Bubs Australia Ltd (ASX: BUB) has released its update for the first quarter of FY21. Are its shares a turnaround opportunity?
Bubs is an infant formula business that specialises in selling infant formula.
Difficult start to FY21
Bubs revealed a difficult start to FY21. It said that it generated $9.4 million of gross revenue, which was down 34% compared to the prior corresponding period.
Bubs explained that COVID-19 disruption to the domestic daigou channel impacted sales, particularly to adult milk powders products.
In percentage terms, the Bubs-branded portfolio saw 6% revenue growth with infant formula sales (across all channels) increasing by 9%. But adult goal dairy revenue plunged 59%, representing 37% of first quarter revenue.
There were some positives looking into the numbers a little. Bubs infant formula sales to Australian major grocery and pharmacy retailers jumped 29%.
According to IRI Scan data, Bubs is the fastest growing infant formula manufacturer with strong growth across Coles Group Ltd (ASX: COL), Woolworths Group Ltd (ASX: WOW), Chemist Warehouse and My Chemist.
Bubs boasted it now has a 25% market share in the goat formula segment in the top three domestic retailers.
Exports
Bubs said that its goat formula direct export sales to China grew by 76%. The infant formula sales outside of China grew by 6% compared to the prior corresponding period.
Total China direct export gross sales amounted to $2.6 million, being 27% of group quarterly revenue. Bubs is ranked as the number one goat formula brand on JD.com according to total platform sales. It’s also the fastest growing goat formula brand on Alibaba, ranking in third position on Tmall Global with 12% market share (doubling year on year).
Bubs has appointed Astra Baby Sdn Bhd as the distribution partner in Malaysia with the first container of Bubs Halal certified products to be shipped in November.
Other developments
Vita Bubs was distributed to 400 Chemist Warehouse stores in October with opening orders exceeding expectations.
The technical, financial and commercial due diligence is near completion with Beingmate for infant formula to be made locally in China. The parties are progressing with definitive legal documentation.
Are Bubs shares a turnaround opportunity?
The Bubs CEO said that it has started to see positive sales momentum return in late September through to October and it’s expecting improved performance from the daigou channel in the second quarter.
This was a disappointing update compared to where the business was after its March 2020 quarter. The COVID-19 impacts have been sizeable on Bubs (and other infant formula businesses like A2 Milk Company Ltd (ASX: A2M).
Using the current Bubs share price of $0.70, I personally think it offers good turnaround potential with the Melbourne lockdowns coming to an end and other Bubs efforts coming to fruition. The December 2020 quarter may not be great either, but I think the 2021 calendar year could show a resurgence for Bubs.
I’d be willing to take a higher-risk, higher-potential-reward investment into Bubs. But there are other ASX growth shares which have a clearer path to continued growth such as Pushpay Holdings Ltd (ASX: PPH).