Bubs Australia Ltd (ASX:BUB) shares push higher on quarterly update

Bubs Australia Ltd (ASX:BUB) shares have pushed higher today following the release of its quarterly update. Are its shares a buy?

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baby formula shares

The market may have opened the day lower but that hasn’t stopped the Bubs Australia Ltd (ASX: BUB) share price from charging higher.

In early trade the shares of the producer of Australian-made premium infant formula, organic baby food, and dairy products were up as much as 7% to 78 cents before fading. They are now up just over 1% at 74 cents.

Why are Bubs Australia’s shares charging higher?

This morning the company released its activities report and cash flow statement for the fourth quarter of FY 2018.

According to the release, during the quarter Bubs saw a material uplift in infant formula and overall sales to China, leading to its highest quarterly revenues.

The company reported a 99% year-on-year increase in Bubs infant formula and the additional sales from the NuLac Foods portfolio. Management has pointed to its China route-to-market strategy as playing a key role in this growth. This includes the addition of several new cross-border trading partnerships with the likes of JD.com and QianJiaWanPu.

Overall, this led to cash receipts of $7.8 million for the quarter, taking full-year cash receipts to $16 million.

While this was an impressive jump in cash receipts, it wasn’t enough to make its operations profitable. Bubs posted an operating cash outflow from operations of $4.1 million.

It did, however, finish the period with a cash balance of $38 million thanks to a $40 million share placement during the quarter. This should give it a bit of breathing room as it looks to tame its accelerating cash burn.

Should you invest?

I think this was a bit of a mixed quarter for Bubs and hasn’t come close to demonstrating that it will ever fulfil its potential. Because of this, I intend to watch on from the safety of the sidelines for at least another quarter and wait for improvements in its performance.

In the meantime, I think recent declines in the share prices of A2 Milk Company Ltd (ASX: A2M) and Bellamy’s Australia Ltd (ASX: BAL) make them attractive options for investors.

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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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