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#4C
stale
Last edited 8 months ago

Amazing,…receipts didn’t even cover the direct manufacturing cost. Forget OpCF positive.

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Disc: Not held

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#Report
stale
Added 10 months ago

2/6/23. China Highlights • Q3 China Net Revenue of $2.6M was down 57% on pcp • FY23 H2 April YTD China Net Revenue was $12.9M, down 52% on pcp • FY23 Forecast Full Year China Net Revenue is expected to be $13.5M - $13.8M versus $53.6M in FY22.

BUB tried the USA market when there was shortage of the product...

The Numbers tell the story.

Invest if you want DYOR..



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Return (inc div)   1yr: -68.72%   3yr: -44.14% pa   5yr: -24.88% pa

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#Bull Case
stale
Added 2 years ago

The article in the AFR and announcement by A2 milk about the US regulator decision to put hold on all requests for approval of milk formula products into the US can only be good for BUBs.

The fact that BUBs has approval to sell their products and 160-odd applications have been deferred can only be good news as competition is reduced.

I use to hold BUBs and sold some time ago for a small profit. The company owns its entire supply chain which is a huge advantage over competitors such as A2 milk. They are able to ramp up production when necessary. We saw this during the operation fly formula and during the COVID lockdowns when people were purchasing large quantities of tins. BUBs not only produce Goat milk formula, but they also do Grass-fed cows milk and are promoting their products as premium quality. Bubs is starting to make some profits as per recent quarterlies. Seems like the stars are aligning for the company and an incredible opportunity has come their way. Worth a close watch.

DISC - do not hold, but watching closely.

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#Capital Raise
stale
Added 2 years ago

Bubs have announce a Capital Raise of $63m at $0.52 per share (a hefty discount to the closing price at the time of trading halt of $0.64 or close to 19% lower). Prior to the pandemic shares were hovering around $1.30 so there will be many shareholders unimpressed by further dilution. The purpose of the raise given by Bubs is to capitalise on the formula shortage in North America, build inventories and expanding their canning capability.


Personally I'm glad to have taken advantage of the POTUS declaring an agreement for supply of formula as I sold shares irl for $0.84 the morning after the announcement for a small profit. I had been weighing up my investment anyhow due to the companies insistence on continuing to heavily push for sales into China given the market on foreign brands has shifted dramatically in the country.


I will be keeping Bubs on my watchlist however, if they can land long term contracts in the USA with vendors post the formula shortage abating then this will be fantastic for future revenues. They are also now profitable for EBITDA and even with the heavy dilution with an extra 120m shares on the books, if they are able to take advantage of this free kick they've received in the USA I might be able to buy back in for a much cheaper price with a rosier outlook.



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#News
stale
Added 2 years ago

So some very big news direct from the POTUS Joe Biden himself. 27.5 million bottles of formula are being procured by the US government from Bubs Australia


https://twitter.com/POTUS/status/1530253441708314626?s=20&t=8LQPC-r19pCLJP9Bcp13sw


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Valuation of $0.170
stale
Added 2 years ago

Bye not Buy

I have owned BUB since early 2019 with a basic thesis that it was a niche player who had a strong hold on the goat’s milk/formula market, enabling make good margins at scale offering a differentiated product in the milk powder and baby supplement market, attractive particularly in Asia where goats milk addresses dairy intolerance.

Last week’s expansion in range announcement tells me my thesis is broken and goats milk isn’t going to get them to a profitable business. So, I have done a valuation to see if the fundamentals support its value beyond this thesis, and it is way short on this front also at $0.17. I would need to double sales assumptions to justify the current price.

It’s had time to deliver (Covid taken into account), so it’s time to move on and take my 40% loss. My review of the business in face of my thesis breakdown and a valuation are below and attached.


Review of business:

·       Sales Growth: solid sales growth momentum pre-covid now seems to have returned according to the company with Q1 FY22 sales up 45% QoQ and double PcP, but not yet at the previous high of $19.7m in Q3 FY20, but this was pantry stocking and followed by sharp falls. Re-routed Daigou trade and Cross Boarder E-Commerce (CBEC) are said to be the basis of the return to growth, but it will be at least a few more quarters before we know if this is true or the sales growth is just pipe fill and restocking. 

