAL.PDF
http://www.asx.com.au/asxpdf/20140801/pdf/42r788qx6jk6rz.pdf http://search.proquest.com.ezproxy.lib.monash.edu.au/docview/173152 2056?accountid=12528&rfr_id=info%3Axri%2Fsid%3Aprimo
http://ausfoodnews.com.au/2015/08/03/first-time-parents-most-likelyto-buy-the-baby-food-packaged-australian-findings.html http://www.smh.com.au/money/food-for-thought-investmentopportunities-in-the-dining-boom-20151016-gkbfj9.html http://www.asx.com.au/asxpdf/20140801/pdf/42r788qx6jk6rz.pdf