Baby Bunting Group Ltd

Strong trading update outlook for FY 19: Baby Bunting Group Ltd.’s (ASX: BBN) stock continues to rise with a surge of 4.2% on August 14, 2018 after the company gave strong outlook for FY19 along with strong trading update. However, for FY18, BBN delivered 29.1% fall in the statutory net profit after tax (NPAT) to $8.7 million, and 20.7% fall in the earnings before interest, tax, depreciation and amortisation (EBITDA) to $17.5 million on the prior corresponding period. The company has declared a fully-franked final dividend of 2.5 cents per share, down from 4.3 cents in FY17. Further, for FY 18, BBN declared 9% rise in the total sales to $303.1 million on the prior corresponding period (pcp) with comparable store sales flat (pcp) when the company’s 4 largest specialty baby goods competitors entered administration. The company’s gross profit rose up 5.9%, but its gross margin was impacted by price deflation at 33.3% (FY17: 34.3%). On the other hand, during the first 6 weeks of trading in FY19 (to 5 August), the company has posted the total sales growth of 16.5% and the comparable store sales growth of 9.8%. For FY 19, the company expects EBITDA to be in the range of $24.0 million to $27.0 million, which represents growth of around 30% to around 45%. This excludes employee equity incentive expenses. In addition, for FY 19, BBN expects the comparable store sales growth to be mid to high single digit for the year. The gross margin is expected to exceed 34% in FY19 and 6 new stores planned to be opened for the year (including Toowoomba that opened in July 2018). Meanwhile, BBN stock has risen 50.96% in three months as on August 13, 2018 and is trading at a very high P/E. Therefore, based on the foregoing, we give an “Expensive” recommendation on the stock (having market capitalisation of $298.57m) at the current price of $ 2.470 while we keep a watch for a prospective investment opportunity in support of better fundamentals.
 

FY18 Financial Performance (Source: Company Reports)

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