Bubs Australia Limited

BUB Details

Q1FY22 Business Update: Bubs Australia Limited (ASX: BUB) is engaged in the provision of range of baby food products which comprises goat milk, infant formula products, adult goat milk powder, to name a few. As per a recent update, the company has declared its Q1FY22 results where it delivered a stellar performance.

• Gross revenue nearly doubled to $18.5 million in 1FY22, reflecting an increase of ~96% over Q1FY21.
• The Group was able to overcome the COVID-19 challenges and achieved revenue growth across key segments. Gross revenues from Bubs Infant Formula grew by ~124% over the pcp period. There has also been an increase in total gross revenue from Adult Goat Milk Powder by ~100% on the pcp.
• The company has witnessed a strong rebound in business from China with revenue up by ~156% on the prior year. Bubs Infant Formula Daigou sales and Bubs Infant Formula Cross-Border E-Commerce sales increased by ~648% and ~49%, respectively on the pcp period.
• It also reported that international gross revenue increased by ~489% during the period, when compared to the prior year.
• On the back of decent performance during the quarter, there has been positive cash flow performance and ended the period with a decent balance sheet with $28.3 million in cash reserves as of 30 September 2021.

Trend in Revenue (Source: Analysis by Kalkine Group)

Key Risks: The company is prone to macro-economic risks, which could have an impact on its distribution capabilities, thus impacting its profitability in the medium term.

Outlook: The company has been able to adapt itself to the impacts caused by COVID-19 business disruption and continues to look for opportunities to expand its brand presence to new markets. On 5 October 2021, the company has updated that its 2021 AGM will be held on 30 November 2021. 

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:  The stock of BUB is trading above its average 52-weeks' levels of $0.315-$0.800. The stock of BUB gave a positive return of ~43.24% in the past one week and a positive return of ~37.66% in the past one month. The stock has a support level of ~$0.412 and a resistance level of ~$0.633. The stock has been valued using an EV/Sales multiple-based illustrative relative valuation and arrived at a correction of high single-digit (in % terms). The company might trade at a slight premium to its peers’ average EV/Sales multiple, considering the robust performance in Q1FY22, and positive management commentary. For this purpose of valuation, peers such as A2 Milk Company Ltd (ASX: A2M), Australian Agricultural Company Ltd (ASX: AAC), Murray Cod Australia Ltd (ASX: MCA) and others have been considered. Considering the recent rally in the stock price, current trading levels, inherent distribution risk present in the sector and the other key risks associated with the business, we give a ‘Sell’ rating on the stock at the current market price of $0.565, as on October 14, 2021, 10:30 AM, (GMT+10), Sydney, Eastern Australia.

BUB Daily Technical Chart, Data Source: REFINITIV

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.

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