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Stocks’ Details
 

The A2 Milk Company

Traded at Higher PE Multiple Among Peers:The A2 Milk Company Limited (ASX: A2M) has recently presented its business prospects at CLSA Investor’s Forum, Hongkong and highlighted about FY18 activity and outlook. As per the release, A2M is in the business of producing, marketing and selling premium branded dairy nutritional products in targeted global market. The company recorded revenue growth of 68% amounting to $922.7 Mn in FY18 over the prior year. The sales spiked up due to the strong volume growth of its product mix across the region. EBITDA stood at $283 Mn in FY18, marking the splendid growth of 101% against pcp. The result reflected growing revenue and the Company’s ability to leverage its fixed costs while increasing its investment in the business. The company recorded net profit after tax of $195.7 Mn in FY18 compared to a profit of $90.6 Mn in FY17. The Company has a robust balance sheet with the ability to pursue its organic and transformational growth strategy within the organic value chain. Current ratio and Quick ratio stood at 3.03x and 2.65x, respectively in FY18 while the group enjoys virtual debt-free status.


FY18 Financial Highlights (Source: Company Reports)

Meanwhile, the share price has fallen 14.0 percent in the past six months (as at September 18, 2018) and traded at the higher PE level of 44.91x. This looks high in comparison to the peers. Hence, we maintain our “Expensive” recommendation on the stock at the current market price of $11.240.
 

A2M Daily Chart (Source: Thomson Reuters)
 

Bellamy's Australia 

Competitive trading environment impacted average inventory days: Bellamy's Australia Limited (ASX: BAL) posted stellar FY18 results with total revenue coming in 36.8% higher at $ 328.7 Mn compared to the prior year. Resultantly, the company has returned in black this year and posted a profit after tax of $42.8 Mn against loss of $0.81 Mn in FY17. Net margin has been positive and so has been Return to shareholders for FY18 at 13% and 29% respectively. Operating margin, on the other hand, has increased by 18.3% compared to 0.2% in FY17. At 30 June 2018, the Group had a cash reserve of $87.6 Mn compared to a cash balance of $17.48 Mn at 30 June 2017. On the working capital front, Average inventory days for FY18 came in at 152 days which is higher than the industry median of 71 days. Resultantly, the cash conversion cycle (CCC) stood at 131 days during the same period. The rise in inventory level was mainly impacted by the competitive trading environment incurred in the second half of the year. As of 30 June 2018, the company had finished goods of $56.9 Mn which represents approximately 4.0 months of sales (FY17: 6.6 months) based on historical selling rates.


Bellamy’s Group Inventory ($Mn) (Source: Company Reports)

Moreover, any further increase in the inventory in FY19 would take the stock lower. Also, the positive factors have already been discounted in the price presenting a limited upside in the stock at the current juncture. Hence, we maintain our “Expensive” recommendation on the stock at the current market price of $9.530 and believe that investors might get an opportunity to enter the stock at a lower price point. 


BAL Daily Chart (Source: Thomson Reuters)
 

Wattle Health Australia 

Received Extension Supply Agreement from Vasudevan And Sons:Wattle Health Australia Limited (ASX: WHA) has recently disclosed about the extension of 12-month Supply Agreement with Vasudevan and Sons Exim Private Limited (VSEP) in India for supplying of its natural baby food range. As per the agreement, VSEP has committed to buying minimum volumes of WHA’s natural baby food range representing revenue of approximately $3.5 million over the next 12 months, compared to the initial agreement announced on July 2018 of $1.5 million AUD. This extended agreement with VSEP further enhances the aim of WHA to expand its product portfolio and diversify its distribution network in both domestic and international markets, therefore reducing the risk profile of the company on the reliance on products and jurisdictions. We expect that the extension of the agreement with Vasudevan and Sons is about capitalising on new opportunities, which is a further important step for the company’s products in India.

