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The S&P/ASX 200 Index (ASX: XJO) is having a bit of a shaky day so far this Tuesday. At the time of writing, the ASX 200 has gained a tentative 0.07%, which puts the index close to 7,490 points. But the Coles Group Ltd (ASX: COL) share price is doing far better.

Coles shares are on fire today. The ASX 200 supermarket giant is currently up a healthy 2.39% at $17.765 a share:

So what’s going on with Coles shares today that is making this company such a convincing market beater?

Well, it’s not entirely clear. There have been no new announcements or news out of Coles today. Or indeed this week.

But we are seeing Coles’ consumer staples sector doing very well today. The S&P/ASX 200 Consumer Stapes Index (ASX: XSJ) is currently the best-performing sector on the ASX 200 right now, up 1.81%.

Other consumer staples shares are also booming. Coles’ arch-rival Woolworths Group Ltd (ASX: WOW) is up by more than 2.79%, while Treasury Wine Estates Ltd (ASX: TWE), Metcash Limited (ASX: MTS), and Endeavour Group Ltd (ASX: EDV) are also enjoying some solid gains.

But perhaps more potently, we have also seen a few ASX brokers come out with some bullish opinions on Coles shares today. This could be what is giving investors a confidence boost.

ASX brokers rate Coles shares as a buy

As my Fool colleague James covered this morning. ASX broker Morgans likes what it sees with Coles shares right now.

The broker has given the company an add rating, together with a 12-month share price target of $19.50. That would give investors an upside of close to 10% from where the shares are currently if Morgans is on the money.

Here’s what the broker had to say about its decision:

We continue to see COL as offering good value with the company’s solid balance sheet and defensive characteristics putting it in a good position to navigate through a weaker economic environment. The unwinding of local shopping should also help further market share gains.

Morgans is also predicting that Coles will keep ramping up its dividends going forward too. It has 64 cents per share in dividends pencilled in for FY2023, rising to 66 cents per share for FY2024.

But Morgans isn’t the only broker eyeing off Coles shares. According to reporting in The Australian today, another ASX broker in Credit Suisse is also seeing value in Coles sales right now.

Credit Suisse has given the grocer an outperform rating, and a 12-month share price target of $19.31 a share. Not quite as optimistic as Morgans, but this will still no doubt delight investors.

So it could be a combination of these factors which is leading Coles to such a lucrative, market-beating performance this Tuesday.

The post Coles share price surges, brokers say more gains to come appeared first on The Motley Fool Australia.

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More reading

• Buy these ASX dividend shares for income: broker
• 5 things to watch on the ASX 200 on Tuesday
• Here are the top 10 ASX 200 shares today
• Here are the 3 most heavily traded ASX 200 shares on Monday
• Lynas share price rises on 42% jump in sales revenue

Motley Fool contributor Sebastian Bowen 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 positions in and has recommended Coles Group. The Motley Fool Australia has recommended Metcash and Treasury Wine Estates. 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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The Newcrest Mining Ltd (ASX: NCM) share price has been a solid performer in 2023.

Since the start of the year, the ASX 200 gold miner’s shares have risen 8%.

Can the Newcrest share price keep rising?

The good news for investors is that one leading broker believes the Newcrest share price has room to climb.

According to a note out of Morgans, its analysts have upgraded the ASX 200 gold miner’s shares to an add rating with a $25.70 price target.

Based on the current Newcrest share price of $22.49, this implies potential upside of over 14% for investors over the next 12 months.

Throw in the 1.7% dividend yield that Morgans expects in FY 2023 and you have a total potential return of approximately 16%.

What did the broker say about this ASX 200 gold miner?

Morgans made the move thanks to the company’s Cadia operation and higher gold price assumptions. The broker explained:

We upgrade NCM to an ADD rating (from Hold) following an upgrade to medium term capex assumptions on Cadia and applying higher gold price forecasts. The highlight of last week’s 2Q23 result was the consistent group numbers across production and costs, with NCM’s fundamentals supported heavily by the quality of Cadia

While not a period without its blemishes, we see a dependable production and earnings base from which NCM can ride recovering gold and copper prices. Trailing its smaller gold peers, we see an emerging value proposition on offer in NCM, which benefits from mine diversification, solid margins, and long-life reserves.

All in all, the broker appears to see Newcrest as a top ASX 200 gold mining share to buy right now.

