By Fat Tail Investment Research
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Infant formula producer Bubs Australia [ASX:BUB] reported strong revenue growth in FY22 on underlying EBITDA of $4.8 million.
60% of its $104.2 million FY22 revenue came from BUB’s infant formula segment, which rose 177% year-on-year.
Bubs executive chairman Dennis Lin said the firm expects infant formula revenue will continue to be the ‘major driver behind FY23 growth’, with China and the US its key growth engines.
Despite the results, BUB shares were down nearly 5% in late Tuesday trade.
Year-to-date, BUB shares are up 20%:
www.TradingView.com
Bubs has made the most of the coverage surrounding the US baby formula shortage, where BUB received emergency approval from the FDA to ship its product.
But it wasn’t the US that drove its revenue growth…
In its FY22 accounts, Bubs announced record China gross revenue, which rose 166% year-on-year. China accounted for 55% of group revenue in FY22.
The US revenue contributed 9%.
In a sign of normalising conditions, BUB said corporate daigou revenue rose fivefold in FY21.
The daigou channel was a very important distribution stream for infant formula producers like Bubs and a2 Milk Company [ASX:A2M] wishing to capture China market share.
Here are the key highlights for FY22:
While top-line growth was strong, Bubs was less eager to push its bottom-line performance in its results commentary.
Cash and cash equivalents fell to $16.3 million in FY22 from FY21’s $27.9 million.
Current assets rose by almost $20 million, largely due to a material increase in trade and other receivables, which now stand at $24.9 million, up from $8.7 million.
And while net losses shrunk in FY22, Bubs still ended the year in the red.
The infant formula stock has now accumulated more than $200 million in losses, with FY22 net loss coming in at $11.4 million.
Bub’s CEO Kristy Carr commented on the results:
‘Our domestic market share continued to grow ahead of the category to reach an all-time high. We experienced strong momentum across our China business with a re-engineered and resurgent Corporate Daigou omnichannel model. Additionally, in the last quarter we accelerated our access to the United States with our early acceptance into the Biden-Harris Administrations’ Operation Fly Formula initiative to assist American families during the infant formula shortage crisis.
‘These strong results have been achieved against a backdrop of the lingering impacts of the COVID-19 pandemic, supply chain disruption, inflation and global economic uncertainty. The FY22 result is undoubtedly a reflection of the strong foundations on which our business is built, our agility, and our ability to innovate and leverage opportunities in response to market dynamics.’
Bubs has dubbed itself the ‘fastest growing infant formula manufacturer in Australia’ with market share reaching a new high of 4.7%, according to its accounts.
But as we’ve seen with BNPL, rapid growth is not always a winning strategy.
So can its revenue continue to surge at scale, improving its margins?
Or will the costs of fast growth hinder profitability in the medium term?
Now, let’s move aside from the baby formula market and think about how we drive.
Electric vehicles are likely to be the main way we get around in the future.
And while lithium dominated 2021’s headlines, it also takes the likes of copper, nickel, cobalt, and graphite to make an EV battery hum.
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Regards,
Kiryll Prakapenka
Kiryll Prakapenka is a research analyst focusing on investigating the biggest trends in investments. Kiryll brings sound analytical skills to his work, courtesy of his Philosophy degree from the University of Melbourne. A student of legendary investors and their strategies, Kiryll likes to synthesise macroeconomic narratives with a keen understanding…
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