There are some compelling reasons why the Bubs Australia Ltd (ASX:BUB) share price could be a buy right now after its trading update.
The post 3 reasons why the Bubs (ASX:BUB) share price could be a buy appeared first on The Motley Fool Australia. –
There may be some compelling reasons about why it may be worth looking into Bubs Australia Ltd (ASX: BUB) at today’s share price.
What is Bubs?
Bubs is primarily an infant formula business that sells products derived from goat milk. It also sells organic, gross-fed cow’s milk infant formula ranges, organic baby food, cereals and toddler snacks.
The company also recently launched ‘Vita Bubs’, which is a range of infant and children’s vitamin and mineral supplements formulated with goat milk.
It also says it’s the leading producer of goat dairy products in Australia with exclusive milk supply from the largest milking goat herds in the country.
What happened in the most recent update?
The Bubs share price rose by 23% yesterday after giving an update for the FY21 second quarter.
Bubs’ group quarterly gross revenue was $12.8 million, an increase of 36% over the first quarter of FY21, though it was down 12% on the prior year.
China cross border e-commerce (CBEC) sales were up 27% quarter on quarter and up 34% compared to the prior corresponding period.
Adult goat dairy gross revenue was up 45% quarter on quarter and up 25% against the prior corresponding period.
The Bubs infant nutrition portfolio, which represented 57% of the second quarter’s revenue, grew 27% compared to the FY21 first quarter.
The company said that Bubs Australia is the fastest growing infant formula manufacturer across Woolworths Group Ltd (ASX: WOW), Coles Group Ltd (ASX: COL) and Chemist Warehouse, with combined retail scan sales at the checkout up 41% quarter on quarter and up 67% compared to the prior corresponding period.
The company boasted that it was the leading goat infant formula brand in Chemist Warehouse.
Bubs also said that export sales to markets outside of China continue to strengthen, with sales rising 194% quarter on quarter and up 138% against the prior corresponding period.
One of the final things that Bubs said was that the corporate daigou trade channel was still softer than pre-COVID levels, but it was up 122% compared to the first quarter of FY21.
3 reasons why the Bubs share price may be interesting
1: Strong Australian store sales – In Australia, Bubs’ products are being sold in many of the largest retailers of infant formula, Coles, Woolworths and Chemist Warehouse. Indeed, Bubs has a strategic partnership with Chemist Warehouse which owns some Bubs shares. In yesterday’s update, Bubs said its sales growth in this category was 41%. Overall, Bubs said that it has seen a strong rebound in domestic sales revenue (including daigou), up 31% quarter on quarter.
2: International export markets – China is a very large addressable market for Bubs, which it is attempting to tackle with the help of Beingmate (and Alibaba). Not only was the overall Chinese CBEC sales growth strong at 35% quarter on quarter, but it achieved 174% growth of gross merchandise value on Tmall Global during ‘Double 11’.
In export markets outside of China, sales almost tripled quarter on quarter, contributing 17% of group revenue. The first shipments of Bubs infant formula and Bubs organic baby food products were exported to Malaysia during the second quarter. Bubs products are also now being sold on Redmart in Singapore and Lazada in Malaysia.
3: Secure supply chain – Bubs owns 100% of a canning facility called Deloraine which can make up to 10 million tins per year. It has exclusive access to the largest milking goat herds in the country.
Bubs Chair Dennis Lin said: “While a degree of uncertainty exists considering the continuing COVID-19 disruption, we take the significant quarter on quarter turnaround in sales momentum as a positive indicator for the long-term.
“Importantly, we expect our total China CBEC and corporate daigou channel sales momentum to continue to reflect the ongoing Chinese consumer demand for our premium quality infant nutrition and adult goat dairy products.
“Global expansion remains a key focus with continued export sales momentum throughout the quarter. We anticipate revenue contribution from South East Asia will substantially increase with our recent launch in Malaysia building on existing business in Vietnam, Hong Kong, Macau and Singapore.”
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Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended BUBS AUST FPO. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.