Its shares have slumped by a third in just two days, but that still isn't enough to whet the appetite of some analysts, who reckon the share price for troubled infant milk formula group Bellamy's Australia could decline another 20 per cent before reaching fair value.
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CLSA estimates Bellamy's Australia shares are worth just $3.50, down more than 50 per cent from their level prior to the start of its four-week trading suspension that finished on Wednesday, while Ord Minnett estimates they're worth $3.76.
Analysts with the two brokerages reckon clients should offload their holdings, citing myriad concerns from a stretched balance sheet through to doubts the company will be able to rebuild sales momentum in the key China market.
Bellamy's is trading on an "unjustified' multiple of 33 times earnings, CLSA told its clients "while the potential for a rights issue cannot be ignored".
"As such we believe the risks remain to the downside".
Ord Minnett was equally downbeat.
"With no sales growth, an inventory blow-out, declining gross margins, adverse channel mix and a poor balance sheet we see the current fiscal year 17 price earnings multiple of 25 times as unreasonably high," it told clients.
Business reset
Bellamy's warned investors on Wednesday that it has been forced to "reset" the business following a loss of sales momentum in China.
As part of its overhaul, it has replaced the chief executive, removing Laura McBain who has been replaced on an interim basis by Andrew Cohen, with the chief financial officer also to go, as a thorough review of all senior executive positions is undertaken.
"The key challenge faced by Bellamy's is balancing the requirement to reduce inventory levels so as to improve working capital/cashflow while at the same time limiting discounting to prevent additional brand/channel damage (notwithstanding the damage already done to each to date)," CLSA told clients.
Morgans analyst Belinda Moore told clients that patience is required to see if the turnaround can be effected.
"The key upside risk is corporate activity and the key downside risks are further deterioration in trading conditions, margins and working capital outflows which results in Bellamy's potentially breaking banking covenants and possibly requiring a capital raising," she told clients.
Bellamy's shares slumped another 17.7 per cent to finish at $4.40, adding to Wednesday's 19.9 per cent slide.
A2 looks A+
Elsewhere in the sector, buyers were out in force, with Bega Cheese rising 2.3 per cent to $4.37 as Blackmores surged 4.7 per cent to $113. Murray Goulburn was also popular, rallying another 2 per cent to $1.01, adding to recent strength which has seen its shares gain 15 per cent in recent weeks.
A2 Milk went against the trend here, shedding 2.7 per cent to $2.12, despite generally supportive analyst views.
For its part, CLSA argues A2 Milk is a 'buy' with earnings a share forecast to expand by a compound 50 per cent annually over the next three years. It has a $2.60 price target on its shares, which closed Thursday at $2.12.
