Why the Bubs share price crashed 10% lower today

The Bubs Australia Ltd (ASX: BUB) share price has come under pressure today after returning from its trading halt.

In morning trade the infant formula and baby food company’s shares fell as much as 10% to 82 cents.

They have since recovered slightly and are down 6% to 86 cents at the time of writing.

Why was the Bubs share price in a trading halt?

Bubs requested a trading halt at the start of the week while it undertook another capital raising.

This morning it revealed that it has successfully completed its institutional placement, raising $28.3 million (before costs) at a 12.5% discount of $0.80 per share.

The company advised that the placement was strongly supported by existing institutional shareholders as well as several new institutional and sophisticated investors in Australia and in certain overseas jurisdictions.

Bubs will now push ahead with its share purchase plan, which aims to raise a further $10 million. Though, the company will consider increasing this to $11.7 million depending on shareholder interest.

Eligible shareholders will be able to apply for up to $30,000 of new Bubs shares at an offer price of $0.80 per new share, without incurring brokerage or other transaction costs.

Why is Bubs raising funds again?

The proceeds are to be used to support the company’s global growth initiatives.

This includes the acquisition of an ownership interest in a Beingmate manufacturing facility in China and the in-market SAMR application for Bubs Infant Formula products.

The funds will also be used to support its international market expansion, the launch of its Vita Bubs vitamin brand, new product innovation in emerging high value goat dairy segments, and the extension of its production capability to include a production line for single-serve sachets.

Bubs’ Founder and CEO, Kristy Carr, said: “Our first priority will be to progress our announced strategy to accelerate SAMR registration for China manufacture of Bubs Goat Infant Formula made from 100 percent Australian goat milk. This ‘Created by Bubs’ localisation strategy is capable of replication into other markets with similar barriers to entry.”

“We are now well positioned to maintain the operational momentum, strength and agility established during the year, to execute on strategy, and capture new opportunities while ensuring we continue to implement key marketing strategies that respond to the challenges of the current macro environment, including consequences of COVID-19,” concluded Mrs Carr.

More reading

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• Bubs share price halted following FY 2020 results and capital raising plans
• 3 small cap ASX growth shares to buy right now
• Why Afterpay, Bubs, Fortescue, & Zip Co shares are charging higher

James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of BUBS AUST FPO. The Motley Fool Australia has recommended BUBS AUST FPO. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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