Bubs (ASX:BUB) share price higher on daigou deal

The Bubs Australia Ltd (ASX: BUB) share price is pushing higher on Thursday morning.

At the time of writing, the infant formula company’s shares are up over 2% to 45.5 cents.

Why is the Bubs share price pushing higher?

The rise in the Bubs share price today has been driven by the release of an interesting announcement relating to the company’s daigou activities.

According to the release, the company has entered into an agreement with leading Hong Kong-based daigou distributor, Willis Trading Limited. It has been Bubs’ single largest customer throughout FY 2021 and the first half of FY 2022.

The agreement will see Willis Trading rewarded with up to 29.5 million Bubs shares (4.8% of Bubs’ issued capital) based on product purchases over the next couple of years.

Bubs will issue these shares to Willis Trading as consideration if it meets certain product purchase milestones of at least A$50 million in FY 2022 and at least A$120 million in FY 2023.

Based on the current Bubs share price, the total potential consideration equates to $13.4 million. Given the relatively lukewarm response from the market today, some shareholders appear unsure if this deal will be value accretive or dilutive.

Management commentary

Bubs Founder and Chief Executive Officer, Kristy Carr, said: “Bubs has a proven track record of establishing strategic partnerships with prominent channel partners. We have worked closely with Willis Trading over several years as our lead distribution partner for the Corporate Daigou Channel. Together we have successfully returned Bubs Daigou sales to high growth, delivering record revenues in the first half of FY22, increasing 276% on the prior year, now exceeding pre-COVID levels.”

“The next phase of our partnership is an exceptional and innovative opportunity to deepen our engagement with the Daigou Channel and get closer to our end consumers in China. This strategic alliance between Bubs brand power and the Channel’s deep understanding of Chinese consumers provides more direct identification of our target consumers and their product needs in real time. Word of mouth and peer endorsement is critical in our category, and we view the Daigou Channel as expert community builders. Through one person, we can reach hundreds of consumers.”

“Developed in response to the pandemic, the new supply chain model delivers seamless delivery to our end consumers with heightened traceability and visibility of inventory throughout the Channel, whilst operating within the Chinese government tax system. Building on the momentum already established under Bubs’ Daigou 2.0 strategy, we are confident the deeper collaboration embodied in this transaction will rapidly accelerate our China business and provide a platform for future innovation that will widen our points of engagement with our target consumers,” Mrs Carr concludes.

The post Bubs (ASX:BUB) share price higher on daigou deal appeared first on The Motley Fool Australia.

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Motley Fool contributor James Mickleboro 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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