Bubs Australia Ltd shares sink lower on weak half-year result

After a strong start to the day, the Bubs Australia Ltd (ASX: BUB) share price has sunk into the red following the late morning release of its half-year results.

At the time of writing the goat milk infant formula and baby food company’s shares are down by 7% to 88.5 cents.

For the six months ended December 31, Bubs reported half-year gross sales growth of 92% on the prior corresponding period to $3.72 million. Approximately 70% of these sales were derived from its infant formula business.

Unfortunately, though, Bubs recorded a loss greater than its sales at $3.85 million. Management has blamed increased costs related to the NuLac Foods acquisition, capital raising, and administration for the season for this heavy loss.

Operating cash flows were negative for the half at -$5.6 million, ultimately leaving the company with a cash balance of $8.7 million and a $2 million debt facility. If the company continues to operate like this for the next 12 months, I suspect that it could burn through its cash very quickly and require another capital raising.

Shareholders will therefore be hoping that one of its numerous distribution agreements results in strong sales growth in the second-half and beyond. These agreements have been with companies including NetEase, VIPshop, Kidswant,, Costco, Woolworths Group Ltd (ASX: WOW), and Sigma Healthcare Ltd (ASX: SIG).

Management advised that it will continue to focus on building sales momentum in China through the daigou community and cross-border e-Commerce channels in the second-half. It has made no financial forecasts for the full-year.

Should you invest?

So far I think progress has been disappointingly slow and I’m yet to be convinced that the company has anywhere near as bright a future as rivals A2 Milk Company Ltd (ASX: A2M) and Bellamy’s Australia Ltd (ASX: BAL).

In light of this weak result and its sizeable market capitalisation, I think investors should resist investing in Bubs and wait for it to grow into its valuation.

In the meantime, I would buy a2 Milk shares or one of these mid cap stars of the future.

The Disruptors: 3 Revolutionary Aussie Companies to Back for 2018

We’re living in one of the most exciting times in investing history. Innovation and a booming culture of entrepreneurship are constantly creating new companies with the potential to make forward-thinking investors very rich. Now more than ever, one small, smart investment could make a huge difference to your wealth.

That’s why at The Motley Fool we’ve been scrutinizing the ASX to uncover the kinds of companies that we believe could turn into the next Cochlear or REA Group.

We’ve found three exciting companies that we believe re poised to perform in the new year. Click here to uncover these ideas!

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of A2 Milk. 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 Bruce Jackson.

The 5 mining stocks we’re recommending in 2019…

For decades, Australian mining companies have minted money for individual investors like you and me. But if you believe the pundits and talking heads on TV, those days are long gone. Finito! Behind us forever…

We say nothing could be further from the truth. To earn the really massive returns, you’ve got to fish where others aren’t fishing—and the mining sector could be primed for a resurgence. That’s why top Motley Fool analysts just revealed their exciting new research on 5 ASX miners they believe could help you profit in 2019 and beyond…


The best way we see to play the global zinc shortage… Our #1 favourite large-cap miner (hint: it’s not BHP)… one early-stage gold miner we think could hit the motherlode… Plus two more surprising companies you probably haven’t heard of yet!

For free access to our brand-new research, simply click here or the link below. But be warned, this research is available free for a limited time only, and we reserve the right to withdraw it at any time.

Click here for your FREE report!