The post This is the ASX 200 gold mining share to buy now: Morgans appeared first on The Motley Fool Australia.

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More reading

• 5 things to watch on the ASX 200 on Tuesday
• 5 things to watch on the ASX 200 on Monday
• Why Accent, Mineral Resources, Newcrest, and Whitehaven Coal shares are dropping
• 5 things to watch on the ASX 200 on Friday
• Forget gold! ASX 200 blue-chip shares could be the new safe-haven asset

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 no position in any of the stocks mentioned. 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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The Australian Foundation Investment Co Ltd (ASX: AFI), or AFIC for short, is an ASX-listed investment company (LIC) that has always had a strong reputation for providing dividend income.

AFIC has been around for decades. Before the emergence of the exchange-traded fund (ETF), LICs like AFIC were one of the only ways to access a diversified portfolio of blue-chip ASX shares, managed on investors’ behalf.

Although ETFs have come along and given investors choice in this area, AFIC is still chugging along. The LIC has managed to give investors an average return of 9.8% per annum over the past ten years. That return includes the value of AFIC’s dividends.

So AFIC has paid out two dividends per year for decades now. Unlike many ASX dividend shares, AFIC didn’t skip any shareholder payments during the worst years of the global financial crisis, or the pandemic.

And its latest interim dividend is coming investors’ way.

AFIC’s supersized interim dividend is inbound

Back on 23 January, AFIC delivered its half-year earnings report. This included the announcement that the company would hike its interim dividend for the first time in many years.

In 2022, investors enjoyed an interim, fully franked dividend of 10 cents per share. That’s the same payout AFIC had doled out every February since 2016.

But this year, the company announced a big hike to its interim dividend. Investors can now look forward to receiving 11 cents per share, fully franked, on 24 February next month. That’s a 10% increase over 2022’s interim dividend payment.

However, if an investor wishes to secure this dividend payment, then they had better be quick. AFIC is scheduled to trade ex-dividend for this payment this Thursday, 2 February.

That means that any investors who don’t hold AFIC shares by that date will miss out on this upcoming dividend. So you’ve got today’s session, and tomorrow’s to buy AFIC shares if you want to bag this dividend.

Thus, we can expect a big drop in the AFIC share price on Thursday, reflecting the value of this dividend leaving the market.

This latest dividend will give AFIC a dividend yield of 3.24%, based on the current share price of $7.71 (at the time of writing).

The post Hoping to bag the supersized AFIC dividend? You’d better be quick appeared first on The Motley Fool Australia.

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More reading

• 3 ASX All Ords shares trading ex-dividend this week
• AFIC share price jumps on 10% dividend hike

Motley Fool contributor Sebastian Bowen 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 no position in any of the stocks mentioned. 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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The Commonwealth Bank of Australia (ASX: CBA) share price is going from strength to strength.

CommBank shares closed yesterday trading for $109.76 and are currently changing hands for $110.32.

As you can see in the chart below, that puts the CBA share price up 0.5% as we head into the lunch hour, setting another new record high.

What’s driving the CBA share price gains?

There’s been no price-sensitive news out from the big four bank since early December.

So, why is the CBA share price up 9% in 2023 and notching new all-time highs today?

Well first, like the other banks, CBA has benefited from the series of interest rate hikes over the past half year. By increasing the rates that it charges on loans faster than lifting the rates it offers on deposits, CommBank has been able to increase its net interest margins.

Now, higher rates from the RBA could backfire and work against CommBank, should the central bank hike too aggressively. That’s because the RBA could tip Australia into recession and see a spike of bad debts and lower volumes of new home loans.

But the CBA share price gains appear to indicate investors are confident that we’re approaching an end to the rate hike cycle and that the RBA can engineer the so-called ‘soft landing’.

Income investors may also be snapping up CBA shares based on the outlook for the bank’s 100% franked dividends.

Morgan Stanley expects CommBank to boost its full-year dividends to $4.50 per share. That would be an increase of 17% from the $3.85 per share the bank paid out over the past 12 months.

At the current CBA share price, that forecast dividend works out to a yield of 4.1%.

CommBank is scheduled to release its next quarterly financial update on 15 February.

The post CBA share price hits new record high again on Tuesday appeared first on The Motley Fool Australia.

