The Bubs Australia Ltd (ASX: BUB) share price is having a tough start to the week.
In afternoon trade, the infant formula company's shares are down almost 7% to 61.5 cents.
Why is the Bubs share price sinking?
The weakness in the Bubs share price may have been driven by a lukewarm response to the company's guidance upgrade from a leading broker.
According to a note out of Bell Potter, its analysts have retained their speculative hold rating and 75 cents price target on the company's shares.
While this still implies decent upside for the Bubs share price from the current level, it hasn't been enough to get investors excited. Particularly given some of the comments made by its analysts.
What did the broker say?
Bell Potter notes that Bubs has upgraded its guidance for FY 2022 revenue to over $100 million and its underlying EBITDA to be at least double what it recorded during the first half. The latter would mean EBITDA of ~$2.4 million.
Its analysts were a touch underwhelmed with the company's earnings guidance. Though, it acknowledges that management could have been conservative. The broker explained:
We had previously upgraded FY22e EBITDA forecasts to reflect the benefit of an additional ~$12m of revenue linked to US sales agreements. On face value FY22e EBITDA guidance appears softer than our previous forecast of $4.5m and likely encapsulates a degree of conservatism. We note the implied delta on 1H22- 2H22e gross revenue is ~9% (ex-provision reversals), which compares to the estimated IMF gross contribution margin ~20% (GM less marketing and distribution).
Looking ahead, the broker remains positive on the potential of the company if things go to plan, but appears to waiting for proof before going all in. It concluded:
Our Hold, Speculative risk rating remains unchanged. We continue to see BUB as a high ceiling early stage FMCG entity with the scope to become a ~$50m EBITDA business if the upper bound of sales targets within the Alpha Group distribution agreement are achieved and if permanent US market access is achieved at comparable gross contribution margins to the IMF business today. To a degree an element of success is already reflected to the current market value.
