Bubs (ASX:BUB) share price jumps a further 13% on broker upgrade

It has been a good couple of days for this infant formula company…

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The Bubs Australia Ltd (ASX: BUB) share price is charging higher for a second day in a row.

In morning trade, the infant formula company’s shares are up 13% to 56.5 cents.

This means the Bubs share price is now up 52% in two days.

Why is the Bubs share price charging higher again today?

The catalyst for the rise in the Bubs share price on Thursday has been a very positive reaction to its first quarter update from a leading broker.

In case you missed it, after several disappointing quarters, Bubs returned to form in the first quarter of FY 2022. It reported quarterly gross revenue of $18.5 million, which represents a 96% increase year on year and a 45% quarter on quarter increase.

A key driver of this growth was Bubs’ China business. Sales across the Chinese Daigou, cross border ecommerce, and General Trade channels increased 156% over the prior corresponding period to $9.8 million. This has sparked hopes that the tough times are now behind the infant formula market.

Which broker is positive on Bubs?

According to a note out of Bell Potter, its analysts have upgraded the company’s shares to a speculative buy rating with a 65 cents price target.

Based on the current Bubs share price, this still implies potential upside of 15% even after its gains this week.

The broker commented: “BUB delivered a surprisingly strong 1Q22 sales outcome, which has been driven in large by the infant nutrition business. Improving secular trade flows to China, continued signs of brand traction (5 consecutive quarters of high double digit scan data sales growth) and the potential for BUB to benefit in indirect distribution channels as A2M shifts focus to direct China channels, suggest more optimism is warranted. To this end we upgrade our rating from Hold, Speculative risk to Buy, Speculative risk.”

Bell Potter also provided colour on how it values in the Bubs share price.

It explained: “Our $0.65ps valuation on BUB’s is predicated on: (1) an existing brand value of 5.5-6.5x FY22-23e revenue (ex-processing), which compares to a peer group of emerging FMCG entities at 5.5x EV/T12M revenue and a 6.7x last reported annualised quarterly revenue; and (2) a value for the processing assets at $4-5/tin of capacity and (3) ProForma net cash post settlement of deferred acquisition costs.”

Should you invest $1,000 in Bubs right now?

Before you consider Bubs, you'll want to hear this.

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The online investing service he’s run for nearly a decade, Motley Fool Share Advisor, has provided thousands of paying members with stock picks that have doubled, tripled or even more.* And right now, Scott thinks there are 5 stocks that are better buys.

*Returns as of August 16th 2021

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has recommended BUBS AUST FPO. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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