Baby Bunting Group Ltd

Rapid Rise in Online Sales: Baby Bunting Group Ltd (ASX: BBN) operates Baby Bunting retail stores and its online store babybunting.com.au. The company recently updated a change in substantial shareholding of IOOF Holdings Limited wherein the voting power of the shareholder increased from 7.847% to 9.041%.

Key Financial Highlights of 1H19: During the six months ended 31 December 2018, the company generated sales amounting to $177.7 million, up 17.2% on the prior corresponding period. Comparable store sales during the period witnessed a rise of 9.5%. EBITDA for the period amounted to $11.6 million, up 25% on pcp. EBITDA margin for the period was reported at 6.5% of sales.During the period, the company generated net profit after tax amounting to $6 million, up 25.3% on the prior corresponding period. The Board declared a fully franked dividend of 3.3 cents per share which was paid in March 2019.

The company’s online sales accounted for 11.5% of the total sales, which reported a rise of 61% on the prior corresponding period. The period saw the opening of 5 new stores with 1 more store in the pipeline for FY19. During the period, the company reported 62% growth in sales of private label and exclusive products as compared to pcp.


1HFY19 Results Summary (Source: Company Reports)

FY19 Outlook: The company expects FY19 EBITDA to be in the range of $25 million and $27 million, with EBITDA growth in the range of 34% and 45%. EBITDA guidance was provided after excluding employee equity incentive expenses. The company expects a full year gross margin of ~35% and a total of 6 new store openings by the end of FY19. It is also expecting a comparable store sales growth of mid to high single digits.

Stock Recommendation: The stock of the company generated a negative return of 1.42% over a period of 6 months. The stock is presently trading at PE multiple of 25.37x with an annual dividend of 2.79%. During the first half of FY19, the company witnessed a rise in revenue, EBITDA and NPAT in comparison to the prior corresponding period. It also expanded its operations through opening of new stores. The company reported significant improvement in the gross margin at 34.6% in 1H19 and expects it to strengthen further by the end of the financial year 2019. In addition, the company has provided an FY19 EBITDA guidance of $25 million - $27 million, which is much higher than FY18 EBITDA of $18.62 million. Considering the above factors and looking at current trading level, we recommend a “Speculative buy” on the stock at a current market price of $2.190, up 5.288% on 27 June 2019.
 

Bubs Australia Ltd

Record Revenue in March 2019: Bubs Australia Ltd (ASX: BUB) offers a range of organic baby food and goat milk infant formula products. The company, on 27 June 2019, announced a strategic channel partnership with Kidswant. The following news led the stock to rally ~32% in today’s trading session. This is the first major project of Bubs Brand Management Shanghai Co. Ltd, the company’s joint venture with Beingmate. The company’s food products are now available in 275 stores of Kidswant and the company anticipates annual retail sales performance through Kidswant to reach RMB 30 million within the financial year 2020.

Highlights of Q3FY19: During the quarter ended 31 March 2019, the company generated gross revenue amounting to $11.83 million, up 103% on the prior corresponding period. Year-to-date gross revenue amounted to $32.87 million. During the period, domestic sales reported a rise of 71%. Sales in China reported an increase of 884% as compared to the prior corresponding period. While domestic sales comprised of 79% of the revenue in the quarter, sales from China contributed 20%.

Few developments during the period included a joint venture MOU with Beingmate for marketing and distribution of organic food products. The company raised $31.44 million of capital from C2 Capital Partners. Bubs progressed towards expansion through 100% acquisition of Australia Deloraine Dairy in Melbourne and a strategic equity-linked alliance with Chemist Warehouse. Q3 saw another step towards development through a long-term partnership with Tatura for production of goat infant formula.

Remarkable Revenue in 1HFY19: The company reported a revenue of $21.03 million that exceeded the total revenue of FY18. The growth in revenue was attributed to strong domestic sales and increased sales to China.

1HFY19 Financial Results (Source: Company Reports)

Stock Recommendation: The stock of the company generated high returns of 108.79% over a period of 6-months as of 26 June 2019. In the third quarter of FY19, the company focused on strengthening the supply chain, expansion of channel capacity and increasing profitability through various strategic developments. Revenue during the month of March was the highest of any month on the company’s record. Sales in China increased significantly at a rate of 884% on pcp.  Currently, the stock is trading slightly towards the 52-week higher level of $1.615. Based on the above factors, we give a “Hold” recommendation on the stock at a current market price of $1.225, up 31.72% on 27 June 2019.   

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