Stocks’ Details
 

Bubs Australia Limited

Significant Increase in Revenue and Gross Margin: Bubs Australia Limited (ASX: BUB) offers a range of organic baby food and fresh dairy products. As on 9 March 2020, the market capitalisation of the company stood at$369.79 million. The company has recently released its interim results for the period ending 31 December 2019, wherein it reported strong performance across all the retail channels and regions. During 1H20, the group reported record gross revenue of $28.8 million, up by 37% on the pcp and a significant improvement in gross margin to 24%. The growth in gross margin was mainly due to strategic partnership with Tatura, integrated supply chain and effective cost management.  


Increase in Gross Revenue (Source: Company Reports)

New Supply Agreement with Woolsworths: The company has recently entered into a new supply agreement with Woolworths, which offers the entire range of eight infant formula products across a targeted selection of its 700 strong national store networks. The updated agreement is expected to add to the company’s revenue. 

What to Expect: The company expects ongoing growth in the segment and regional sales in the second half and is likely to benefit from advanced and secure manufacturing capability. BUB has a continued focus on operational performance and is aiming to improve its profit margins. 

Stock Recommendation: As per ASX, the stock of BUB is trading close to its 52-weeks’ low level of $0.570, proffering a decent opportunity for accumulation. During 1H20, net margin and ROE of the company witnessed a substantial improvement over the previous half. In the same time span, Assets/Equity ratio of the company stood at 1.39x, lower than the industry median of 1.99x and Debt/Equity ratio of the company was 0.04x, lower than the industry median of 0.19x. On the TTM basis, the stock is trading at a Price to book multiple of 2.8x, lower than the industry (Consumer Non-Cyclicals) average of 4.4x. Considering the current trading levels, improvement in margins and decent outlook, we recommend a “Speculative Buy” rating on the stock at the current market price of $0.575, down by 12.879% on 9 March 2020.

Keytone Dairy Corporation Limited

Walmart Order and Impact of Coronavirus: Keytone Dairy Corporation Limited (ASX: KTD) is a manufacturer, packer and exporter of dairy and nutrition products. As on 9 March 2020, the market capitalisation of the company stood at $66.69 million. The company has recently announced that Mr. Peter Hobman has resigned from the Board of Directors. KTD also stated that the outbreak of Coronavirus is not likely to have a material impact on its financial performance and hence expects a strong current quarter. KTD has received a new order from Walmart (China) Investment Co. Ltd for approximately $350,000 in product for Sam’s Club West, Inc. (China).

During 1H20, the company made substantial progress and realised record revenue of $7.4 million, up by 441% on the pcp. The company also reported a strong balance sheet with a cash balance of $10.12 million. 


1H20 Financial Highlights (Source: Company Reports)

Stock Recommendation: As per ASX, the stock of KTD gave a negative return of 18.42% in the past one month and is trading very close to its 52-weeks’ low level of $0.275. During 1H20, gross margin of the company stood at 26.5%, lower than the industry median of 42%. In the same time span, current ratio of the company was 3.2x, higher than the industry median of 1.49x. On the TTM basis, the stock is trading at an EV/Sales multiple of 13.4x, higher than the industry median (Consumer Non-Cyclicals) of 1.8x. Considering the returns, lower gross margin and higher EV/Sales multiple, we suggest investors to keep an eye on the stock and give a watch stance at the current market price of $0.280, down by 9.677% on 9 March 2020.

Eagle Health Holdings Limited

Eagle Expands Manufacturing Facilities for Medical Masks: Eagle Health Holdings Limited (ASX: EHH) is engaged in the developing, manufacturing, and distributing health food products and nutritional and dietary supplements in China. As on 9 March 2020, the market capitalisation of the company stood at $75.49 million. The company has recently announced that it has expanded its production facilities in Xiamen China to produce disposable medical masks. The company has also secured its first purchase order from Hainan Yiling Medical Industry Development Co., Ltd for 3.2 million units.

During 1H19, revenue of the company went up by 6.7% to $44.52 million and gross profit was broadly in line with 1H18 and stood at $21.1 million. The company has also declared dividend of 0.12 cents per share which is to be paid on 30 April 2020.


1H19 Financial Highlights (Source: Company Reports)

Eagle & AMKA enter into Collaboration Agreement: The company has announced that it has entered into an agreement with AMKA Products, wherein both the parties will assist each other and will help the company’s products into the African market and AMKA products into the Australian and China markets.

Stock Recommendation: As per ASX, the stock of EHH gave a return of 79.17% in the past one month. During FY19, gross margin of the company stood at 47.9%, down from 51.1% in FY18. In the same time span, ROE of the company stood at 10.6% and Debt/Equity ratio was 0.11x. Considering the returns, decline in gross margin and financial performance, we have a watch stance on the stock at the current market price of $0.195, down by 9.302% on 9 March 2020.
 
 
Comparative Price Chart (Source: Thomson Reuters)

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