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Bubs (ASX:BUB) share price lower on share purchase plan delay

Red and white arrows showing share price drop
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The Bubs Australia Ltd (ASX: BUB) share price has continued its decline and is trading lower again on Tuesday.

At the time of writing the infant formula and baby food company’s shares are down 0.5% to 78.5 cents.

This decline means the Bubs share price is now down 43% from its 52-week high.

Why is the Bubs share price under pressure?

The Bubs share price has come under pressure this morning following the release of an update on the retail component of the capital raising it announced with its full year results in August.

Bubs launched yet another dilutive capital raising last month to fund the acquisition of an ownership interest in a Beingmate manufacturing facility in Beihai China and to support its SAMR application for China-made Bubs Infant Formula products.

Given the difficulty of gaining approval to enter the lucrative China market from outside it, Bubs decided that it may have more success if it manufactures its products within it.

The company’s institutional placement was a smooth affair, with the company successfully raising $28.3 million at 80 cents per share.

However, its attempts to raise up to a further $11.7 million via a share purchase plan (SPP) haven’t gone to plan.

What did Bubs announce?

This morning the company advised that it would be extending the closing date of the SPP by two weeks from 23 September to 7 October.

It explained: “Due to delays being experienced with Australia Post deliveries during COVID-19 and feedback received from shareholders, the closing date for the SPP will be extended by a period of two weeks.”

This appears to be an indication that demand for the SPP has been subdued. Though, if this is the case, I wouldn’t imagine it is due to delays with the mail. Rather, I suspect it is because the Bubs share price has been trading below the SPP price of 80 cents for much of the last two weeks.

Management may be hoping that the Bubs share price gets a boost between now and 7 October to make the offer more attractive to retail shareholders. Because if Bubs fails to raise the funds, its growth plans will have to be scaled back accordingly.

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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 and has recommended BUBS AUST FPO. 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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