·       Gross Margins: Awful and Unreliable is my conclusion on this and a key weakness in the business model. FY21 has -16.9% Gross Margins due to a $12.6m inventory write off, even ignoring this write off Gross Margin would have been an awful 13.6%, down on FY20 margin of 22.0% (ignoring 1.6m in write offs) and FY19 margin of 21.4% (ignoring 745k in write offs). High inventory levels (see below), range changes and fickle demand is only going to lead to further write offs – it’s part of their business, which would be fine if they had a decent gross margin to absorb it. I had hoped margins would improve, but investments in manufacturing and poor inventory management give me little hope they will improve enough to make the business viable.

·       EBITDA Margins: For the last 3 years operating costs have been around $25m, to break even at a 20% Gross profit margin sales need to be $125m. Operating leverage is working against them and they are a very long way from crossing the line into operating profit. Having already burnt $190m of shareholder funds I would expect them to be a lot closer (even considering Covid) than they are to showing an ability to be profitable. A few operating cash positive quarters is no indication when they are due to inventory run downs in the quarters.

·       Inventory: I have worked in FMCG businesses where inventory turns (COGS divided by Inventory) under 3 despite shipping goods from the US or China and over 4k SKUs were unacceptable. BUB’s has inventory turns of 1.7 for FY21 and 1.4 for FY20 but did have 2.4 for FY19 and FY18. The higher the turns, the less cash tied up in inventory and the more free cash flows you can generate, it also reduces stock obsolescence and spoilage, lowering inventory write offs/downs. Either they suck at inventory management or the business model needs a lot of inventory which lowers it’s ROI and ROA.

·       Working Capital (WC): Extending on Inventory it is usually better to look at WC (Inventory + Trade Receivables – Trade Payables) to assess the assets/cash needed to run the business. On this front the WC turn (Sales divided by WC) was around 2 for the last 3 years. Which means that the business need 50c of WC for every $1 of sales, so as sales grow so does the need to hold higher levels of WC and this reduces free cash flows. Now consider they only get around a 20% gross margin then your 50c of WC generates 20c of margin dollars – then you have to pay the operating costs of the business. WC efficiency is horrible!

·       Write Offs: $15m in inventory written off in the last 3 years (11% of sales on average), $93m in goodwill impairment FY18-FY21 ($157m in sales over the same period), $20.4m in corporate transaction costs expensed in FY19 (Chemist Warehouse deal). I get they are building a business for growth but the track record on astute capital allocation is very worrying. Throw enough money at something and it will probably work – but I prefer to see good use of the money to justify more being given over.

·       Conclusion: Rapid growth and scale may improve margins and WC efficiencies, Covid has messed them up, but I suspect they are going to need a S#*T tone more capital to get there and that capital would see better returns invested elsewhere.


Valuation – $0.17 (includes 4c of cash on hand)

Lets assume the business grows well from here, which is quite possible and margins improve modestly as does WC efficiency and operating costs are controlled and more shareholder capital doesn’t go down in flames in “bad luck” investments. I will give you $0.17 a share and expect a 10% return. I would need to double my sales assumption to see the current price of $0.55 is fair value.


The valuation detail is attached, here are the key assumptions:

·       Sales: Up 75% in FY22 then trailing down exponentially as scale drags on growth rate and the re-opening boost tappers, but reaching $200m by 2030. There is upside risk if Q1 FY22 is anything to go by but also downside risk that this may be misleading and issues with China create significant headwinds for growth.

·       Margins: I assume these are 20% in FY22 and grow by 1% to 28% in FY30, performance to date and the move into more commoditised products does NOT suggest significant margin improvement is possible, but supply chain and manufacturing efficiencies could present a margin improvement opportunity as scale improves economies.

·       Opex: Flat at 25m for the last 3 years I am allowing a 5% increase each year and ignoring possible write downs because these done have a cash or valuation impact, but have considered this below for share count dilution.

·       Capex & WC: Assuming historically low capex spends continue and WC efficiency improves from 2.0 to 2.4 by 2030. If it stayed at 2.0 the valuation would drop 8%.

·       Tax: One advantage of loosing so much money is that it’s going to be a decade before they need to pay tax… silver lining.

·       Discount & Terminal Value: Sticking with a long-term market discount rate of 10%. Terminal value based on EV/EBITDA multiple of 12 which is the same as a PE of 16 and a perpetual growth rate of 2%. Again, all ballpark market long term averages.

