In the present scenario where markets seem to go haywire amid the COVID-19 pandemic, there is no industry that has not felt the impact of the economic turmoil. While some industries were hit harder than the rest like travel and tourism, some had a small influence from the global slowdown. And then there were some who profited from the global downturn.
Milk and infant formula stocks form a part of one such industry that has bucked the trend. Let’s look at three ASX-listed milk and infant formula stocks - A2M, NUC, BUB.
a2 Milk Company Limited (ASX:A2M)
a2 Milk Company Limited is a leading Australian Company that produces cow milk which is free of a specific protein, beta casein A1. The Company sells its products under the brands a2 and a2 Milk, through its distribution chain in New Zealand, China, Hong Kong, Singapore, the US, and the UK, apart from Australia.
Increased their holding in Synlait Milk: On 23 March 2020, A2M announced that it had bought shares of Synlait Milk Limited (ASX:SM1) in the market at NZ$4.95 per share, which is lower than the Company’s average entry price for its previous holdings in Synlait. A2M considered the low price of Synlait as an opportunity to increase their stake in the former but intended not to improve their holdings beyond 19.9%.
Widens presence in the Canadian market: The Company signed an exclusive licensing agreement with Agrifoods Cooperative on 12 March 2020 to produce, distribute, sell and market its brand a2 Milk liquid milk to expand it the Canadian market as per the strategy to leverage the brand enhancement already undertaken in North America. The Company anticipates that it will launch a range of liquid milk products in the Canadian market later in the calendar year 2020.
Impressive 1H20 Results with ~32% growth in revenue: For the first half of 2020, the Company reported a 31.6% rise in the total revenue to $806.7 million, 20.5% increase in EBITDA to $263.2 million, and 21.1% growth in net profit after tax to $184.9 million. The Company’s cash at the end of December 2019 stood at $618.4 million compared to cash balance at the end of June 2019 at $464.8 million.
A2M expects full-year EBITDA margin to be in the range of 29-30%. However, the Company projects the 2H20 EBITDA margin to be lower than that in 1H20. The Company has a target to attain an EBITDA margin of approximately 30% in the medium-term. The Company has created a support and assistance package of worth NZ$3.0 million due to the COVID-19 pandemic.
Stock Performance: A2M’s stock closed the day’s trade at $16.060 on 24 March 2020, an increase of 4.286% compared to the previous day’s closing price. The Company has a market capitalisation of $11.35 billion and ~737.73 million outstanding shares. A2M has generated positive returns of 5.25% and 21.93% in the last three months and last six months, respectively.
Nuchev Limited (ASX:NUC)
Nuchev Limited is an Australian milk infant formula Company that is into the development & selling of multiple range of goat nutritional products. The Company sells its product under Oli6 brand across various chains including Coles supermarkets and Chemist Warehouse.
Resignation of Key Personnel & Prevailing market condition may affect the ability to meet 2020 EBITDA Prospectus forecast: The Company recently announced that its Chief Financial Officer, Darryl Lasnitzki would resign & leave the organisation in June 2020. NUC is now required to start a search process to find a suitable replacement immediately. Further, the Company has reaffirmed its 2020 outlook to achieve its full-year revenue and volume Prospectus forecast. However, the present market conditions that have evolved recently may affect the Company’s ability in meeting the full-year EBITDA Prospectus forecast.
Record HY revenue in 1H20: The Company, for the first half of 2020, reported a 257% increase in volume to 265.7 metric tonnes (MT) on the previous corresponding period (pcp). As a result, there was 219% increase, compared to pcp, in the 1H20 revenue to $8.1 million. These included the sale of surplus ingredients which is a part of inventory balancing that prevails in the dairy industry. Both the revenue and volumes have exceeded the 1H20 Prospectus forecast of $7.6 million & 240.5 metric tonnes (MT) respectively.
In addition, the Company, in December 2019, had raised $48.7 million through an IPO.
1H FY 20 Financial Performance (Source: Company Reports)
Stock Performance: NUC’s stock closed the day’s trade at $1.440 on 24 March 2020, an increase of 5.109% compared to the previous day’s closing price. The Company has a market capitalisation of $61.65 million and ~45 million outstanding shares.
Bubs Australia Limited (ASX:BUB)
Bubs Australia Limited is engaged in the production and selling of baby milk formula and baby food, packaged food products like organic infant food products, and cereals for children, among others.
Increased Demand & Increased capacity due to COVID-19: The Company has significantly improved their capacity and is planning to increase their inventory cover to address the supply requirements of the retail partners for both goat milk and cow’s milk-based formula. For this, the Company has moved to two shifts per day and plans to move the capacity to three shifts as per the requirement. This is due to the spread of COVID-19 fears, that the parents have anxiously increased the demand to secure the supplies of infant milk formula. Further, the Company has extended the offer of free shipping to all the orders of baby food and infant formula that is put on their website store, bubsaustralia.com. The offer is also extended to the Australian families that are still finding it challenging to get the Company’s products in the local retail outlet.
Record revenue in 1H FY20: For the first half of 2020, the Company reported a 37% growth in gross revenue to $28.75 million compared to the same period last year. The growth comprised of 77% increase in the revenue from Bubs Infant Formula and 30% rise in the revenue of adult goat milk powder compared to the prior corresponding period (pcp). Bub’s gross margin expanded from 19% in 1H FY19 to 24% during the reporting period. Overall, the Company has posted the statutory EBITDA loss of $5.25 million for 1H 2020 compared to a loss of $8.52 million in 1H 2019.
Stock Performance: BUB’s stock closed the day’s trade at $0.535 on 24 March 2020, an increase of 1.905% compared to the previous day’s closing price. The Company has a market capitalisation of $294.16 million and ~560.3 million outstanding shares.
DisclaimerThis website is a service of Kalkine Media Pty. Ltd. A.C.N. 629 651 672. The website has been prepared for informational purposes only and is not intended to be used as a complete source of information on any particular company. Kalkine Media does not in any way endorse or recommend individuals, products or services that may be discussed on this site. Our publications are NOT a solicitation or recommendation to buy, sell or hold. We are neither licensed nor qualified to provide investment advice.
