Is The Bubs Share Price A Buy On Its FY19 Result?

Bubs Australia Ltd (ASX: BUB) released its FY19 result near market close on Friday. With shares down nearly 4% today, is this a buying opportunity?

Bubs was founded in 2006 by Kristy Carr and was listed on the ASX in January 2017. Its infant formula is based on goat milk and the company also sells organic baby food. Bubs recently acquired NuLac Foods, Australia’s largest producer of goat milk products, and it also guarantees exclusive supply of local goat milk from Australia’s largest herd of milking goats.

Bubs’ Impressive FY19 Result

The company reported that revenue shot up by 154% to $46.8 million, with domestic revenue growth of 153% and China revenue growth of 209%.

Not only did revenue rise strongly but profit margins also grew significantly. Bubs reported that its group gross margin increased to 21% from 14% at FY18, while Bubs products gross margin increased to 35% from 20% in FY18.

Normalised EBITDA increased by 1% to a loss of $5.9 million reflecting a significant increase in marketing and staff expenses in anticipation of the rapid growth the company is achieving. Statutory EBITDA improved 48% to a loss of $34 million. The loss largely reflects a $20.4 million non-cash expense for the equity linked transaction with Chemist Warehouse that was announced earlier this year in April.

Perhaps one of the most important elements of FY19 for Bubs was that it achieved positive operating cashflow in the fourth quarter.

Bubs revealed that its statutory loss improved to $35.5 million from a net loss of $64.6 million in the prior year.

Management Commentary

Bubs Founder and CEO Kristy Carr said: “Throughout the year we have continued to focus on pursuing our four pillar growth strategy together with our investments in supply chain and capabilities, investment in building Bubs brand, and the formation of new key channel partnerships.”

Management said that while the business continues to scale at a rapid pace, it is confident of achieving overall profitability in FY20.

Is The Bubs Share Price A Buy?

Bubs has performed excellently during FY19 in terms of both its share price, operations and business dealings. It could be following in the early footsteps of its larger infant formula peers such as A2 Milk Company Ltd (ASX: A2M) and Bellamy’s Australia Ltd (ASX: BAL) .

However, we must always pay attention to the price and value that we are buying. With Bubs being so early in its journey, it’s hard to say what the right price is. So, I’d be happy enough to buy a small amount for my own portfolio, go along for the journey and buy more if it continues to progress well.

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