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More reading

• Why did the CBA share price just hit a new 52-week high?
• Investing in ASX 200 bank shares? Here’s the dividend outlook for 2023
• Does the Vanguard Australian Shares ETF’s unique structure deliver better returns than the ASX 200?
• CBA shares: A decent ASX 200 passive income stock to buy?
• This could crash the earnings season party for ASX 200 bank shares: Macquarie

Motley Fool contributor Bernd Struben 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 no position in any of the stocks mentioned. 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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The BWX Ltd (ASX: BWX) share price is having another difficult day.

At the time of writing, the embattled personal care products company’s shares are down over 10% to 21.5 cents.

Why is the BWX share price sinking?

Investors have been hitting the sell button on Tuesday following the release of a trading update from the Sukin skincare owner.

According to the release, the company has downgraded its FY 2023 guidance a little over a month after last downgrading it. This follows a lower than expected performance in both December and January.

BWX now expects:

• FY 2023 revenue of $170 million to $190 million (from $205 million to $230 million)
• FY 2023 EBITDA of $10 million to $15 million (from $25 million to $30 million)

What caused the underperformance?

Management blamed a number of factors on its underperformance during December and January.

One is the cash constrained environment which has impacted its ability to trade effectively and led to a temporary increase in out of stocks and a need to reduce promotions to conserve cash and protect stock levels.

In addition, the company’s online businesses are struggling with higher customer acquisition costs, reduced web traffic, and product availability.

Over in the United States, the company has noted a more cautious consumer, particularly in the natural channel and online. Unfortunately, management expects this to continue.

Finally, the company’s previous channel stuffing activities have come back to haunt it. It notes that this strategy continues to have an impact on profitability as it runs down customer held inventory.

One positive, though, is that it has received a waiver from its lender for its debt covenants through to the end of February. At present, BWX would be breaching these covenants if they have not been waived.

Management is in the process of securing a longer-term restructuring of its finance facilities to seek further funding in the second half.

The post BWX share price tumbles 10% on revenue and earnings guidance downgrade appeared first on The Motley Fool Australia.

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More reading

• ASX 200 jumps higher again, defying predictions the 2023 stock market rally could be about to come to a screaming halt

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 no position in any of the stocks mentioned. 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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The Megaport Ltd (ASX: MP1) share price is sinking today amid the company’s quarterly update.

Megaport shares are currently down 20.18% and are fetching $6.13. The company’s share price rose 22% between market close on 30 December and 30 January and has today shed most of those gains.

For perspective, the S&P/ASX All Technology Index (ASX: XTX) is sliding 0.52% today.

Also, the technology-heavy NASDAQ-100 (NASDAQ: NDX) in the USA fell 2.09% overnight amid a potential US Fed Reserve rate rise and multiple big technology companies reporting.

So what did the ASX tech share report to the market today?

Megaport share price falls

In today’s FY23 quarterly results, Megaport reported:

• Cash from operations of $0.2 million in 2Q FY23, down from $0.3 million in the previous quarter
• Normalised earnings before interest, tax, depreciation and, amortisation (EBITDA) of $2.4 million, up 159% on 2QFY22
• Profit after direct network costs lifted by 50% on the prior corresponding quarter
• Total net cash flow of -$11.9 million, compared to -$9.6 million in the prior corresponding quarter
• Closing cash balance of $57.5 million

What else?

Megaport shares are falling today despite the company reporting EBITDA growth. It appears the results may have fallen short of the market’s expectations.

Also of note, the company’s cash from operations fell to $0.2 million, down from $0.3 million in the first quarter of the financial year.

Megaport said this was due to “lower receipts from customers”.

Megaport reported a profit after direct network costs and partner commissions of $24.8 million, up by $3.1 million compared to the first quarter of FY23 and $8.3 million more than the prior corresponding quarter.

Revenue lifted 10% on the previous quarter to $37 million. This was also a 39% lift on the prior corresponding quarter in FY22.

What’s ahead?

The company is forecasting annual capital expenditure of $33 million in FY23 and $28 to $30 million in FY24. The company is planning to engage external consultants to review the operational efficiency within the business. There will be a focus on “improved automation”.

Commenting on the future outlook for Megaport, CEO Vincent English said:

We will continue to stay focused on providing secure, scalable connections to the newest and industry-leading services our cloud partners bring to market to stay out in front of our customers’ evolving needs

Magaport share price snapshot

The Megaport share price has tumbled 54% in the last year and 27% in the past six months.

