Is Bubs Australia Ltd (ASX:BUB) the next A2 Milk Company Ltd (ASX:A2M)?

The Bubs Australia Ltd (ASX: BUB) share price has pushed higher in afternoon trade following the release of the goat milk and infant formula company’s annual general meeting presentation.

At the time of writing the Bubs share price is up 4.5% to 47.5 cents.

What was included in the presentation?

As well as the customary review of its FY 2018 performance, the presentation included a trading update and outlook for the full year.

Bubs CEO, Kristy Carr, revealed that the company continues to make good progress on its strategic journey, with strong positive momentum in top-line sales growth.

Bubs has built on FY 2018’s 330% increase in gross sales to $18.4 million with a strong sales performance so far in FY 2019. So much so, Carr expects Bubs to exceed its FY 2018 full year revenue by the end of the first half of FY 2019. After which, she expects strong growth momentum continuing into the second half.

While that is great to hear, despite the strong sales growth in the first quarter, Bubs posted a sizeable cash outflow from operating activities. In fact, its cash outflow was greater than its cash receipts.

Pleasingly, Carr has advised that the company’s focus is now on improving its costs.

She said: “Our focus is now on improving cost of goods, particularly in our nutritional and powder lines, and optimising the channel and product mix to improve margins and drive profitability. We believe significant improvements can be made here in the next 12 months.”

Is Bubs the next a2 Milk Company?

I think Bubs has the potential to compete head to head with a2 Milk Company and Bellamy’s Australia Ltd (ASX: BAL) in the future, but there’s still a long road ahead before that is a possibility.

I would suggest investors keep the company on their watchlists until it is running profitable operations. In the meantime, I would stick with either A2 Milk Company or Bellamy’s.

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