Stocks’ Details

Bubs Australia Limited

Robust Sales growth in Q1FY19: Bubs Australia Limited (ASX: BUB) is a small-cap company with the market capitalization of circa $207.51 Mn as of October 29, 2018. Recently, the company posted stellar Q1FY19 results with quarterly gross sales revenue coming in 416% higher at $ 8.98 Mn compared to the prior corresponding period (PCP). It was mainly driven by the growth of Bubs product’s sales in Coles and Woolworths supermarket, along with robust sales performance of China’s ‘daigou’ C2C and cross-border B2C eCommerce channels during the same period. In addition to this, the Bubs products sales climbed up 90% on year-on-year (Y-o-Y) basis and up 26% on Q-o-Q basis which was primarily driven by the strong consumer offtake across the existing distribution footprint in both Australia and China. According to the management, the company has gained significant traction in domestic and international markets in the last one year, that includes securing several key new distribution channels and new product launches across the region. The company is having a strong domestic presence, and this is evident by the contribution from the Australian region in the gross sales revenues. Of the total gross sales revenues, around 82% has been garnered from the domestic markets in Q1FY19. Besides this, the company has targeted sales strategy to deliver a distribution coverage of 5,000 stores in FY19 to ensure the growth momentum ahead. On the balance sheet front, the company continues to maintain its healthy balance sheet with a cash reserve of $31.7 million as at 30 September 2018, with no debt facility.


FY19 Strategic Growth Plans (Source: Company Reports)

Meanwhile, the share price has fallen 35.17% in the past three months as at October 26, 2018 and traded at close to 52-week lower level of $0.440. By looking at its solid progress towards its strategic goal of becoming a prominent brand in the premium infant nutrition segments in the domestic and overseas market, we presume that the company has a brighter outlook ahead. Hence, we maintain our “Speculative Buy” recommendation on the stock at the current market price of $0.485, up 3% on October 29, 2018.
 

Volpara Health Technologies Limited

Q3FY19 has Started at Decent Pace:Volpara Health Technologies Limited (ASX: VHT) is a small-cap medical technology company with the market capitalization of circa $251.75 Mn as of October 29, 2018. Recently, the company posted a decent performance and reported cash receipts from customers growth of 124% to NZ$1.68 Mn in Q2FY19 as compared to the prior corresponding period (PCP).Despite the traditionally quietest quarter due to the US summer, the group added 15 new SaaS orders for VolparaEnterprise software and bringing the total SaaS orders of 100 since launch of the product in July 2016. Resultantly, Annual Recurring Revenue (ARR) increased by 35% to NZ$4.8 Mn in Q2FY19 against Q2FY18 and TCV at the end of Q2 FY19 came in at $6.5 Mn, displaying 65% growth on PCP basis. Additionally, the company has kept on winning market share of the U.S. breast screening and it is on track to reach its target of a 9% market share by the end of FY19 from the current market share of ~5.6%.It was observed that, Q3 FY19 has started strongly with a record of total contract value (TCV) and ARR of more than US$1.1 Mn and NZ$5.1 Mn, respectively and the management is looking forward to getting to the big trade show, RSNA in Chicago, and finishing off the year very strongly, indeed.

Growth in ARR (Source: Company Reports)
Meanwhile, VHT stock has risen 106.62% in the past six months as on October 26, 2018 and traded close to 52-week higher level of $1.490. On the daily chart of VHT, Relative Strength Index or RSI has been applied by using the default values. The 14-day RSI was earlier in the overbought zone and could witness a small rebound in the near term. Hence, we have a “Wait and Watch” view on the stock at the current price of $1.350, down 3.9% on October 29, 2018.
 

Paragon Care Limited

Strategic Acquisition of Total Communications (Australia) Pty Ltd: Paragon Care Limited (ASX: PGC) has recently agreed to acquire Total Communications (Australia) Pty Ltd for the total cash consideration of $27.5 Mn. The objective of this deal is to strengthen the Paragon’s services offering (such as telephony, nurse call, access control, and Smart Communication systems) to its healthcare customers’ division across the Australian and New Zealand markets. The acquisition will be funded from internal cash reserves of the company. According to the management, the aforesaid acquisition is a strong strategic fit for Paragon which will support to increase the clients’ productivity and overall business performance in years to come. In our view, this acquisition seems to be a good deal for Paragon Care as the combined entity can generate revenue of approximately $16 million, with EBITDA of around $5 million per annum. Post the acquisition, PGC’s Net Debt to EBITDA ratio will be between 1.5 and 2 times and PGC expects the acquisition to be in excess of 10% EPS accretive in FY19 and beyond. The settlement of the Total Communications’ acquisition is expected to take place during November 2018.


Synergistic Acquisition (Source: Company Reports)

From the analysis front, the company recorded FY18 Net margin of 8.0% which is above the industry median of 3.2%, representing the efficiency of the company in converting the revenue to profit. While ROE has been recorded at 8.7% which is below the industry average of 11.9%. Meanwhile, the stock has underperformed this year generating negative year to date return of 10.1%. The stock is trading at a reasonable PE multiple of 12.69x and beta of 0.21x as on 5-Year (monthly basis). By looking at its current trading level and decent fundamentals backed by synergistic acquisitions across the regions which make the business more balanced, we maintain our “Speculative Buy” recommendation on the stock at the current market price of $0.710, up 3.65% on October 29, 2018.


 
Stock Price Comparative Chart (Source: Thomson Reuters)
 
 

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