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On 18 February 2020, the S&P/ASX 200 settled below its previous close and settled at 7,113.7 points, down by 0.2%. Moreover, most of the sectors ended in the red zone during the day’s trade.
However, the S&P/ASX 200 Consumer Staples (Sector) settled in the green zone nearly flat with an increase of 0.2%, reaching 13,475.9 during the day’s trade on 18 February 2020.
In the consumer staples sector, a few of the companies had managed to settle in the green zone; however, some settled in the red zone as well.
Let us look at some ASX-listed stocks constituting the consumer staples sector.
Being a diversified food ingredients and agribusiness company, GrainCorp Limited (ASX:GNC) is an accomplished and diverse business partner operating at scale in a vital industry with grains and oilseeds operations in Australia as well as Canada, China, Germany, India, New Zealand, UK and Ukraine.
GrainCorp provides a diverse range of products and services across the food and beverage supply chain, to our valued customers in over 30 countries and its operations in Australia, New Zealand, Asia, North America, Europe and the UK represent over 50% of the international export trade in wheat, barley and canola.
During FY19, GrainCorp operated under three reporting segments, namely,
› GrainCorp Grains
› GrainCorp Malt
› GrainCorp Oils
On the basis of ABARES’ 2019/20 total winter crop production estimate of 11.44mmt, GrainCorp recently announced that it anticipates receiving a production payment from White Rock Insurance (SAC) Ltd, subsidiary of Aon plc, under its 10-year Crop Production Contract (announced on 7 June 2019).
GrainCorp is expected to receive a total gross payment of roughly $57.9 million in FY20 upon completion of GrainCorp’s submission to White Rock Insurance (SAC) Ltd, and GNC is expected to receive 90% of the total gross payment in March 2020.
The balance payment of the 10% is expected to be paid in the latter half of FY20 period and is dependent on a closing calculation established on the updated June this year’s ABARES’ total winter crop production estimate.
The Crop Production Contract came into being in FY20 period and has been created with a view to:
- Cope With the risk related to the volatility of eastern Australian winter grain production; and
- To aid effortless GrainCorp’s cash flow throughout harvests.
The GNC stock closed the day’s trade at a price of $8.480, down 0.819% intraday, with a market capitalisation of $1.96 billion, as on 18 February 2020.
Another consumer staples player, Bubs Australia Limited (ASX:BUB) is a leading producer of goat dairy products in Australia with exclusive milk supply from the largest milking goat herds in the country, and proudly owns the only infant formula in the world to be based on Australian goat milk named “Bubs®”.
The products manufactured by Bubs are widely sold in major supermarkets and pharmacies across Australia, as well as exported to countries like China, South East Asia, and the Middle East and feeds occasions and stages of development from newborn to preschool through its Bubs® goat milk and organic grass-fed infant formula ranges, and organic baby food, cereals and toddler snacks.
The Company recently entered a new supply agreement with Woolworths, which is Australia’s largest supermarket and a major retailer of infant formula.
Under the agreement:
- All three stages of Bubs® Goat Milk Infant Formula store representation will increase more than threefold to 400 stores.
Bubs' Goats Milk Formula (Source: Company's Website)
The new agreement with the retail giant is expected to add to the company’s domestic revenues significantly and reinforces the confidence Woolworths has in the Bubs® brand portfolio, by now offering the entire range of eight infant formula products across a targeted selection of its 700 strong national store network.
The super-premium segment of Bubs Australia comprising of goat milk and organic formula products is currently the fastest developing sector in the infant nutrition class and presently signifies over half of the total infant formula market in Australia.
The Company’s Bubs Organic® 365 days Grass Fed Infant Formula range that has been developed with a super-premium formulation including both prebiotics and probiotics was launched into over 300 stores in the Australian pharmacy channel in Q2 FY20. Moreover,
Under the agreement:
- All three stages for Bubs Organic® 365 days Grass Fed Infant Formula shall now be ranged across 700 Woolworths supermarkets; and
- The ranging for Bubs® new Junior Nutrition range to be sold in 100 premium Woolworths stores.
Although the elements of the new agreement remain private, it is expected that the shelf space display for Bubs products and retail points of distribution throughout the Australian grocery retail space shall be doubled up. Moreover, Bubs is assured about the anticipated uplift in its domestic volume as the Company keeps on building awareness and trust in the Bubs® brand with Australian parents.
Bubs offers the specially formulated products that are customised according to the nutritional needs of older children that strengthen their immunity and support healthy growth and development.
Moreover, the launch in Australian region shall coincide with the launch of a registered China tag equivalent Goat Junior Nutrition product to be ranged in Mother and Baby stores in China, which is worth an approximate $1 billion and has witnessed double-digit growth since 2017.
On the marketing front; the substantial expansion of the Bubs® portfolio throughout the Woolworths network shall be reinforced by a solid trade media campaign in Woolworths media as well as multi-media consumer brand campaign (including television, outdoor, digital media etc), due to be introduced in the month of March.
Bubs had manufactured for around $3.3 million infant formula base powder and completed goods inventory in Q2 FY20 in preparation for the following:
- Woolworths growth of Bubs® Goat formula items;
- The National roll out of Bubs Organic® formula items; and
- Completing the opening orders for the launch of Goat and Organic Junior Nutrition products both into various retail channels.
BUB believes that this preparedness for sales growth highlights its strength of being able to step up production swiftly, through their integrated supply chain where all 8 products were produced in-house at Deloraine.
The expansion of its connection with families ahead of the infant segment through to toddler, and presently with Junior Nutrition products is a key part of Bubs’ growth strategy.
Moreover, the increased presence in Woolworths stores under the agreement is a significant step-change for the Bubs’ business and signifies the expansion of its all-Australian manufactured product lines.
The BUB stock settled at a price of $ 0.795, zooming up by 13.571% intraday, with a market capitalisation of $392.21 million, as on 18 February 2020.