On analysis front, the group posted revenue growth of 67.7% amounting to $1.575 Mn in FY18 over the prior year. As a result, gross profit increased by 532% and amounted to $0.857 Mn in FY18 on YoY basis. WHA increased its margin on its products at an above industry average of approximately 55%, reflecting the changing structure of the business based on direct relationships with retailers and an increasingly diverse product range with improved margins. However, net loss for the period came in at $19.83 Mn in FY18. On the balance sheet front, the company had cash balance of $55.8 Mn as at 30 June 2018 compared to $5.7 million at end of FY17. Current ratio and Quick ratio substantially increased from 8.75x and 7.73x to 26.17x and 25.78x, respectively in FY18 over the prior year.


FY18 Financial Highlights (Source: Company Reports)

Meanwhile, the stock price was down by 60.07 percent in the past six months as on September 18, 2018. Hence, we give a “Speculative Buy” recommendation on the stock at the current market price of $ 1.015, based on decent fundamentals and trading level.


 
WHA Daily Chart (Source: Thomson Reuters)
 

Bubs Australia 

Improvement in Growth Prospects: Bubs Australia Limited’s (ASX: BUB) stock tumbled 2.362 percent on September 19, 2018, which may be owing to some profit booking and overall change of sentiments in the sector. Over the period, the company has built a synergistic relationship with many companies such as Hipac, Australia Deloraine Dairy Pty Ltd, Alibaba, NuLac Foods, and New Times Asia which supports its overall growth momentum at the back of revenue sharing agreement, an easy arrangement to get goat milk to fulfill the consumer demand, expanding footprint across the market, etc. As of now, the company covers 60% goat milk supply in the Australian market. Moreover, the group has entered into the China market with the support of its strategic agreement with New Times Asia, Hipac, and Australia Deloraine Dairy Pty Ltd. From the analysis standpoints, the company recorded revenue growth of 330% amounting to $16.97 Mn in FY18 over the prior year. It was mainly driven by the volume growth of its product mix across the domestic and international market via offline and online sales. However, a loss for the Group after tax attributable to members increased by 1176.9% and amounted to $ 64.59 Mn in FY 18 over the prior year. It was mainly impacted by the rise in goodwill impairment, China’s regulatory requirements, and increase investment during the same period. As at 30 June 2018, the group had a cash balance of $38.6 Mn. Current ratio and Quick ratio stood at 4.35x and 3.86x, respectively in FY18 while the group enjoys virtual debt-free status.


Gross sales- Geographic-Wise (Source: Company Reports)

Meanwhile, the stock has fallen 25.73 percent in the past three months as at September 18, 2018 and traded at 52-week lower level. Hence, we maintain our “Speculative Buy” recommendation on the stock at the current market price of $ 0.620, considering its improved growth prospects backed by organic and inorganic growth.


 
BUB Daily Chart (Source: Thomson Reuters)
 

Baby Bunting Group 

Growth prospects to be continued:In FY2018, Baby Bunting Group Limited (ASX: BBN) aimed at improving the experience of its retail customers. Moving forward, the company plans to open fresh stores in Sydney as well as in Hobart. In FY18, the company also focused on improving its digital channel. It also eyes future expansion. During the same period, the company witnessed a YoY (year-over-year) increase of 63% in its online sales which made 9.5% of the total sales.
In FY2018, of the total Baby Bunting’s sales, 20.9% was contributed from its private label as well as exclusive products. The support extended by the company’s suppliers has helped the company in boosting the sales of these products. In H2 2018, the company has undertaken several initiatives and projects as it focuses on flow of products as well as efficiency.
Moreover, BBN has a clear goal of increasing its market share by leveraging the investing capabilities in the field of digitization and plans to deliver best customer experience.The company might also go for deployments towards existing stores which could help in boosting the sales and towards achieving growth with the help of new stores. Moving forward, the company also plans to improve its EBITDA margin.

Revenue Trend (Source: Company Reports)

Meanwhile, the share price has risen 62.50 percent in the past three months as at September 18, 2018 and traded close to 52-week higher level of $2.560. As we are positive on the company at the back of decent fundamentals and comparable store sales growth expected to be mid to high single digits for FY19, we maintain our “Speculative Buy” recommendation on the stock at the current market price of $2.360.


 
BBN Daily Chart (Source: Thomson Reuters)
 

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