Wattle Health Australia Ltd (ASX:WHA) shares continue to sink lower


The Wattle Health Australia Ltd (ASX: WHA) share price has continued its decline on Tuesday despite announcing a potentially positive development.

At the time of writing the infant formula and health products company’s shares are down a further 10% to $1.54.

What is the new development?

This morning Wattle Health announced that it has signed a supply agreement with IGA distributor Metcash Limited (ASX: MTS).

According to the release, the company will supply Metcash’s wholesale and distribution business with its baby food range, complementing the infant formula product it already stocks.

Management believes that achieving the distribution of its baby food range with Metcash will increase brand awareness and drive sales of both its baby food range and its existing range of infant formula.

As Metcash supplies and supports more than 10,000 independent retailers and over 90,000 wholesale customers across the retail sector, the agreement certainly has a lot of promise.

However, it is worth noting that the original agreement between Metcash and Wattle Health for its infant formula range has not resulted in meaningful sales. Therefore, I wouldn’t put too much emphasis on this latest agreement just yet.

Should you invest?

I would suggest investors continue to avoid Wattle Health’s shares, especially after yesterday’s $77.9 million funding package announcement in relation to its joint venture with Organic Dairy Farmers of Australia.

While the joint venture itself may be a success in the long-term, considering the deep discount that the money is being raised at and the terms of the debt facility, I don’t believe it provides value for existing shareholders.

Further to this, despite its many supply agreements I have yet to see a meaningful increase in its infant formula sales. This could of course change in the future, but it is worth remembering that there’s no guarantee that Chinese consumers will take to the product.

It is a highly competitive market and companies like A2 Milk Company Ltd (ASX: A2M) and Bellamy’s Australia Ltd (ASX: BAL) have much stronger brands and significantly larger marketing budgets.

So instead of risking your hard-earned money in Wattle Health, I would suggest investors consider one of these top growth stocks.

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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 Scott Phillips.

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