Small Cap: Bellamy's Australia
Bellamy's Organic is Australia's leading producer and distributor of 100% Australian made organic baby food products.
Why did this Small Cap make money?
The demand for Australian made organic products is increasing at an exponential rate as mothers around the world want to give their babies quality product. Demand is particularly acute in the giant Chinese market, which has been hit by contamination issues of its home-grown product.
The investment lesson.
We thought this Small Cap was expensive when we bought it but realised that it fell into our “Genuine Growth” category. These are Small Caps where demand for their product is forecast to grow no matter what the economic conditions. We saw the momentum and jumped on board!
Want to know more about this Small Cap?
The organic baby formula for success
In late 2006 Laura McBain took over as the general manager of a struggling, family owned, Tasmanian organic baby formula distributor called Bellamy’s Australia.
She was brought in to try to turn around a small business that was in danger of going under. This worked spectacularly and she was duly awarded the Telstra business woman of the year in 2013. Then, in August 2014, under her leadership, Bellamy’s listed on the ASX having raised $25 million at $1 a share, giving it a market capitalisation of $95 million. Just over one year later its shares have traded over $8, giving it a market cap of $773 million.
Bellamy’s launched in 2004 with the strategy of providing the only Australian organic baby formula range. Not much has changed in that department. It sources organic milk, which a subsidiary of Bega Cheese of manufactures into formula; then Bellamy’s packages and distributes it to retailers.
McBain says that the secret behind her success is trust: “The key for us is that Bellamy’s has been true to its core values from the beginning of producing 100 per cent organic products, which are made in Australia. We look at the Mums’ needs first; and Mums can trust us.”
Bellamy’s is in the hot spot of increasing global demand for so-called “organic” product. The group has grown its domestic market share in the past year from 10 per cent to 19 per cent, but it is the big market in China that has caught investors’ attention. After all, Australia isn’t even one big city in China, whose middle class is growing in wealth.
The scale of this Small Caps current growth is breath taking. In fiscal 2014 sales were just under $51 million and are expected to be about $200 million in the current financial year and to keep climbing.
Whether this Small Cap can live up to these expectations is the big question. An important factor has been not only its ability to call its product organic, which means that no chemical fertilisers or pesticides are use, but also to secure product, and to manufacture it.
Its shares rallied after it announced a deal with Bega on the manufacturing front, which satisfies for the time being, but there is considerable haziness on securing organic product from Australian dairy farmers.
At Under the Radar Report, we spend our time looking for Small Caps that are unloved, under owned, and seemingly not going anywhere.
And then there are genuine growth Small Caps whose earnings seem to be impervious to changing economic conditions. When we tipped Bellamy’s at $2.80 we thought was expensive.Sometimes the story is so good that you have to jump on in, even if the stock is fast moving. We aren’t telling Small Cap subscribers to buy at current levels, but we’re not telling them to sell.