Consumer Staples

Bubs expects frothy growth via share agreement with its lead distributor

Thu 03 Mar 22, 11:02am (AEST)
Infant Formula Baby Formula A2M 1

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Key Points

  • Bubs will dish out up to 29.5m shares for its lead Daigou distributor
  • The equity deal is subject to sales milestones over the next two years

Bubs Australia (ASX: BUB) has entered into a new share subscription agreement with its largest customer and lead Chinese distributor, Willis Trading. 

The company's stock opened 2.3% higher as the market opened.

Equity-linked alliance in a nutshell 

  • Willis will receive up to 29.5m Bubs shares based on conditional milestones. The sales targets are 

    • $50m in FY22 for 9.5m shares 

    • $80-120m in FY23 for up to 20m shares 

  • The maximum amount represents 4.82% of Bubs’ current issued capital

“We have worked closely with Willis Trading over several years as our lead distribution partner for the Corporate Daigou Channel. Together we have successfully returned Bubs Daigou sales to high growth, delivering record revenues in the first half of FY22, increasing 276% on the prior year, now exceeding pre-COVID levels,” said Bubs CEO Kristy Carr.

“The next phase of our partnership is an exceptional and innovative opportunity to deepen our engagement with the Daigou Channel and get closer to our end consumers in China.”

A return to growth status 

Bubs shares experienced a sharp 39% rerate last October from 36 cents to 50 cents after announcing a rebound in infant formula sales. 

This momentum carried through to the company’s first-half FY22 results, where the business delivered: 

  • Revenue of $33.6m, up 84% 

  • Group gross margin of 38%

    • Goat infant formula margin of 38% versus 34% a year ago 

    • Branded product margin of 30% versus 21% a year ago

  • Net loss of -$601,925 versus -$12.9m a year ago

Looking ahead, management said they expect the second-half to deliver a “modest half-on-half growth in revenue and underlying EBITDA”. 

Interestingly, Bubs stock is trading at 45 cents, slightly lower than where it was after the October announcement.

Bubs Australia Ltd (ASX BUB) Share Price - Market Index
Bubs 12-month share price chart

 

What brokers think 

Citi has been the only major broker to have covered Bubs. 

As of 24 February, the broker held a Buy rating with a 73 cent price target (60% upside). 

Citi was overall pleased with the company’s first-half result, notably the breakeven earnings and jump in Daigou sales. 

Written By

Kerry Sun

Finance Writer & Social Media

Kerry holds a Bachelor of Commerce from Monash University. He is an avid swing trader, focused on technical set ups and breakouts. Outside of writing and trading, Kerry is a big UFC fan, loves poker and training Muay Thai. Connect via LinkedIn or email.

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