3 reasons why Bubs (ASX:BUB) shares could be worth owning

bubs share price represented by two babies sitting side by side

At the current Bubs Australia Ltd (ASX: BUB) share price, there are a few different reasons why it could be worth owning.

Bubs offers consumers a number of different products including goat milk infant formula, Bubs organic grass-fed cow’s milk infant formula, organic baby food, cereals, toddler snacks and Vita Bubs infant and children’s vitamin and mineral supplements.

It’s also the leading producer of goat dairy products in Australia, with exclusive milk supply to the farm gate.

The business recently announced its FY22 first quarter update, which had several positive elements which were compelling:

Chinese recovery

Chinese customers are huge consumers of infant formula products.

Bubs has been experiencing difficulties relating to Chinese demand and sales, but it now seems to be going through a recovery.

The company said that the daigou, cross-border e-commerce and general trade sales to China were up 156% year on year and 98% quarter on quarter, which contributed 53% of quarterly gross revenue.

Breaking that down into different segments, CBEC gross revenue rose 50% year on year, with 14% growth quarter on quarter.

Daigou gross revenue went up 451% year on year (with infant formula sales going up 6.5 times). It was also up 209% quarter on quarter. More growth like that could be very helpful for the Bubs share price.

International growth and diversification

The business has advanced its global expansion strategy by establishing entities in New Zealand, China and USA.

Outside of China, the business continues to see strong growth. International gross revenue for the quarter was up 489% year on year and up 35% quarter on quarter.

It said that the first shipment of Aussie Bubs products arrived in the USA during the quarter and Bubs is now an official Walmart vendor, with the first online sales expected to be realised in October 2021.

Bubs is now being sold into a number of Asian countries including Vietnam, Malaysia, Singapore, South Korea and Japan.

Dennis Lin, the Bubs executive chair, said:

We continue to explore opportunities to stretch the Bubs brand to cater to new market segments, adjacent categories and consumer groups. In light of that, we are confident that our vision to take Bubs to a global stage is becoming reality. We are investing in our manufacturing capabilities at our facility in Victoria.

Bubs also said that it has created Deloraine Dairy Solutions, which made up 17% of the first quarter revenue, is focused on industrial dairy ingredient sales, contract manufacture and end-to-end product development for global customers. This increases the diversification of the customer base, optimises its assets and brings efficiencies across the entire business.

Positive cashflow

Achieving positive operating cashflow can be an important step for a business so that it isn’t reliant on external funding for its day to day operations.

In the first quarter, it received $15.3 million of cash receipts and made $0.5 million of operating cashflow. It spent $8.1 million on product manufacturing and operating costs, as well as $2.8 million on advertising and marketing.

The post 3 reasons why Bubs (ASX:BUB) shares could be worth owning appeared first on The Motley Fool Australia.

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Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has recommended BUBS AUST FPO. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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