Megaport has a market capitalisation of about $977 million based on the current share price.

The post ASX 200 tech stock Megaport tumbles 20% following quarterly update appeared first on The Motley Fool Australia.

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More reading

• ASX 200 jumps higher again, defying predictions the 2023 stock market rally could be about to come to a screaming halt
• These are the 10 most shorted ASX shares
• These ASX 200 tech shares are leading the market today
• Why Liontown, Megaport, Origin, and Tyro shares are pushing higher today
• Why is this ASX 200 tech share racing 6% higher today?

Motley Fool contributor Monica O’Shea has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Megaport. The Motley Fool Australia has recommended Megaport. 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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1) After a difficult 2022, it has been a great start to the new calendar year for stock market investors, with the S&P/ASX 200 Index (ASX: XJO) up more than 6% in January.

US markets have been even stronger, especially the tech-heavy Nasdaq Composite (NASDAQ: .IXIC), up close to 10% to start 2023.

But the good times could be about to come to a screaming halt, with Morgan Stanley’s Michael Wilson warning “the stock market’s January rally could end this week”.

Wilson says the January rally is “just another bear-market trap” as central banks in the US and here in Australia prepare to hike interest rates yet further as they attempt to tame inflation. 

2) It appears the ASX 200 index didn’t get the Morgan Stanley memo, up a solid 0.46% to 7,516 in late morning trade on Tuesday. 

So much for the oncoming economic slowdown here in Australia — the ASX 200 is up almost 8% over the past 12 months. 

Perhaps it’s like the Aussie consumer – we know there are some tough times ahead, especially for those with mortgages but also for renters – but damn it if we’re not going to have some fun before reality bites.

The Woolworths Group Ltd (ASX: WOW) share price is up 2.6% to $35.66 on Tuesday, whereupon it trades on 26 times earnings and on a 2.6% fully franked dividend yield. I get the defensive nature of its earnings, but I’d rather take 4% in a savings account than risk my money on Woolworths shares at today’s price. 

3) Stock winner of the day

Not many big winners to choose from today despite quarterly updates coming out faster than a Novak Djokovic serve.

The Moneyme Ltd (ASX: MME) share price is up 16% to 32.5 cents after the consumer money lender said it delivered record revenue and a statutory profit in Q2, “beating analyst expectations”.

It’s a welcome turnaround in the fortunes of the Moneyme share price, given it has fallen 83% in the past 12 months. Consumer lending faces some serious headwinds as the economy weakens, both from lower new loan originations and from higher defaults. As to whether that is already priced into Moneyme shares is anyone’s guess, while acknowledging the company is managing to the current macro environment and is committed to driving profitable growth.

4) Stock loser(s) of the day

Unlike the winner’s circle, we have plenty of losers to choose from for today’s stock flops.

A trading update from former high-flyer BWX Ltd (ASX: BWX) was a shocker, with the owner of Sukin and other beauty and wellness products lowering revenue and profit guidance.

“We are revising our forecast on the basis of our cash-constrained environment having impacted our ability to trade effectively and led to a temporary increase in out of stocks and a need to reduce promotions to conserve cash and protect stock levels.”

The BWX share price has fallen 93.5% in the past 12 months. Steer well clear of this fallen knife. 

I’ve long been mystified by the huge market capitalisation placed on Megaport Ltd (ASX: MP1) given its relatively modest size.

The “global leading provider of Elastic Interconnection services” said total revenue for the Q2 was $37 million, up 10% quarter on quarter, and delivered earnings before interest, tax, depreciation, and amortisation (EBITDA) profit for the quarter. Although revenue is sticky due to low customer churn, Megaport did note the “current economic uncertainty seems to be delaying customer decision making, lengthening sales cycles”.

The Megaport share price is down 16% to $6.45 in Tuesday trading, and off 52% over the past 12 months. With a market capitalisation of $1 billion, even after today’s fall, investors are being asked to pay a pretty price for a pretty modestly sized company. 

The Pointerra Ltd (ASX:3 DP) share price is on the nose today, down 17% to 19 cents, after the company that “helps customers answer almost any physical asset management question” said program delays by some US customers impacted invoicing in Q2.

The Pointerra share price went parabolic in early 2021, soaring at one stage over 30 times in value as investor enthusiasm went nuts. It’s been mostly downhill since February 2021, with the Pointerra share price plunging 77% from those epic highs. 

