Bubs Share Price Soars 30% on Rebounding First Quarter Sales (ASX:BUB)

The Bubs Australia Ltd [ASX:BUB] reported a turnaround in Q1 FY22 as the sales of goat milk infant formula player’s nearly doubled to $18.5 million.

BUB’s update excited the market, as investors rush back into a stock heavily sold off earlier in the year due to distressed sales associated with the pandemic.

Bubs Australia Ltd [ASX:BUB] share price was up a significant 30% at time of writing. Despite the big jump, the infant formula stock is still down 40% over the last 12 months.

ASX BUB - Bubs Share Price ChartSource: Tradingview.com

Currently trading well off its 52-week peak of 80 cents a share, could today’s update see the market rerate the BUB stock more optimistically?

The market also didn’t take a narrow view on BUB’s good news, interpreting the sales turnaround as a positive signal for another ASX dairy player — A2 Milk Company Ltd [ASX:A2M].

A2M shares were up 11% at time of writing.

BUB’s 1Q FY22 highlights: ‘turnaround to growth’

Bubs reported that group gross revenue rose to $18.5 million. This represented a 96% increase on the previous corresponding period and a 45% increase on the previous quarter.

BUB said the revenue growth came across key business segments, overcoming COVID-19 disruption, and a ‘challenging macro environment.

Bubs Infant Formula gross revenue rose 124% on pcp and 64% quarter-on-quarter.

The company said Bubs Australia remains the ‘fastest growing infant formula manufacturer across Domestic Grocery and Pharmacy Retailers.’

Despite the strong rebound in sales, BUB’s operating, staff, and marketing costs saw Bubs finish the quarter with a modest operating cash flow of $490,000.

BUB ended the quarter with $28.31 million in cash and cash equivalents.

Company PresentationSource: Company presentation

BUB’s China segment

Of course, many investors would have been zeroing in on how Bubs performed in China, whose large appetite for premium nutrition products propelled BUB’s and A2M’s sales — before the pandemic disrupted daigou and cross-border sale channels.

On that front, Bubs reported a ‘strong rebound in China-facing business’ with revenue up 156% on the prior year and up 98% quarter-on-quarter.

The all-important daigou metric also saw significant improvement.

Bubs Infant Formula daigou sales rose a substantial 648% compared to the previous corresponding quarter and 265% over the last quarter.

This helped BUB’s international gross revenue to rise 489% on the prior year, with a more modest 35% increase on the prior quarter.

Bubs Founder and CEO Kristy Carr said:

Bubs has largely put the disruption and challenges of COVID-19 behind us, delivering a turnaround to high growth during the quarter as we revamped our business strategy in response to the rapidly changing market dynamics.

Importantly, there continues to be strong consumer demand for Bubs® quality nutritional products in all key markets with solid performance across our core business segments.

Bubs achieved market share gains and scan sales growth of 35% for Bubs® Infant Formula in Domestic Retail², remaining the fastest growing Infant Formula manufacturer in Coles, Woolworths and Chemist Warehouse.

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Is this a sign of what’s to come for Bubs?

A 30% spike in one day of trading indicates investors are bullish on BUB’s medium-term outlook.

The post-pandemic recovery is not yet finished, with travel restrictions still in place in Australia and vaccination rates still rising.

Bullish investors will be wondering what BUB’s sales will be like when the recovery is in full swing. What’s the ceiling?

And how much of its growth potential hangs on China’s consumption?

Carr said the company has revamped its business strategy in response to changing ‘market dynamics’. Part of that revamp could mean a diversification away from China.

As Carr said today, BUB’s ‘international gross revenue outside of China was up nearly five-fold over the same time last year, and up 35% on prior quarter.

The first shipment of Aussie Bubs® products arrived in the USA during the quarter and Bubs is now an official Walmart vendor, with the first online sales expected to be realized in October 2021.

Bubs Executive Chair Dennis Lin added:

Having recovered the ground lost due to COVID-19 disruption, we expect to be able to sustain continued growth momentum, to the extent our go forward approach does not depend on a material improvement in the pandemic setting.

BUB’s recent volatility shows the risks — and rewards — that come with the fast-moving small-cap sector. While risks abound, so does opportunity.

Now, if small-caps interest you, I suggest checking out this report by our small-cap analyst —Ryan Clarkson-Ledward.

He unveils four overlooked small-cap stocks with exciting potential.

Regards,

Kiryll Prakapenka,

For Money Morning  

PS: Our publication Money Morning is a fantastic place to start on your investment journey. We talk about the big trends driving the most innovative stocks on the ASX. Learn all about it here


Kiryll Prakapenka is an investing autodidact who is passionate about conducting in-depth research on investments. Kiryll brings sound analytical skills to his work, courtesy of his Philosophy degree from The University of Melbourne. A student of legendary investors and their strategies, Kiryll likes to synthesise macroeconomic narratives with a keen understanding of the fundamentals behind companies.


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