Bubs Share Price Up Big on Quarterly: Outlook Positive
At time of writing, the share price of Bubs Australia Ltd [ASX:BUB] is up a significant 6.69%, trading at $1.435.
After languishing for a sustained period, the Bubs share price began its take-off in February:
We note a bullish crossover of 20- and 50-day moving averages, which occurred on 19 July and signals upward momentum.
Today we look at the highlights from the Bubs quarterly report and look at their prospects going forward.
Bubs share price rises on open
With today’s announcement released prior to the commencement of trading, the Bubs share price spiked as high as $1.525.
Here are some of the key highlights from the Bubs Quarterly:
- Record revenue with Q4 revenue of $18.46 million
- Q4 revenue up 56% on previous quarter
- Q4 revenue up 108% pcp
- FY2019 revenue of $51.3 million, up 179% pcp
- $23.3 million in cash as of 30 June
- Positive cashflow
- China sales up 13% pcp (12% of gross sales)
- Australia sales up 127% (85% of gross sales)
- International markets up 909% (3% of gross sales)
Founder and CEO, Kristy Carr highlighted the success of their goat milk infant formula:
‘The core driver was Bubs goat milk infant formula, which increased 341 percent year-on-year…our home market experienced the strongest growth throughout the quarter, driven by increasing penetration in Coles, Woolworths, Big W, Amazon and Costco, and the national roll-out of all 28 products in Chemist Warehouse outlets in June. In addition, the rapid growth of the corporate Daigou segment contributed to our domestic sales more than doubling that of the prior year.’
Carr also emphasised the role of new partnerships with Beingmate, Alibaba and Kidswant, which have been made with an eye to growing their Chinese sales.
Outlook for Bubs positive if it can grow China sales
The outlook for Bubs is largely positive, even if much of its growth appears to be already priced in.
With regards to future share price growth, the partnerships with the aforementioned Chinese companies could be critical to their success going forward.
And there are two reasons to believe Bub’s can continue to improve in this area.
- Opportunity to replicate A2’s growth in China
Compared with A2 Milk Company Ltd [ASX:A2M], which has a greater percentage of its revenue coming from China (around 28%), Bub’s can improve on its 13% pcp growth in this market in coming quarters. Bub’s currently derives 12% of its sales from China and refers to its domestic market as its ‘stronghold’. With partnerships recently inked on the Chinese front, further growth could occur. The CNCA accredited Deloraine Dairy facility will help in this regard, as the Aussie market becomes more competitive.
- Enough cash to splash a bit more on marketing
Bub’s has $23.3 million in cash reserves after the Deloraine acquisition. While this is not a particularly significant amount relative to its market cap, we note that the company spent $1.4 million on advertising and marketing. Upping it’s spend in this area, especially in China, could yield positive results. If it wants to increase its growth there, this could be one area for the company to look into.
McKinsey & Company projects the G2 generation, which comprises 200 million customers, will double their share of urban consumer demand in 10 years’ time. They take a more Western approach to shopping and Bubs will be hoping to capitalise on this demographic shift as they transition into families.
If you are interested in investment ideas for the coming China boom, we have a useful free report on the effects of this demographic change, which profiles three industries that are primed to benefit from these trends. That report can be accessed here.
For Money Morning