Bubs finishes Q422 with flying colours
Let’s jump back in to assess if Bubs is on track to deliver as per the guidance.
Shares of the infant baby formula maker took a 6.5% upward flight to 57 cents on 20th July, on the back of a robust fourth quarter.
Bubs (ASX:BUB) logged a record gross revenue of $48.1 million, rocketing 278% YOY and 174% QOQ, generating the fourth consecutive quarter of growth over the preceding year. Subsequently, annual gross revenues more than doubled to $104.2 million over the FY21 revenue of $46.8 million, in conformity with the guidance. The key catalyst for the quarter was a strong growth momentum pcp across all key products (including A2 Beta-Casein, Easy digest goat infant formula, and organic grass-fed) and the primary markets (Australia, China, and the USA). This was further lifted by a rapid expansion in the USA.
Source: ABC News
Bubs founder and CEO Kristy Carr noted, “This business diversification and increased scale of our most profitable products and channels has flowed through to our operating margins, delivering profitability for the full year (excluding non-cash equity compensation expenses).”
Bubs’ USA business took off after receiving FDA discretion for all six infant formula products, with over 540,000 tins supplied between May and July. It got a further price lift with FDA’s commitment to developing a new framework allowing offshore producers (with enforcement discretion approvals) to continue supplying infant formula beyond November.
Moreover, these products will be imported tariff-free under the United States-Australia Free Trade Agreement (AUSFTA). To further chase this long-term American dream, Bubs announced the completion of $40.1 million institutional capital raising, while awaiting the retail part of $22.9 million closing today, as a part of the $63 million in fresh equity steered toward US growth, working capital to scale up Bubs activities, enhancing canning capability, and building up inventories. Bubs now supplies to over 5,400 stores across 34 states in the US, catering to high-profile US retailers including Kroger, Walmart, and Target. We believe this boosts its brand awareness while opening doors to more retailers across the US, enhancing its wave of success.
Source: US News
A quick look at what drove the numbers. Channel-wise, reveals China’s contribution was the highest at 64% of quarterly sales, driven by exponential growth in the corporate Daigou sales, while Australia contributed 11% to quarterly sales with 31% pcp higher domestic retail sales for infant formula. The remaining was contributed by the international channel, with the USA’s quarterly revenue including two of the six flights of Operation Fly Formula. Product category-wise, Bubs portfolio, contributed 75% of quarterly sales, was boosted by strong infant formula sales (+455% pcp). Adult goat dairy portfolio (18% of quarterly sales) was up 194% pcp, and B2B (7% of quarterly sale) grew 23% pcp.
Bubs (ASX:BUB) holds a robust balance sheet, with strong $16.3 million cash reserves (excluding the capital raise) as at 30th June. The company spent ~$1.07 million, investing in its plant property and equipment, and business during the quarter. Management reiterated its guidance with an estimated EBITDA exceeding $2.4 million. Additionally, management anticipates maintaining its margin accretive growth, while also forecasting FY23 revenue and margins will be driven by growth in the US and China, with instant formula grabbing a larger chunk in revenue than the current 60%.
We hold an encouraging view on Bubs, driven by its strong fourth quarter, guidance meets, and growth strategies, with an entrance into the US market being the cherry on top. We think Bubs (ASX:BUB) is well on track to achieve its American dream, while bolstered by operations in other markets and products.
We retain our recommendation as a BUY for Members with no exposure, but suggest caution when executing, given the volatile price movement.
Disclosure: Interest associated with Fat Prophets holds shares in Bubs Australia (ASX:BUB).
