Stocks’ Details
 

The A2 Milk Company Limited (ASX: A2M)

Increase in marketing Expenses: Recently, A2M issued 1,250,000 fully paid ordinary shares at an issue price of NZ$0.72 per share of which NZ$0.0072 per share have already been paid when the Company issued the shares earlier (as partly paid ordinary share).The A2 Milk Company is the only company which is engaged in the sourcing, processing and in marketing of A1 protein free dairy and nutritional products in global markets. The Company is confident that the past investment in its brand has established a strong consumer franchise which will continue to strengthen as its level of investment and distribution continues to grow. The Company considers that it is uniquely positioned and will be benefitted from the expansion of the category over the time as it has a comprehensive suite of intellectual property which includes patents, trade-marks, proprietary processes and know-how. The infant formula market in China is vast and the retail value is estimated at USD20 billion with volume exceeding one million metric tonnes. However, A2M expects that marketing expenses will increase by NZ$35-NZ$40 million in 2HFY18 as compared to 1HFY18 as it is planning to expand its market share in China and in US. The share prices were up by 73.7 per cent in the past six months but witnessed a decline of 4.8 per cent in the past one month, basis concerns over the rising expenses and competitor activity in China. The stock looks “Expensive” at the current market price of $ 11.900.
 

Segment Performance (Source: Company Reports)
 

Bellamy’s Australia Limited (ASX: BAL)

Increased competition:Quality Life Pty Ltd, a substantial holder changed its holding on 23 March 2018 from 7.42 per cent of the voting power to 6.19 per cent of the voting power. On the other hand, Mitsubishi, Macquarie Group Limited and Morgan Stanley became the substantial holders of the Group since 28 March 2018. Bellamy’s turnaround remained on track and the underlying health of the business continued to strengthen its position. Full-year guidance was upgraded for its core business with revenue growth and EBITDA margin of 30-35 per and 20-23 per cent, respectively, in FY18. It deferred the major facility upgrade at Camperdown so that it can start with its production.Investors can book profits after monitoring the upward trend which stock has witnessed in the past six months and given the rising competition in the sector. We give a “Sell” recommendation at the current market price of $ 21.210.
 

Financial Performance (Source: Company Reports)
 

Bubs Australia Limited (ASX: BUB)

Improvement in the availability across domestic retailers: Up 9.2% on April 12, 2018, Bubs continued its growth in domestic market with doubling of the availability of the Bubs infant formula and baby food products in the market. Bubs Baby Cereals was accepted by Australia’s key supermarket chain, Woolworths. It continues to leverage its existing capabilities and commercial competencies and is continuously progressing to meet China’s infant formula regulatory requirements. Net Sales in Q3 of FY18 were up by 422 per cent and amounted to $5.178 million as compared to the same period in the last year and quarterly growth was driven by additional revenues from both the Bubs business. After the NuLac Foods’ acquisition, the Group tried to strengthen its balance sheet and cash reserves are now being indicated at A$5.570 million. However, it was noted that ROE in 2017 was recorded at (78.7 per cent) against (44.4 per cent) in 2016. Meanwhile, the stock prices were up by 35.7 per cent in the past six months but slipped by 9.52 per cent in the past one month. Looking at the scenario and the downfall, we believe it will be better to wait for more positive catalysts. We have an “Expensive” recommendation on the stock at the current price of $0.83.
 

Analysis of Sales (Source: Company Reports)
 

Baby Bunting Group Limited (ASX: BBN)

Sector consolidation continues: While Baby Bunting’s Q3 FY18 comparable sales have been up 4.7%, increased discounting has affected the gross margin. Further, Baby Bunting’s two competitors Baby Bounce and Baby Savings recently entered in an external administration and the administration was related to 6 Baby Bounce stores operational in New South Wales and 4 stores in Queensland. The effect of the current Baby Bounce and Baby Savings administration at this stage is still unknown, and in the short term, it is possible that it might have an adverse impact on Baby Bunting’s sales and gross margin performance. If that occurs, there will be a risk that the Company’s earnings for the full financial year may be less than its previous guidance that is around $23 million. Meanwhile, the group is working on opening of a store in regional Queensland before the end of FY18 and a new store will be opening in Chatswood, Sydney in early FY19. The current level of industry consolidation during this financial year is unprecedented and the group may have an impact owing to that. There has been a change in the substantial holding by Commonwealth Bank of Australia on 10 April 2018 as initially CBA was holding 5.70 per cent of the voting power but now it holds 7.47 per cent of the voting power in BBN. The stock price was down by 16.17% in the past six months with a 3.6% fall on April 12, 2018; but has been up by 8.5% in the last five days. Looking at the overall picture, we give an “Expensive” recommendation at the current market price of $ 1.350.
 

Financial Performance (Source: Company Reports)

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