Stocks’ Details

Wattle Health Australia Limited

New products and facilities in the pipeline:Wattle Health Australia Limited (ASX: WHA) is a dairy farming company based in Victoria, Australia. It provides nutritional dairy products and natural baby food for infants. The company will be adding an organic nutritional dairy range, Uganic, to its portfolio which will be available for sale in FY19. Further, the company will be setting up a new facility at North Geelong, Victoria with a capacity of processing 200,000 litres of fresh organic milk daily.


Performance over the past 4 years (Source: Company Reports)

Over the past four years,the margins of the company have improved but are still negative. During FY18, the company reported negative EBITDA and Net margins along with negative ROE.The company reported a better than industry Debt/Equity ratio of 0.02x in FY18 as compared to the industry median of 0.27x.

During the last month, the stock has generated a positive yield of 15.73%. Today, the stock was down by 0.971% as compared to the previous close, currently trading at $1.020 near to its 52-week low price. The Relative Strength Index is seen in a slightly unfavourable position, and the price is currently trading above the Simple Moving Average line of the Bollinger band. On the other hand, a positive news comes from its Blend and Pack business that has a renewed CNCA (Certification and Accreditation Administration of the Peoples Republic of China). With new products and facilities in the pipeline, improving financials, and the bottoming of prices, we have a “Speculative buy” recommendation on the stock at the current market price of $1.020.
 

Baby Bunting Group Limited

Decent FY19 outlook:Baby Bunting Group Limited (ASX: BBN) is an Australian based nursery retailer and one-stop-baby shop providing all kinds of baby products. As per its FY19 guidance, the company expects EBITDA to be in the range of $25.0-$27.0 million with a growth of 34%-45%. It is expected that the gross margin will exceed 34% level in FY19. BBN has already opened 3 stores in FY19 and plans to open 4 more stores in this financial year.


Number of stores at year end (Source: Company Reports)

Over the past five years,the margins of the company have been fluctuating and are below the industry medians. During FY18, the company reported EBITDA and Net margin of 5.8% and 2.9% respectively as compared to the industry median of 11.0% and 6.9% respectively. The company is not able to generate better returns for its shareholders than its peers as its ROE of 9.2% was below the industry median of 12.6% in FY18.The asset turnover ratio of 2.17x was also above the industry median of 1.14x showing thatthe company is utilizing its assets in a better way than its peers to generate revenue.
During the past six months, the stock has generated a positive yield of 40.67% and is currently trading at the price of level $2.120. The Relative Strength Index is seen in a neutral position, and the price is currently trading near to the Simple Moving Average line of the Bollinger band. With better earnings guidance for FY19 and better utilization of assets to generate revenue, we, therefore, maintain our“Speculative buy” recommendation on the stock at the current market price of $2.120.
 

Bubs Australia Limited

Major goat milk supply agreement:Bubs Australia Limited (ASX: BUB) is an Australian based company providing a range of organic pouch baby food and goat milk formula. The company has secured a goat milk supply agreement with Central Dairy Goats Ltd to supply 2.2 million litres by May 2019 and 6.2 million litres for the following year. Today, the company has issued 935,079 shares against the exercise of Options.


Groups financial performance over the past 5 years (Source: Company Reports)

Over the past five years,the margins of the company have been fluctuating and are negative. During FY18, the company reported negative EBITDA and Net margins along with negative ROE.The company reported a better than industry current ratio and quick ratio of 4.36x and 3.87x, respectively in FY18 as compared to the industry median of 1.38x and 0.90x. As at 30 June 2018, the company enjoys virtual debt-free status with debt to equity ratio of 0.03x. This represents a decent liquidity position of the company to fulfill the short-term obligations.

During the past three months, the stock has generated a negative yield of 12.0%. Today, the stock was down by 1.136% as compared to the previous close, currently trading near to its 52-week low price. The Relative Strength Index is seen in positive territory, and the price is currently trading near to the lower band of the Bollinger band. With the new contract signed with Central Dairy Goats Ltd, bottoming of prices, and bullish indication through charts, we, therefore, maintain our“Speculative buy” recommendation on the stock at the current market price of $0.435.
 

Bellamy’s Australia Limited

Bearish indication through charts:Bellamy’s Australia Limited (ASX: BAL), domiciled in Australian, provides a range of organic food and formula products for babies, toddlers, and young children. Recently, the company announced the extension of the General Administration of Customs China to 31 December 2019 to its 90% owned Camperdown Powder Pty Ltd blending and canning line.

FY18 financial performance (Source: Company Reports)

Over the past five years,the margins of the company have been fluctuating but are still above the industry medians. During FY18, the company reported EBITDA and Net margin of 19.6% and 13.0% respectively as compared to the industry median of 12.0% and 5.1% respectively. Similarly, the company is generating better returns for its shareholders than its peers as its ROE of 29.0% was above the industry median of 10.8% in FY18.It reported a higher EV/EBITDA and P/E multiples of 11.1x and 19.23x respectively against the industry median of 8.2x and 12.6x respectively indicating the stock to be overvalued.

During the past six months, the stock has generated a negative yield of 34.55% and is currently trading close to the 52-week low level. By looking at higher than industry EV/EBITDA and P/E multiples and bearish signal by the charts, we suggest to investors that they should ‘avoid’ the stock at the current market price of $7.560.


 
Stock Price Comparative Chart (Source: Thomson Reuters)  
 

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