·       Share count: I expect more dilution, so have assumed 10% increases for the next 3 years before dropping to 1% growth assuming significant acquisitions are completed by then. Note that the sales growth and margin improvements assumed rely on this additional investment.



I am taking advantage of the current positive price momentum to exit based on the valuation and broken theses of a niche player what can generate good margins and sales growth. I am sure to miss out on higher prices and hope for those who hold on that the business does much better than I expect.

Disc: No longer a holder (RL or SM)

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Valuation of $0.430
stale
Added 4 years ago
BUBS Sales have slowed significantly, and has low gross margins due to a lack of scale. If they don't regain sales momentum, they will not achieve the scale they need to become profitable. I have reduced my valuation significantly, based on slowing sales, and lower forecast margins. Their product mix is very wide ranging, with a bit in goats milk, a bit in grass fed cows milk. Too many products, not enough focus on the high margin products, and confusing product / brand marketing. The sales growth is highly dependant on the Daigou channel, which is drying up for Bubs. I note A2 milk does not appear to be suffering the same issues.
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#Q4 2020 report
stale
Added 4 years ago

Key takeaways:

1) Quarter revenue of $13 Million, down from $19.7 Million the previous quarter.

2) China direct sales up 26% on pcp - significant slowdown on Q3.  Slowdown blamed on cahnging channel mix dynamics. 

3) Other market sales up 71% on pcp (only 8% of revenue)

4) Infant formula sales up 20% on pcp.  

5) daigou channel constrained due to lack of Chinese tourists and students.  

THIS RESULT IS REALLY DISAPPOINTING, WITH GROWTH SLOWING SIGNIFICANTLY, LITTLE OPERAATIONAL LEVERAGE INDICATED, AND A RISK OF CHANNEL STUFFING. 

IT WILL TAKE A LONG TIME FOR CHINESE TOURISTS AND STUNDETS TO RETURN TO PREVIOUS LEVELS.  I DID NOT REALISE THE BUSINESS WAS SO DEPENDANT ON THIS CHANNEL ( I HAVE NOT SEEN A2M BEING IMPACTED THIS WAY - SUPERMARKET SHELVES REMAIN EMPTY OF A2M PRODUCT). 

THE THESIS IS BROKEN FOR ME - I AM OUT. 

 

 

 

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#H1 2020 Results
stale
Last edited 4 years ago

Key takeaways:

1) Revenue up 37% on pcp.  Driven by strong growth in infant formula, with growth of 77% on pcp. 

2) Gross margins increased to 24%, driven by infant formual gross margins of 41%.  

3) 22% increase in costs on pcp, with marketing costs up 267% on pcp. 

4) Corproate Daigou channel growth strong, at 52% on pcp.  Reporting month on month growth, following increased focus on this channel - Presumably this means growth is accelerating. Strong Daigou sales demand is predicted for H2.  feedback is demand is driven by supply uncertainty caused by COVID-19. 

5) Direct to China sales increased 19% on pcp, however, with infant formula direct China sales doubling on pcp, this is likely to accelerate as infant formual becomes a bigger slice of the direct to China pie.  

6) Significant build up in inventory in anticipation of strong growth thsi calendar year.   

SUMMING UP, GROSS MARGINS ARE INCREASING BY ABOUT 4-6% PA AS THE BUSINESS SCALES.  MARKETING IS CURRENTLY 18% OF SALES, WHICH SHOULD DRIVE CONTINUED REVENUE GROWTH.  

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Valuation of $1.500
stale
Added 4 years ago
Product about to launch in Coles Supermarkets in May 2019. Growth opportunities into China and Asian nations with specific partnerships being targeted. https://www.asx.com.au/asxpdf/20190403/pdf/4440qgvkrv0hh2.pdf https://www.asx.com.au/asxpdf/20180928/pdf/43yrm9xsyyw0tr.pdf https://www.bubsaustralia.com/
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Valuation of $2.10
stale
Added 5 years ago
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Valuation of $1.000
stale
Added 5 years ago
Valuation is somewhat subjective however BUBS is growing strongly in a niche market and with healthier options growing in demand I expect BUBS will benefit. Remains High Risk High Reward
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