The Bubs Australia Ltd (ASX: BUB) share price is jumping 6% higher after announcing a new set of A2 products.
Bubs is an infant formula business that specialises in goat milk products. However, that could be about to change.
Bubs A2 products
The infant formula company has announced the launch of ‘Bubs Supreme’ infant formula and toddler milk with natural A2 beta-casein protein. This now gives Bubs representation across all key premium segments of the infant formula market.
Bubs said this taps into the global A2 beta-casein milk market valued at US$1.23 billion, with a forecast of compound annual growth rate (CAGR) of 13.5% to 2026.
The new line ranging secured in 500 Coles Group Ltd (ASX: COL) supermarkets nationally, which will be on the shelves from May 2022. Coles will also be ranging a selection of Bubs organic toddler snacks and teething rusks from May 2022.
Willis Trading‘s “opening” purchase order of $32.9 million will be delivered in the fourth quarter of FY22 and the first quarter of FY23. This will be produced and distributed to the daigou channel over the next six months. Willis Trading is the corporate daigou that Bubs has signed a strategic agreement with.
Higher sales and profit could be very handy for the Bubs share price over time.
Management comments
Bubs Executive Chair Dennis Lin said:
This is a great example of what can be achieved when a channel and brand work together with aligned interests.
Bubs is already the fastest growing infant formula manufacturer in Australia, experiencing a record 31% increase in scan sales and doubling market share to 3.9%.
Infant formula is our most profitable product category, reflected in the doubling of infant formula gross sales, significant margin gains and first EBITDA (EBITDA explained) profit reported in the first half of the current financial year. As we continue with a strong innovation pipeline, we believe the launch of an A2 beta-casein protein formula range will provide strong support for our future global growth momentum towards our goal of Bubs becoming the infant nutrition brand of choice.
Final thoughts on the announcement and Bubs share price
I think this is a very positive update from Bubs. There is already a lot of momentum with the business from the first half of FY22, and this announcement will help accelerate revenue, profitability and cash flow. As Bubs said, all of these sales are with its highest margin products, so Bubs’ overall margins should improve.
This makes Bubs more attractive, in my opinion. But there are risks relying too much on Chinese sales through one customer.
