The Bellamy's Australia Ltd (ASX: BAL) share price is falling again today after the company announced that its ex-chief executive Laura McBain has resigned as a director of the company with immediate effect.
This news comes as no surprise given McBain had been sacked by her fellow directors just a few weeks ago, although she is expected to remain as an employee of the company to March 31 2017.
News reports continue to suggest that the Tasmania-based baby formula business is the subject of a bitter power struggle between activist investors and the current board that want to retain control.
The situation is a major distraction for a company that is already suffering from rising competition, mismanagement, a coming shareholder class action and shattered investor confidence. As a result the stock has fallen to $3.78 today, which is around the price I first bought the stock at 18 months ago, although the question for investors now is whether the business represents any value at current prices given its outlook and problems.
Outlook
If the company is able to realign its supply chain and make good its strategic mistakes over what are its most effective routes to markets to reach Asian consumers then a return to growth in financial year 2018 is possible in my opinion.
If you take analysts' revised estimates for 14 cents in earnings per share over financial year 2017 then at 19x forward earnings the company is probably around fair value at $3.79 if you think a return to any earnings growth in financial year 2018 is realistic.
I expect it could deliver decent returns over a three-year time horizon from these prices assuming the company is effectively managed and is able to once again harness the underlying demand growth from Asian consumers.
Of course it remains high risk, with plenty of risk to the downside given the competitive environment, balance sheet weakness, management issues, current cash flows, inventory issues, and onerous "take or pay" agreements it has with suppliers. In fact given the list of problems it's not hard to see why there's so much selling pressure on the business, but every company has a fair value unless you believe it's on the road to ruin.
Others in this space such as the a2 Milk Company Ltd (ASX: A2M) are continuing to perform well on the back of strong demand from Asian consumers, although I expect its growth rates will slowdown too as the Chinese state and vested interests look to increase their share of the growing profits available across the baby formula industry.
