By Marcus TuckHead of ResearchThe Super Investor8 am – 11 August...

By Marcus Tuck

Head of Research
The Super Investor

8 am – 11 August 2020

Is Bubs the next A2M?

Bubs Australia – BUB

A2 Milk Co managed to convert the global trend of consumers wanting easier to digest A2-protein based milk products into $14 billion of market capitalisation. Goat milk is even easier to digest. Is it possible that Bubs Australia (ASX:BUB), with a market capitalisation of only $510 million, is at a similar point to where A2 Milk Co was years ago, and is well positioned to experience a similar trajectory?

Bubs is Australia’s leading producer of goat dairy products, particularly infant milk formula (IMF), supplying 65% of Australia’s goat milk requirements from the largest milking goat herd in the country. Bubs runs a total herd of 23,000 goats, supplying in excess of 20 million litres of goat milk per annum. Bubs has plans to grow its herd to 50,000 milking goats.

Bubs’ product range is sold in over 2,000 points of sale in Australia including Coles, Woolworths, Costco, Chemist Warehouse and Baby Bunting. Bubs also exports to China and South East Asia.

The global IMF market has grown at a rate of 5-6% per annum over recent years, driven by strong Chinese demand. Chinese consumption of IMF has grown at a higher rate of 8-9%, lifting China’s share of the global market from 41% to 44%. These trends are expected to continue over the next five years, lifting China’s market share to over 50%.

Goat IMF growing faster than cow IMF

Global production of goat milk is approximately 20 million tonnes. However, only 23,000 tonnes (less than 1%) of this is converted to milk powder, with the majority consumed as cheese and other fresh product. Bubs’ current production of goat milk powder (1,750 tonnes) represents about 7.5% of global output.

The global market for goat IMF is expanding as a share of the total IMF market, increasing to 5% in recent years. It is expected to double again by 2023. In China, goat IMF accounts for about 12% of the total China IMF market. That share is rising, with goat IMF sales in China expected to achieve an annual growth rate of 20-25% over the next few years.

While IMF accounts for over half of Bubs’ sales, goat milk powder for adults accounts for 27% of revenue. Organic baby food, fresh dairy and children’s vitamins are other smaller segments.