(Asx: BUB) | BUB Australia Limited

Dec 13, 2021

Sentiment: Bullish

Type of Trade: High Growth

Industry: Packaged Foods

Sector: Consumer Staples

BUB’s Australia is the producer of baby food. The company offers organic baby food, goat milk infant formula products, the adult goat milk powder products and fresh dairy products. It is only operating segment being the sales of nutritional food, fresh products, adult powder and providing canning services of nutritional dairy products. Geographically, it derivatives a majority of revenue from Australia and also has a presence in China and Other international markets.

The big hit in the market was last week’s announcement that BUBs has secured acceptance for an inaugural USA launch of its Aussie BUBs branded formula range of Walmart.com. The Aussie BUBs range of the USA is expected to be available online from September 2021. Aussie BUBs is to launch as the only Australian Goat milk formula product on the USA market. It is obviously that with this breakthrough into the USA market, the company will be able to sneak into the $USD 5.1Bn annually market.

Growth | Focus on USA

The company will also extend its Aussie brand into Amazon USA as well as establishing a USA subsidiary to Aussie BUB’s Inc. to spearhead in-country marketing and based in health-conscious Northern California. You see the announcement in full details as following:

Growth | Diversified World Markets

This announcement was extremely share price (SP) sensitive and had immediately added 29% appreciation to the company’s SP. Breaking into USA market is definitely a very important milestone to any company and that will have direct impact on the company’s revenue on the incoming FY. The company has already been growing consistently its revenue as per the chart below:

Growth | Reopening

✅ Daigou Channel Turnaround with key Operational plan well progressed, demonstrating discipline and inventory management.

✅ Strong Bub’s Brand equity and Masterbrand proposition with demonstrated ability to stretch into adjacents categories.

✅ Continued results demonstrated in protecting and strengthening our core domestic market, outperforming the category.

🚩 Since the company is currently recovering from COVID-19, keeping close eye on Net loss is critical each quarter is Critical. FY 2022 Half Years result will be cathalistic to get back major investors.

We believe that could be enough momentum to take the SP back to $1 levels as per last years all times high. It is important to understand that the whole consumer defensive sector has been cyclically affected by exit of investors from the sector, which is now appears to be coming back as SP on similar stocks has been down more than 50% across the board. Although the net profit has been increasing “reducing its loss” year on year, we could see a potential increase on the loss as the company will have to invest into the infrastructure, marketing and logistics to service the USA market. That shall appear as abnormal cost potentially in the FY22.

Company’s Financial Position and Performance

According to latest Half Years results the company has declared a revenue of $22M and that was negatively affected by COVID-19 due the channel disruption and volatility across the the sector in 2020. That should give BUB’s FY21 a similar or slightly lower revenue than FY20. The company has clearly seen its growth momentum being interrupted by this channel shifting, however the company has surprisingly reported a significant increase on total Bubs Goat Formula direct sales to China during the first half, although only partially off-setting the COVID led disruption to the much larger contribution from the Daigou channel, caused by international borders closures and increased air freight costs. (The daigou channel typically involves Chinese students studying in Australia who buy and bring local products back to China).

Bub’s was essentially saved by its infant formula, Bubs Australia has been leading the growth and reducing the gap between the industry giants and increasing the sales volume quite considerably.

Strong Numbers out of FY22 Q1

Strong numbers in the first quarter improved stockholders confidence.

Technical Analysis

If you have invested on (Asx: BUB) 12 months ago you would be at 52% loss. SP has been trending down since May 2020, which the SP was highly affected by COVID-19. Although we have made some good trades out of this stock it is important to know when to buy and when to sell, as BUB has been offering several 20-40% trading opportunities over the last few months.

Since May 2021, we detected a change of direction with a classic double bottom formation in which SP has tested low 30’s and bounced back.

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