ASX Infant Formula Space; three related Stocks – A2M, BAL, BUB  

Australian equity market shined bright today (on 25 July 2019) as well amidst US earnings optimism and dovish stance reflected in Phillip Lowe’s statement today. ASX All Ordinaries touched new high levels today, settling at 6901.9, up by 0.6% or 39.5 points.

In this context, let us look at the performance of three Infant Formula stocks:

A2 Milk Company Limited

A2 Milk Company Ltd (ASX: A2M) stock touched its 52-week high A$16.830 during the day’s trading session on 25 July 2019, amidst bullish expectation of market experts on the upcoming FY19 earnings reporting. The company is expected to declare high earnings and sales figures with double digit earnings margin.

On the other hand, in the trading update and presentation at Macquarie Australia Conference, for nine months period of FY 19, the company has reported 42% growth in the group revenue to NZ$938. The company has increased the marketing activities for the second half of 2019, to increase their brands awareness in China and US and plans to further increase this initiative in FY 20. Due to the change in the regulations, volumes have fallen in the third quarter, which the company expects to balance in the fourth quarter of 2019. Therefore, the company expects the second half of revenue growth to be broadly in line with the topline performance of the first half of 2019. Further, A2M expects that in the second half 2019, the EBITDA will fall as compared to the first half 2019, on the back of doubling of marketing investment in 2H 19 versus 1H 19, weaker Australian dollar and investment to enhance the organisation’s capability.

Meanwhile, A2M’s stock has given a return of 5.49% in the last three months; and in the last year period the stock gave a return of 67.14%.  The company has a market capitalisation of A$12 billion, with ~735.05 million outstanding shares. A2M’s stock last traded at a price of A$16.665 (as on 25 July 2019), up by 2.051 percent from the previous close.

Bellamy’s Australia Limited

BAL awaiting approval from SAMR on organic formula series:

Bellamy’s Australia Ltd (ASX: BAL) As per the announcement on 1 May 2019, SAMR has approved the label and artwork change (including BAL’s owned trade-marks artwork and brand) of the existing bovine formula-series to be manufactured at ViPlus Dairy factory situated at Toora, Victoria.  However, application for BAL’s organic formula-series, to be manufactured at its Camperdown powder facility in Melbourne, Victoria region, is awaiting a nod from SAMR.

In 1H19 Results, released on 27 February 2019, for FY 19 period, BAL expects the group revenue to be between $275-$300 million. The normalised Group EBITDA is anticipated to be in the range of 18-22% of revenue, while the company had posted the EBITDA margin of 21.5% in FY 18 period. This is on the back of lesser expected revenue for 2019 period and rise in investment for marketing and the establishment of the Chinese team over the coming period.

The company has planned to double the investment for marketing and to double the existing size of China team in the second half of 2019. For the first half of 2019, the company has reported ~25% fall in the revenue and ~26% fall in the EBITDA of normalised core business. The normalised group revenue has declined ~26% and normalised NPAT fell by ~26.3% in the first half of 2019. BAL’s topline in the first half got impacted on the back of postponement during SAMR registration, fall in the trade inventory and subdued performance in the category.

Meanwhile, BAL’s stock has given a return of -10.07% in the last three months; however, in the last month period the stock gave a return of 28.37%.  The company has a market capitalisation of A$1.13 billion, with ~113.37 million outstanding shares. BAL’s stock last traded at a price of $A10.18 (as on 25 July 2019), up by 1.8 percent from the previous close.

Bubs Australia Ltd

Strategic Channel Partnership with Kidswant:

On 27 June 2019, Bubs Australia Ltd (ASX: BUB) had signed a strategic channel partnership with Kidswant, who holds the largest market share of mother and baby retail in China. Bubs/Beingmate JV known as Bubs Brand Management Shanghai Co. Limited, was formed in May 2019 and this is their first important project. BUB’s Organic ® food items would be now sold in two hundred and seventy-five Kidswant outlets.

This will be available in key shopping areas across 123 cities all over China. It is projected that the annual retail sales of Bubs® products through the channel Kidswant would be approximately of RMB 30 million by FY20. Kidswant has a reach in ~60% of the cities in China and has a turnover of more than RMB 10 billion (A$2 billion).

Source: Company’s Report

Meanwhile, the company informed the market, on 6 May 2019 that it had formed three important partnerships to establish its presence in China. The company had formed a Joint Venture with Beingmate Baby & Child Food Co., Ltd, signed the Strategic Partnership Agreement with Alibaba’s Tmall and has formed the equity linked alliance with CW Retail Pty Ltd, CW Management Pty Ltd, and CW Retail Services Pty Ltd (collectively called Chemist Warehouse).

Further, the company notified that it had signed a supply agreement with Fonterra Australia to produce Bubs Organic® new infant formula range, which is a certified organic grass-fed infant formula made in Australia.

On the other hand, for the third quarter report for the period ended 31 March 2019, the company had reported 103% in the total revenue to $11.83 million on pcp. China’s sales had grown by 884% in the third quarter and formed 20% of the total company’s revenue, while the domestic sales had also grown by 71% in the third quarter on pcp, and forms 79% of the company’s revenue. Also, 1% of the company’s revenue comes from export.

Meanwhile, BAL’s stock has given a return of 205.68% in the last six months and in the last month period the stock gave a return of 43.85%. The company has a market capitalisation of A$685.4 million, with ~509.59 million outstanding shares. BUB’s stock last traded at A$1.375, up by 2.23% from its prior closing price (as on 25 July 2019).


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