28-July-2020:  Wilsons:  Cautious Daigous

Wilson's Recommendation: MARKET WEIGHT and 12-mth target price: A$0.93.

06-May-2020:  Major Supply Agreement with Coles for Organic Formula

Also:  29-Apr-2020:  Presentation at 17th AgFood Virtual Conference

MAJOR NEW SUPPLY AGREEMENTS WITH COLES AND OTHER DOMESTIC RETAILERS  BUBS ORGANIC® GRASS FED FORMULA NOW THE ONLY AUSTRALIAN MADE AND OWNED  ORGANIC FORMULA SOLD NATIONALLY IN ALL MAJOR RETAILERS

• Bubs Organic® Grass Fed Infant Formula on-shelf in 482 Coles supermarkets from June 2020, complementing existing ranging of Bubs® Goat Milk Infant Formula and Bubs Organic® Toddler Snacks already sold in Coles supermarkets nationally.
• Baby Bunting, Australia’s largest nursery retailer, to range Bubs® Goat Milk Infant Formula, Bubs Organic® Grass Fed Infant Formula, baby food pouches and cereals in 52 stores from May 2020. 
• Increased store ranging in Woolworths to 800 stores for Bubs Organic® Grass Fed Infant Formula and 654 stores for Bubs® Goat Milk Infant Formula from May 2020. Collectively these new agreements are expected to materially add to the Company’s domestic revenues from Q4 FY20, with all initial orders being processed in May 2020.
• Expands Bubs Organic Infant Formula presence to over 1,850 points of sale across Australia, and a selection of Bubs infant nutrition portfolio to over 2,000 stores nationally.

--- click on link above for more details ---

Also - in case you missed it - 18-Feb-2020:  Major New Supply Agreement with Woolworths

16th April 2020:  Wilsons: Bubs Australia (BUB): Bubs are indeed immune to it

Wilsons call on BUB is "Market Weight" (i.e. Neutral) and their 12-month Price Target is $0.84.

Excerpts:

Bubs confirmed a solid 3Q20 result, with strong Infant Formula sales partly offset by a delay in new Adult Dairy product launches. The accelerated growth in Infant Formula sales (+33% QoQ) was largely in line with our expectation, driven by strong pull-forward sales from COVID-19 and contribution from new products and markets. We remain cautious on the potential for lower replenishment orders in 1H21, while noting early encouraging signs that suggest growth has settled at a higher base compared to that of prior to the outbreak. With the share price outperforming the XSI by 95% over the past month, valuation looks fair. We retain a MARKET WEIGHT rating.

Key points

3Q20 result: Bubs confirmed a record quarterly performance led by Infant Formula sales growth. Group gross sales was at $19.7M, representing +67% on pcp and +36% on the prior quarter. A positive quarterly operating cash flow of $2.3M was achieved, bringing quarter-end cash balance to $36.4M.

Wilsons view: The accelerated growth in Infant Formula sales (+33% QoQ) was in line with our prior expectation, driven by strong pull-forward sales from COVID-19 and contribution from new products and markets. Out of the new products launched recently, the outperformance of the new Organic Cow Infant Formula product in Vietnam was particularly encouraging. Early signs suggest the surge in demand following the outbreak of COVID-19 appeared to have settled at a higher base, implying a degree of structural growth. Despite a 4week delay in the launch of the refreshed Caprilac product as Bubs prioritised the production of infant formula products, the underlying growth in Adult Dairy sales growth in the quarter was below expectation. We reset our expectation for the rest of the forecast period. We continue to expect quarterly cash flow to be volatile and now expect a positive operating cash flow from 1H21.

Forecasts: Modest changes to EPS. Sales down 7-16%, largely driven by Adult Dairy. Moderate downgrades to opex.  

Valuation: We set 12-mth target for Bubs at $0.84 p/sh using a blended valuation based on sum of the parts ($0.96 p/sh based on a 12-mth fwd EV/Revenue multiple of 7.5x for IF and 5.5x for non-IF) and DCF ($0.72 p/sh). 

Risks and catalysts

Risks: Product quality, supply constraints, market access, intellectual property, key customer / supplier risk.

Catalyst: Takeover, registration approval. 

--- click on link above for more ---

27-Feb-2020:  Wilsons:  Bubs Australia (BUB) MARKET WEIGHT: Some value emerging

Bubs confirmed a mixed 1H20 result. Group sales +39% on pcp, but core IF sales remained flat sequentially. Both NPAT loss and cash burn were larger than our previous expectation. We now expect positive EBITDA from 2H21 (previously 2H20). We forecast 2H20 growth to accelerate with pull-forward demand from the virus outbreak and open orders for new products. We note there is more value emerging now after recent share price performance, but opt to sit on the sidelines until we get more confidence on the growth trajectory of IF and clarity on expected ROI from its multi-product strategy.  

