The Bubs Australia Ltd (ASX: BUB) share price is pushing higher on Wednesday morning.
At the time of writing, the infant formula company's shares are up 2.5% to 44 cents.
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Why is the Bubs share price rising today?
The catalyst for the rise in the Bubs share price on Wednesday appears to have been a broker note out of Bell Potter this morning in response to yesterday's announcement.
In case you missed it, Bubs' announced that it would be going head to head with A2 Milk Company Ltd (ASX: A2M) with the launch of Bubs Supreme infant formula and toddler milk with natural A2 beta-casein protein. This A2 protein-based infant formula product will be launched into 500 Coles Group Ltd (ASX: COL) supermarkets from May.
And while the Bubs share price initially rose on the news, it ended the day flat. This may be due to investors taking a wait and see mentality with this announcement. After all, Bubs has hyped up countless product launches, such as its Vita Bubs vitamin range, in recent years, which have had little impact on revenue.
In addition, the company revealed its first purchase order of $32.9 million from daigou specialist Willis Trading for the new infant formula range.
What did the broker say?
According to the note, Bell Potter has retained its speculative buy rating and 70 cents price target.
Based on the current Bubs share price, this implies potential upside of 59%.
Bell Potter commented: "BUB announced the launch of an a2 protein IMF to sit alongside its existing goat and grass fed products. While the product will initially be ranged in ~500 Coles, it's the initial $32.9m purchase order from Willis Trading (i.e. Alpha Group) for delivery over 4Q22-1Q23 that is the most material aspect of the announcement. In 1H22 BUB generated gross IMF sales of ~$20.4m ($18.5m NSR) and group gross sales of ~$38.4m, so an initial purchase order of this magnitude is material."
"At a high level we continue to witness improving secular trade flows to China, which is a positive for the existing BUB business. However, it is the upside potential within the equity linked targets that has the scope to create the most material value for BUB. The incremental EBITDA delta on Daigou IMF sales is high, with a GM in excess of 30%, and while achieving sales targets comes with equity dilution, the potential uplift in profitability would likely outweigh this. The initial purchase order on a new SKU is a positive development on the previously announced partnership in our view," it concludes.
