The two infant formula ASX shares in this article could be worth looking at after their share prices have dropped heavily over the last six months because of COVID-19.
There are some industries that have seen enormous growth such as e-commerce with ASX shares like Kogan.com Ltd (ASX: KGN) and Temple & Webster Group Ltd (ASX: TPW) seeing significant growth.
However, there are other ASX shares that are still lower compared to where they were 12 months ago or six months ago. The infant formula industry is one of those sectors that still appears to be suffering.
Let's look at two of them:
Bubs Australia Ltd (ASX: BUB)
The Bubs share price is down by 29% over the past six months.
If you're not sure what Bubs does, it's an integrated infant formula producer that is primarily known for its goat milk products. It also sells organic, gross-fed cow's milk infant formula ranges, organic baby food, cereals and toddler snacks. It has a vitamins and minerals supplements range called 'Vita Bubs'. Bubs also has a range of goat dairy products with exclusive milk supply from the largest milking goat herds in the country.
The infant formula ASX share recently released its trading update for the quarter ending 31 December 2020. In that ASX release, Bubs said that its quarterly gross revenue had gone up 36% compared to the first quarter of FY21, though it was still down 12% on the prior corresponding period.
China cross border e-commerce (CBEC) sales went up 27% quarter on quarter. Adult goat dairy gross revenue increased by 45% quarter on quarter. Bubs infant nutrition portfolio sales went up 27% quarter on quarter. Export sales to markets outside of China went up 194% quarter on quarter.
The infant formula ASX share also said that, according to IRI scan value sales data, Bubs Australia is the fastest growing infant formula manufacturer across Woolworths Group Ltd (ASX: WOW), Coles Group Ltd (ASX: COL) and Chemist Warehouse with combined retail scan sales at the checkout up more than 41% quarter on quarter and up 67% on the prior corresponding period.
Bubs also explained that the corporate daigou trade is softer than pre-COVID-19 levels but is up 122% on the first quarter of FY21.
A2 Milk Company Ltd (ASX: A2M)
The A2 Milk share price is down by 45% over the past six months.
The infant formula ASX share has been warning for some months that it was experiencing some difficulties as a result of COVID-19 impacts and much lower daigou buying activity.
Last month the company said that recent sales have not been as strong as it had been hoping. The daigou channel is important for stimulating demand across multiple channels, including CBEC. But the daigou channels sales have been disappointing. A2 Milk said that it intends to strengthen the focus on reactivating the daigou channel in the second half of FY21.
It wasn't all bad in the business update. A2 Milk said that its Chinese label sales in mother and baby stores (MBS) remains very strong and it's anticipating revenue growth in the first half of more than 40% compared to the prior corresponding period.
The rolling 12-month market share in MBS continues to increase – it had risen to 2.3% at the end of October, with increases in both same store sales and the number of new stores in the first half.
A2 Milk plans to continue its high level of investment in marketing of the rest of FY21.
The company also noted that its liquid milk businesses in Australia and the USA have performed well through the first half, with both businesses posting "strong" first half growth compared to the first half of FY20.
The company is now expecting revenue in the first half to be around NZ$670 million and an earnings before interest, tax, depreciation and amortisation (EBITDA) margin in the order of 27%.
For FY21 the company is expecting revenue to be in the range of NZ$1.4 billion to NZ$1.55 billion with the EBITDA margin to be between 26% to 29%. Over the medium-term, A2 Milk is aiming for an EBITDA margin in the order of 30%.
According to Commsec, A2 Milk is valued at 23x FY22's estimated earnings.