The rubber now needs to hit the road for Pointerra, with investors no longer valuing the company on hope. With a cash balance of just $2.75 million and the most recent quarter showing operating outflow of almost $1 million, investors better hope the “expected rebound in Q3 and Q4” becomes a reality.

The post ASX 200 jumps higher again, defying predictions the 2023 stock market rally could be about to come to a screaming halt appeared first on The Motley Fool Australia.

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More reading

• BWX share price tumbles 10% on revenue and earnings guidance downgrade
• ASX 200 tech stock Megaport tumbles 20% following quarterly update
• These are the 10 most shorted ASX shares
• Should I buy Woolworths shares for 2023 or not?
• ASX 200 consumer staples shares raced higher to finish the day on top

Motley Fool contributor Bruce Jackson has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Megaport and Pointerra. The Motley Fool Australia has recommended Megaport and Pointerra. 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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The Core Lithium Ltd (ASX: CXO) share price has run out of steam on Tuesday.

At the time of writing, the lithium developer’s shares are down 4% to $1.18.

Why is the Core Lithium share price falling?

There appears to be a couple of catalysts for the weakness in the Core Lithium share price today.

One is broad selling in the lithium space this morning, which has seen the likes of Allkem Ltd (ASX: AKE) and Pilbara Minerals Ltd (ASX: PLS) also drop into the red.

The other reason could be a broker note out of Goldman Sachs today.

According to the note, the broker has reiterated its sell rating and 95 cents price target on the company’s shares. Based on where Core Lithium shares currently trade, this implies potential downside of 20% for investors over the next 12 months.

Why is Goldman bearish?

While Goldman Sachs was pleased with the progress the company is making with its Finniss project, it isn’t enough for a more positive view. Particularly given the wet weather the company has been facing.

In response to the wet weather, the broker has lowered its “expectations for additional DSO cargos.”

But the main reason it is bearish is the Core Lithium share price, which Goldman believes is significantly overvalued. The broker explained:

Our FY23 EPS is down -9% on minor adjustments to our FY23E production ramp up profile, where we also lower our expectations for additional DSO cargos, with our NAV down ~4% to A$0.80/sh and our 12m PT unchanged at A$0.95/sh. We rate CXO a Sell on: 1) Valuation at 1.5x NAV (peer average ~1.2x; on GSe LT US$1,000/t spodumene), pricing in ~US$2,250/t (peer average ~US$1,300/t) or implying current pricing persists for ~2 years (peer average ~1 year), while also having the lowest average operating FCF/t LCE, 2) Large resource upside required, and 3) Production risk.

The post Is this why investors are selling down the Core Lithium share price today? appeared first on The Motley Fool Australia.

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More reading

• Forget lithium! I’m using the Warren Buffett method to help find winning ASX shares in 2023
• Core Lithium shares led the charge on this trading platform in 2022. Can you guess the other top stocks?
• 5 things to watch on the ASX 200 on Tuesday
• Here are the top 10 ASX 200 shares today
• Here are the 3 most heavily traded ASX 200 shares on Monday

Motley Fool contributor James Mickleboro has positions in Allkem. 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 no position in any of the stocks mentioned. 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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I think that ASX dividend shares could be an excellent way for people to grow their passive income. Investing just $200 a month could eventually turn into $20,000 of annual income.

Now, don’t get me wrong. Investing $2,400 in the first 12 months isn’t suddenly going to unlock $20,000 of annual dividends. It will take some time, but I believe that it’s possible.

Compounding is a very powerful financial force, which can enable smaller amounts to grow into much larger amounts. Albert Einstein once supposedly said:

Compound interest is the eighth wonder of the world. He who understands it, earns it…he who doesn’t…pays it.

For example, using a compound interest calculator, investing $200 a month for 40 years, returning an average of 10% per annum, turns into $1.06 million. That only requires $96,000 of money from the investor – the rest (in this example) comes from compounding returns.

But, I don’t think someone needs $1 million to make $20,000 of annual income. A portfolio with a yield of 4% would only need to be half the size ($500,000) to make $20,000, while a 6% yield would only need to be $333,334 in size to make $20,000.

How I’d invest in ASX shares

There are a few principles that I’d take into this investing plan.

