Bubs Australia Limited

BUB Details

Bubs Australia Limited (ASX: BUB) is engaged in the provision of a range of premium Australian infant nutrition and goat dairy products.

Launch Into the USA Formula Market:

The company has announced that it has been approved for the inaugural USA launch of its branded formula products on Walmart.com, and it is expected to be available online from September 2021.

• The market size of the combined Infant Formula and Toddler Formula retail category in the US market is worth US$5.1 billion annually and ~93% of the total sales being powder formulations.
• The company’s products are presently available on Amazon AU and plans to extend it to Amazon.com (USA)
• It has appointed a broker in the US market for the expansion of its retail distribution and the supply chain infrastructure is in place, including warehousing and distribution models.

Q3FY21 Performance Update:

The company has witnessed recovery and reported decent performance in key segments during the quarter.

• The gross revenue stood at $11.8 million, with infant nutrition contributing ~62% of the revenue during the period.
• It has reported an improvement in the China export sales, which grew by over 28% on the previous quarter. There has been improvement in the Daigou channel also, reflecting an increase of over 19% on the previous quarter.
• It ended the period with a decent balance sheet with $36.3 million in cash reserves.

Trend in Cash Balance (Source: Analysis by Kalkine Group)

Key Risks: The company's sales have been impacted due to the channel disruption, owing to the impact of the COVID-19 pandemic. It also has a considerable presence of operations in the Chinese market, which can be impacted due to the presence of geopolitical tensions.

Outlook: The strategic focus of BUB is to drive sales growth in China channel routes and accelerating China online sales. The company is looking to establish a wholly owned operating subsidiary in China in order to simplify the structure and the relative ease of operating in the Chinese market.

Valuation Methodology: EV/Sales Multiple Based Relative Valuation (Illustrative)

Source: Analysis by Kalkine Group

*% Premium/(Discount) is based on our assessment of the company’s NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

Stock Recommendation: As per a recent update, the company has appointed Ms Katrina Rathie as its Non-Executive Independent Director, effective from 21 July 2021. As per ASX, the stock of BUB is trading below its average 52-weeks’ levels of $0.315-$0.980. The stock of BUB gave a positive return of ~3.40% in the past three months and a negative return of ~38.92% in the past six months. We have valued the stock using an EV/Sales multiple-based illustrative relative valuation and have arrived at a target price of low double-digit upside (in % terms). We believe that the company can trade at some discount to its peer average EV/Sales (NTM trading multiple), considering the impact of COVID-19 on the distribution channels and presence of geopolitical tensions. For this purpose, we have taken peers such as A2 Milk Company Ltd (ASX: A2M), Australian Agricultural Company Ltd (ASX: AAC), Murray Cod Australia Ltd (ASX: MCA), to name a few. Considering the current trading levels & indicative upside on valuation, improvement in performance, decent cash balance, improved liquidity and the key risks associated with the business, we recommend a ‘Speculative Buy’ rating on the stock at the current market price of $0.445, as on 29 July 2021, 10:22 AM (GMT+10), Sydney, Eastern Australia.

BUB Daily Technical Chart, Data Source: REFINITIV

Note: The purple color line in the charts indicates RSI (14-period) 

Mosaic Brands Limited

MOZ Details

Business Update: Mosaic Brands Limited (ASX: MOZ) is engaged in the retailing of women’s apparel and accessories. As per a recent announcement, the company has updated that its Non-Executive Director, Sue Morphet has stepped down from the Mosaic Board after 7 years of service.

Trading Update:

• As of 26 May 2021, the company has reported improvement in material sales post-Easter, aided by the acceleration of vaccine roll-out.
• It has finalised the documentation to renew its $25 million working capital facility with ANZ.
• The company has also secured an approved credit term sheet for an additional $10 million in credit facility from Alceon.
• The Group has renegotiated the terms of the Option to acquire EziBuy and has extended the exercise period from 30 June 2021 to 30 September 2021. The payment terms have also been extended to 31 December 2021.

Trend in Cash Balance (Source: Analysis by Kalkine Group)

Key Risks: The onset of the COVID-19 pandemic has impacted the company’s business and the economic uncertainty continue to persist with the imposition of widespread lockdowns.

Outlook: The company anticipates underlying FY21 EBITDA to be ~$48 million, given favourable trading circumstances. It expects consumer confidence to rebuild, going forward and expects FY22 underlying EBITDA of ~$50 million.

Valuation Methodology: EV/EBITDA Multiple Based Relative Valuation (Illustrative)

Source: Analysis by Kalkine Group

*% Premium/(Discount) is based on our assessment of the company’s NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

Stock Recommendation:  MOZ has reported an increase in YTD online sales by over 17%. It has also reported growth in digital store SKU from 350,000 in December end to 700,000 in May end. As per ASX, the stock of MOZ is trading below its average 52-weeks’ levels of $0.455-$1.190. The stock of MOZ gave a negative return of ~39.62% in the past three months and a negative return of ~19.99% in the past one month. We have valued the stock using an EV/EBITDA multiple-based illustrative relative valuation and have arrived at a target price of low double-digit upside (in % terms). We believe that the company can trade at a slight discount to its peer median EV/EBITDA (NTM trading multiple), considering the impact of the COVID-19 pandemic and decrease in current ratio. For this purpose, we have taken peers such Michael Hill International Ltd (ASX: MHJ), Shaver Shop Group Ltd (ASX: SSG), Shaver Shop Group Ltd (ASX: SSG), to name a few. Considering the expected upside in valuation and current trading levels, improvement in material sales, renew of working capital facility, expected economic recovery and the key risks associated with the business, we recommend a ‘Speculative Buys’ rating on the stock at the current market price of $0.475 as on 29 July 2021, 11:27 AM (GMT+10), Sydney, Eastern Australia.

MOZ Daily Technical Chart, Data Source: REFINITIV

Note: The purple color line in the charts indicates RSI (14-period)

Note 1: The reference data in this report has been partly sourced from REFINITIV

Note 2: Investment decisions should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the analysis has been achieved and subject to the factors discussed above alongside support levels provided.

Technical Indicators Defined: -

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices.

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