a2 Milk Company Ltd (Australia)

A2M Details

a2 Platinum infant formula continues to witness robust growth: a2 Milk Company Ltd.’s (ASX: A2M) stock surged 4.3% on September 11, 2017 while the group made a presentation at the CLSA investors’ forum in Hong Kong highlighting its latest results and growth prospects. For FY17, A2M’s revenue surged 56% to $549.5 million over the prior corresponding period (pcp). EBITDA grew 159% to $141.2 million and margin rose to 26% from 15% in the previous year. In turn, Net profit after tax grew 198% to $90.6 million. Sales of a2 Platinum infant formula continued to grow strongly in Australia and China in online and offline channels, consistent with growing brand awareness among consumers in both countries. Notably, Infant formula contributed to 72% of the Company’s total revenue in FY17 against 61% in FY16. Moreover, the Company is clearly focused on sustainable growth of a2 Platinum infant formula® through significant investment in product supply and quality, building brand awareness and strength, and meeting the requirements of China's regulatory regime.
 

Financial Summary; (Source: Company reports)
 
In Australia, a2 Milk branded fresh milk achieved further growth in sales, while a2 Milk™ branded whole milk powder (introduced in the previous year), showed strong growth. The ANZ business continued to perform firmly as the total segment revenue across all product categories increased by 48% to NZ$439.6 million, and EBITDA by 83% to NZ$155.3 million. On the other hand, revenue from China increased to $88.9 million from $38.2 million, and EBITDA to $32.7 million from $9.2 million in FY16. A2M stock has rallied over 137% in the last six months while it is up 171% in the past one year (as at September 08, 2017), and is now trading at higher levels. We give an “Expensive” recommendation on the stock at the current price of $ 5.53

Bubs Australia Ltd

BUB Details

Revenue growth from promotional effectiveness and marketing activities: Bubs Australia Ltd.’s (ASX: BUB) stock plunged 3.7% on September 11, 2017 following the continuous dip of last five days. BUB has successfully completed the institutional share placement by raising approximately A$15.97 million (before costs) at $0.45 per share from professional and sophisticated investors in Australia and internationally. The proceeds of the Placement will be used to improve the Company’s financial flexibility and working capital to take advantage of future growth opportunities.The Placement will result in the issue of approximately 35.45 million new shares in Bubs Australia which will rank equally with existing Bubs Australia shares. Trading in the new Bubs Australia shares was said to commence on ASX on 11 September 2017.

For the fiscal year ended 30 June 2017, Bubs Australia Ltd net revenues increased 4.1% year on year (yoy) and net loss increased from A$1.3 million to A$5.0 million. Growth in revenue was driven by improved promotional effectiveness in building Bubs® rate of sale performance. Further, investment in consumer marketing activities and investment in developing new products aided the growth. The stock has already rallied over 179% in the last six months while it is up 554% in the past one year (as of September 08, 2017). We give an “Expensive” recommendation on the stock at the current price of $ 0.52

Bellamy's Australia Ltd

BAL Details

Earnings impacted by one off expenses: For FY17, Bellamy's Australia Ltd (ASX: BAL) reported about 3% yoy growth in revenue at $240 million, while posting net loss after tax of $0.8 million (down from $38 million profit previously). Earnings were impacted by one off costs associated with the business reset including a $27.5 million one off payment to Fonterra. The company’s sales gained momentum through 2H17, price realisation increased, and there has been a slow recovery in market pricing across retailers and platforms. Further, operating cost base has been reset with a 23% reduction in overheads versus 1H17 and the company is able to reinvest. Importantly, normalised operating cash-flow has been positive since March 2017 and currently in a net cash position as the supply-chain restructure is yielding reductions in input costs. Moreover, FY18 will be a year of continued investment in brand, marketing, product, supply-chain and internal capability.


FY17 Financial summary; (Source: Company reports)

Further, the Camperdown acquisition and reinstatement of the CNCA licence provides a path to CFDA registration in China and drive the ‘Chinese labelled’ product and the offline channel in China as it contributed to 15.4% of sales in FY17. The company expects profitable growth in FY18 for the core business (excluding Camperdown), with a target of 5-10% revenue growth and 15-20% EBITDA margin. Although the stock has moved 94.8% in the past six months, it is down 42.9% in the past one year, as at September 08, 2017. We maintain a “Hold” recommendation on the stock at the current price of $ 7.38

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