First, I’d take a brave attitude when it comes to market crashes. Volatility regularly happens. If I’m invested in good businesses, a temporary dip (even a big one) won’t bother me. In fact, I would see lower prices as an opportunity to buy, rather than panic and sell. It’s during those times that the best prices can be found.

Second, I would want to consistently invest, through the ups and downs into the best opportunities I could see with a dollar cost averaging (DCA) strategy. While share prices are always changing, I think there’ll always be at least one idea that could be a good opportunity.

Third, I’d only invest in businesses that seem as though they have a good potential to grow earnings and dividends. I think it’s the businesses that are growing their underlying value that have the best chance of achieving share price growth and good dividends over time.

For example, several years ago I invested in Altium Limited (ASX: ALU) shares when the dividend yield was more than 3%. Since then, the dividend (and profit) has grown enormously and my yield-on-coast is much higher. In 2014 it paid an annual dividend of 12 cents per share and in FY22 it paid an annual dividend of 47 cents per share.

Some of the names I believe can provide a good combination of dividends and growth in the coming years include Adairs Ltd (ASX: ADH), Premier Investments Limited (ASX: PMV), Beacon Lighting Group Ltd (ASX: BLX), Lovisa Holdings Ltd (ASX: LOV), Healthia Ltd (ASX: HLA), Bailador Technology Investments Ltd (ASX: BTI) and Propel Funeral Partners Ltd (ASX: PFP).

The post How I’d invest $200 a month in ASX shares to make a $20,000 passive income for life appeared first on The Motley Fool Australia.

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Motley Fool contributor Tristan Harrison has positions in Altium and Bailador Technology Investments. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Adairs, Altium, Bailador Technology Investments, Healthia, and Lovisa. The Motley Fool Australia has positions in and has recommended Adairs. The Motley Fool Australia has recommended Bailador Technology Investments, Healthia, Lovisa, Premier Investments, and Propel Funeral Partners. 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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The Bubs Australia Ltd (ASX: BUB) share price is crashing on Tuesday morning following the release of the company’s quarterly update.

At the time of writing, the junior infant formula company’s shares are down almost 13% to 31 cents.

Bubs share price crashes on disappointing update

• Quarterly revenue down 28% year over year to $14.3 million
• Half year revenue down 1% to $37.9 million
• Operating cash outflow of $13.5 million

What happened during the quarter?

For the three months ended 31 December, Bubs reported a disappointing 28% decline in revenue to $14.3 million. This reflects a massive 66% decline in China revenue, which offset a 28% lift in Australia revenue and a 26% increase in International revenue.

Management blamed this poor performance on slower than expected consumer offtake in key markets and lockdowns in China causing a delay to its transition to a new manufacturer to consumer operating model in the country.

This ultimately led to first half revenue falling 1% on the prior corresponding period to $37.9 million.

While no earnings data was provided, Bubs’ cash flow statement doesn’t paint a pretty picture.

For the second quarter, Bubs recorded cash receipts of $14 million and a cash outflow of $13.5 million. This means for every dollar the company received, it spent approximately two dollars to generate it.

Unsurprisingly, this has led to Bubs recording an unspecified underlying EBITDA loss during the first half. It has also reduced the company’s cash balance from $64.6 million to $51.4 million at the end of December.

Management commentary

Bubs’ under-fire CEO, Kristy Carr, commented:

As foreshadowed at the Company’s Annual General Meeting in November, group gross revenues for the first two quarters are largely consistent with the first half of last year, arising from strong year-on-year growth in Australia and the United States being offset by the impacts of China’s now abandoned COVID-zero policy on channel dynamics and consumer purchasing activity.

China’s prolonged lockdowns during the quarter delayed our transition to Bubs’ new ‘Manufacturer to Consumer‘ (M2C) model in partnership with AZ Global, as we continue to sell through initial pipe-fill orders from previous quarters, leading to a 66 percent fall in gross revenues compared to the prior corresponding period.

Nonetheless, the impact on group gross revenues from infant formula was limited to 10 percent for the quarter compared to the prior corresponding period, and strong pricing discipline was maintained across all markets. Group gross revenue for branded products in the first half of FY23 (excluding B2B and low margin bulk powder sales) was up 16 percent compared to the prior corresponding period.

The Bubs share price is now down by approximately a third over the last 12 months and is trading within sight of a multi-year low.

The post Why is the Bubs share price crashing 13% today? 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 Australia. 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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