Why the Tubi share price is spiralling today

The Tubi Ltd (ASX: 2BE) share price has fallen more than 4% today despite the pipe manufacturer reporting its largest monthly volume to date. Tubi saw month-on-month billable production volume increase 21% in July to exceed 2.8 million billable pounds. 

What does Tubi do? 

Tubi is a manufacturer of specialised, large diameter high density polyethylene (HDPE) pressure piping. This pipe is used in industrial, irrigation, agricultural, mining, and oil and gas industries. The company’s first mobile pipe plant was completed in 2014. By 2017, the company had produced 14,000 tonnes of pipe. In May Tubi opened its third production plant, located side-by-side with its existing plant in Florida USA. Another plant is located in Odessa, Texas.   

How has the Tubi share price been performing? 

The company listed on the ASX last year at 20 cents a share. Tubi shares were trading as high as 35 cents last August, but dropped sharply at the start of November when the company revised earnings forecasts downward. Prospectus forecasts were for statutory earnings before interest, tax, depreciation and amortisation (EBITDA) of $9.467 million and EBIT of $6.09 million for FY20. The company revised these downwards to $1.775 million and $0.01 million, respectively. 

How is Tubi’s business performing? 

Tubi was able to continue production throughout the pandemic as production of HDPE pipe is considered an essential service in Florida. Having 2 plants located side-by-side allows for lower electricity and labour costs and reduced plant maintenance. With the opening of the new plant, Tubi saw production increase 55% from Q3 to Q4. The production results were in line with Tubi’s strategy of moving from 1 plant to 3 across the US, with each servicing different markets. 

The company says the uplift in production proves the competitive advantage of its mobile technology and ability to produce on-site, long length pipe. Production orders for July and August have been confirmed for the Florida plants, underpinning the first quarter of FY21. CEO Marcello Russo noted, “significant orders from key clients are increasing in frequency, product diversity and volumes. With the third manufacturing plant commissioned and operating, Tubi is well positioned to service these orders.” 

What’s next for Tubi? 

Tubi’s latest production update, revealing July’s 21% increase in production, demonstrated the benefits of the new plant. Russo commented: “The two plants situated in Florida have been producing consistently, efficiently, at high rates of volume, and producing at a high standard of quality. Our customers are benefitting from our operations, our competitiveness, and our product differentiators.”

Investors will be hoping this flows through to an uplift in earnings.

At the time of writing, the Tubi share price is sitting at 11 cents per share, down 4.35% on yesterday’s close.

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Motley Fool contributor Kate O’Brien has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. 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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