The Bubs Australia Ltd [ASX:BUB] share price is sinking after the company posted its full-year results.
At time of writing, the infant formula company’s share price is down 7% to 39 cents.
Source: Tradingview.com
Founded in Sydney in 2006, Bubs sells Australian-certified organic baby food free from artificial colours, flavours, and preservatives.
With supermodel Jennifer Hawkins as its brand ambassador and a firm foothold in the incredibly lucrative wellness trend, some investors may be surprised to see the company struggling.
But with COVID-19 and border closures disrupting the world right now, this year has been anything but lucrative.
Today, we’ll go over Bubs’ results and reveal our outlook for the share price in the months ahead…
Too many holes in the bucket
There’s an obvious reason for why the share price is plunging today.
Bubs posted a statutory loss after tax of $74.7 million. That’s a significant 860% increase on the loss for the FY20 after tax of $7.8 million.
Some of this loss will be attributable to a $44.6 million non-cash impairment relating to the NuLac Foods cash generating unit and Deloraine Dairy cash generating unit.
The company has taken a reserved approach.
But still, other key metrics may have failed to impress.
Revenue is down 24% year-on-year to $46.8 million, while the company also posted an operating loss of $28.5 million.
A driver of this underperformance would have been Australian sales falling 44% to $20.4 million.
China sales were also down 17.5% to $10.47 million.
Other events wouldn’t have helped matters, such as a $12.6 million inventory write down and the sale of excess bulk powder at a loss. (This was done to maximise its cash conversion.)
If Bubs is a bucket full of water, then it’s clear that a lot of that water has escaped. But can the company patch up these holes moving forward?
The CEO appears to think so.
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Resilient words from management
Bubs has been left with a cash balance of $27.9 million — a figure the CEO believes will be enough to fund the company’s growth into 2022.
Bubs’ CEO Kristy Carr commented:
‘Bubs is well placed with strong foundations, brand share growth, and a robust balance sheet to go forward with a sustainable growth strategy as the Australian lead challenger brand in infant nutrition.
‘The company is now well placed to go forward and we expect to see growth momentum across all channels in FY22.’
But the CEO was also honest in pointing to the nature of the past year’s challenges:
‘There is no doubt that the disruptions caused by the COVID-19 pandemic significantly impacted our performance, with international border closures triggering a severe demand shock and sharp decline in revenues in the first quarter, followed by subdued Daigou sales throughout the remaining three quarters.
‘In addition, we experienced disruption and increased costs associated with outbound international supply chain logistics.’
Bubs share price outlook
If Bubs can deliver better results into the next financial year, some bargain hunters may think the depressed Bubs share price presents a buying opportunity at 39 cents.
But there are no assurances and the market remains unpredictable.
And, of course, the COVID-19 pandemic isn’t exactly going away either.
And there’s always the threat of a new variant forming and disrupting international trade further.
Now, while Bubs was impacted by the pandemic, there are other stocks out there that were not.
Are there opportunities on the ASX right now with a significantly more positive outlook than Bubs?
Well, our small-cap stock expert Murray Dawes believes he’s found seven of them — and if his predictions are correct, they could soar in value in 2021.
Get the details in his latest briefing here.
Regards,
Kiryll Prakapenka,
For Money Morning
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