Key points

1H20 result in line with pre-release.  Group sales of $27M increased 39% on pcp. IF sales remained flat sequentially on 2H19, with increased activity level in Corporate Daigou offset by a deterioration in small Daigous due to regulatory changes. NPAT loss of $5.5M was higher than expectation from lower GPM and higher marketing spend. Period-end net cash was $13M lower than expected, driven an inventory build ahead of new product launches and timing of receivables.  

COVID-19 drives demand.  Management confirmed no material impact from the virus at group level despite continued logistical challenges. Encouragingly, management called out the corporate Daigou channel has experienced increased activity level since the outbreak.  

Wilsons view.  After a full 12-mth impact of regulatory changes around CBEC in China, we expect revenue growth to accelerate in 2H20, driven by a) pull-forward demand from COVID-19, and b) new product launches (ie. Deloraine, grass-fed cow IF and junior nutrition). Beyond FY20, IF sales grwoth trajectory remains key. Our forecasts assume BUB to follow a similar trajectory to BAL’s in its early years. We expect a 50bps GP margin improvement p.a. for IF over the forecast years from the scale benefit associated with one-step conversion manufacturing. We forecast marketing spend at 11-17% of group sales over the forecast years.  

B/S a modest concern.  Lowest point for net cash is now expected at the end of FY21 at ~$22M. This presents a modest concern given the potential working capital requirements for new products and expansion into new markets.  

Forecasts.  Sales down 12-16%, largely driven by Adult dairy. NPAT down significantly, with lower GPM and higher D&A partly offset by lower opex in the outer years due to AASB16. We now expect BUB to generate positive EBITDA from 2H21 (vs previously 2H20).  

Valuation.  We set 12-mth target for Bubs at $0.76 p/sh using a blended valuation based on sum of the parts ($1.04 p/sh based on a 12-mth fwd EV/Revenue multiple of 7.5x for IF and 5.5x for non-IF) and DCF ($0.47 p/sh).

Risks and catalysts

Risks.  Product quality, supply constraints, market access, intellectual property, key customer / supplier risk.  Catalyst.  Takeover, registration approval.

--- click on link above for the rest of Wilsons' report ---

24-Sep-2019:  Wilsons:  Bubs Australia Limited (BUB) - Initiation of coverage

Wilsons have a "Hold" call on BUBS (BUB) with a 12-month PT of $1.30.  BUB closed on Friday (Nov 1) at $1.125.  

Excerpts:

We initiate coverage on BUB with a HOLD rating and a 12-mth target of $1.30p/share. BUB is well positioned to capitalise on the IF (infant formula) demand in China, supported by its niche goat IF product positioning and various key relationships (i.e. Chemist warehouse, Alibaba, Beingmate) in the ecosystem. While we see significant growth opportunity, the industry remains highly competitive and building brand awareness remains a key challenge for BUB. Therefore, we see the current share price as broadly fair for this outlook.  

Key points

Business overview. Bubs Australia is a premium brand for goat milk products and organic baby food. It outsources majority of the manufacturing. Following the acquisition of Deloraine in 2019, BUB now internalises canning and blending.

Solid foundation, need to deliver now. The IF market in China remains a key growth driver for BUB. It is well positioned with its niche goat IF product with functional benefits of “easier to digest”. BUB is also supported by various key partnerships in the ecosystem, which helps with market access. We note challenge for BUB remains building brand awareness amongst intensifying competition in the goat IF market, noting Chinese consumers are relatively sticky unless the product no longer able to deliver certain functional needs. 

Strong balance sheet. We forecast FY20 net cash at $16M and BUB to achieve a positive operating cash flow run-rate by the end of FY21. 

Forecasts broadly reflect management expectations. We forecast FY20 NPAT of $1.0M, broadly in line with management guidance of “a full-year profit”. 

Valuation broadly fair. We value BUB at $1.30p/share. This is based on an FY20 EV / Revenue of 8.0x. We expect ~60% sales growth over the next 3 years. A2M has been trading at 6-8x 1 year forward revenue over the last 2 years, re-rated from ~3x in FY14-15 when IF sales were at a similar run-rate to BUB’s current level as the market becomes more aware of the significant growth opportunity.

Risks and catalysts

Risks. Product quality, supply constraints, market access, intellectual property, key customer / supplier risk.  

Catalysts. Takeover, registration approval.