Bubs trading at 160% premium to IPO price

Published at Jan 10, 2017, in Special Reports

Shares in recently listed Bubs Australia (ASX: BUB) continued to soar on Tuesday, hitting a high of 26.5 cents in morning trading, representing a 165% premium to the group’s IPO price of 10 cents.

It should be noted however that historical data in terms of earnings performance and/or share trading patterns should not be used as the basis for an investment as they may not be replicated. Those considering this stock should seek independent financial advice.

Bubs is the repurposed Hillcrest Litigation Services Group which recently acquired the Infant Food Holding Company Proprietary Limited.

Shortly after listing on the ASX, Commercial Director for Infant Milk Formula, Nicholas Simms said, “Becoming a listed company was a key step in the transformation of Bubs from its humble beginnings to inspire new generations of happy, healthy bubs both in Australia and internationally”.

It would appear that the targeting of overseas markets is central to the group’s expansion strategy. Cornerstone investors in Bubs and its subsidiaries include Ellerston Capital and an investment company of Nancy and Richard Zhang, the founders of JD.com.

The Zhang connection should be extremely beneficial in penetrating the all-important Chinese market where other Australian companies in this space are active.

Impressive range diversification

Importantly, Bubs business extends beyond the infant formula sector with the company also offering organic alternatives to conventional baby food where it successfully competes with multinational brands.

The company’s range includes fruit and vegetable purees, protein meals, cereals and healthy toddler snacks. The recipes are largely based on organic ingredients such as blueberries, banana and pumpkin with an allergy friendly menu also available.

The company also produces Bubs Advanced Plus goat milk formula, which is made in Australia and available in three stages from infant to toddler. It blends goat whey protein with a balanced daily intake of essential fatty acids, vitamin C, amino acids and prebiotics.

Bubs products are sold Australia wide in over 1000 retail outlets including major and independent supermarkets, department stores, organic and health food stores and pharmacies.

Overseas consumers pay premium for trusted brands

The products are also sold on leading Chinese cross-border e-commerce platforms including JD.com. Export markets include Southeast Asia, the Middle East, Singapore, Hong Kong and the United Arab Emirates. In fiscal 2016 international sales accounted for less than 40% of total sales.

Overseas consumers are often prepared to pay a premium for trusted foreign brands with China being a case in point where contamination scares from local products resulted in increased demand for imported goods.

Consequently, there could be a stronger skew in earnings in the future in terms of contributions from export sales.

S3 Consortium Pty Ltd (CAR No.433913) is a corporate authorised representative of Maven Capital Pty Ltd (AFSL No. 418504). The information contained in this article is general information only. Any advice is general advice only. Neither your personal objectives, financial situation nor needs have been taken into consideration. Accordingly you should consider how appropriate the advice (if any) is to those objectives, financial situation and needs, before acting on the advice.

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S3 Consortium Pty Ltd does and seeks to do business with companies featured in its articles. As a result, investors should be aware that the Firm may have a conflict of interest that could affect the objectivity of this article. Investors should consider this article as only a single factor in making any investment decision. The publishers of this article also wish to disclose that they may hold this stock in their portfolios and that any decision to purchase this stock should be done so after the purchaser has made their own inquires as to the validity of any information in this article.

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