Baby Bunting share price: is the stock a buy?

We unpack Baby Bunting's latest H1 results as well as look at what one top broker is currently saying about the stock.

Touting strong growth in a niche space, Baby Bunting (ASX: BBN) – a self-described one stop baby shop – has seen its share price rise more than 60% in the last 12-months.

Baby Bunting share price: interim results in focus

The release of the company’s interim results last week gave investors insight into how the company performed during the last six months of CY20 – and maybe most importantly: whether or not that ~60% run-up was justified.

Indeed, though the market first responded negatively – with the stock being bid down more than 10% following the H1 release – the share price has since stabilised.

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Looking at these results, on the top-line, the company reported sales of $186.4 million – representing 8% growth on a pcp basis.

On the bottom-line, the company reported pro forma earnings (EBITDA) of $14.3 million (+21% on a pcp basis) and profits (NPAT) of $4.8 million. Margins also improved during the half, with gross profit margins hitting 36.9%.

The company further expects FY20 gross margins to come in even stronger: at 37.0%.

This margin outlook, said the company 'is an outcome of working with our supplier partners on range improvements, further improvements in trading terms, optimising supply chain opportunities and increases in direct import volumes.'

One key negative that stood out however as part of these results was commentary surrounding the potential impact of the Coronavirus.

Here it was noted that because 'Baby Bunting sources products, either directly or through distributors, from China. The effect on Baby Bunting arising from the coronavirus outbreak in China cannot yet be readily determined.'

The company did however reassure investor thats it had ‘sufficient’ stock on hand – suggesting there would be no inventory short-falls just yet.

The analyst view

In response to the H1, Citi reiterated their 'buy' rating and upgraded their share price target to $4.05 from $3.90 on BBN.

With Baby Bunting (ASX: BBN) currently trading at $3.58 per share, that price target would imply upside of ~13%.

The investment bank expects Baby Bunting to report FY20 sales of 403.5 million against earnings (Core NPAT) of $21.0 million.

However Citi analysts did flag that their NPAT guidance 'does not account for coronavirus disruption.'

'That said we see Baby Bunting as less exposed to this risk compared to other retailers given the company's elevated stock position following weaker than expected 1H20 sales combined with the fact that its suppliers also hold stock in Australia,’ Citi analysts also said.

Of the four brokers covering the stock, all of them rate Baby Bunting a ‘buy’, according to Bloomberg Data.

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