Global markets sold off overnight, weighed down by the Technology sector and Resource stocks. The big names in the US Technology sector such as Apple and Alphabet extended their recent sell-off yesterday. However, the worst performing sector overnight was Resource stocks, as high global inventories and doubts around OPEC’s ability to implement previously agreed production cuts put pressure on the price of oil.
Closer to home, the NZ market added to gains yesterday, while the ASX reversed course following Asian markets lower after the US Fed’s interest rate hike.
Stock in Focus: Bellamy’s Australia (BAL.AX)
BAL’s share price surged 15% yesterday after a voluntary trading halt (so that the baby formula business could raise capital) on the business was lifted.
The company has raised $64 million via a rights issue to institutional and retail investors at $4.75 per share. Despite the dilutionary impact of the capital raising the stock rebounded yesterday, which is somewhat of a surprise.
The proceeds of the capital raising will be put towards an acquisition and paying off supplier Fonterra in exchange for being able to reset supply contracts. BAL’s hopes the moves will help improve margins and satisfy Chinese regulatory demands
While the market seems to have responded well to the news, we remain unconvinced. We would highlight the heavy share dilution and poor recent management track record, which has raised serious concerns.
We have highlighted previously that A2 Milk (.NZ / A2M.AX) is our preferred sector play, particularly as recent results speak volumes about A2 management’s superior agility and execution versus Bellamy’s.
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