Bubs share price: why one top broker sees 47% upside from here

Bell Potter sees sizeable upside for the Bubs share price from current levels, driven by, among other things, the significant opportunity entailed by the IMF market across Australia and China.

The Bubs $35 million capital raise – which has yet to be fully completed – looks to have sparked a new wave of interest from some of Australia’s top brokers.

In early December we wrote that Citibank had slapped a BUY rating and a bullish $1.40 price target on the young IMF stock.

Since then, the Bubs (ASX: BUB) share price has mostly range-traded around the capital raise issue price of $0.95 per share. Yet the share price got a slight boost today – rising around 1% at the time of writing – after Bell Potter released their own bullish research note on the company.

In a bout of déjà vu, Bell Potter initiated coverage on the fast-growing IMF company, slapping it with a BUY rating, a speculative warning and a Citi-inspired price target of $1.40 per share.

At Bell Potter's initiation price of $0.95 per share, this would imply potential upside of 47.5% for investors.

Practise trading Australian stocks with an IG demo account now

Bubs share price: bull thesis & risks in focus

Bell Potter is under no illusions that an investment in Bubs is ‘speculative’ in nature – given that the company remains early-stage, with a limited operating history.

Regulatory risk, particularly as it relates to Chinese regulation, the potential requirements to raise more capital in the coming years, the fact that Bubs remains loss making, supply chain disruption and brand impairment are all risks that contribute to the ‘speculative’ outlook.

This hasn’t stopped the brokerage firm from recognising the significant opportunity entailed by Australia’s, but mostly China’s all-important IMF market.

On this front, the broker sees much to like about Bubs (ASX: BUB), including: a leading position in the Australian/New Zealand goat milk pool, strong recent revenue growth that looks set to continue and solid distribution agreements that appear well placed to support the just mentioned top-line growth.

Taking a more granular view, Bell Potter expects sales to ramp up in the years ahead; with FY20 revenues expected to hit $70m, before running up to as much as $139.6m in FY22.

Earnings are estimated to grow in-step, with the broker expecting Bub’s earnings (EBITDA) will hit $0.3m in FY20, before ramping up to $14.8m in FY22.

Looking broadly at the valuation approach used to reach the $1.40 price target, given that Bubs (ASX: BUB) is not yet profitable, Bell Potter focused on an enterprise value-to-sales (EV/Sales) valuation method. Looking at comparable company’s in the space, companies such as a2 Milk (ASX: A2M), Bellamy’s (now de-listed) and just-listed Nuchev (ASX: NUC) have floated around a 3.5x to 7.3x EV/Sales multiple in recent years.

On this basis, and using a 5-6x EV/Sales multiple, Bell Potter reached a price target of $1.40 for Bubs.

A $51bn opportunity

Ultimately, such lofty growth expectations may be well supported by a significant market opportunity – with the brokerage estimating the value of the IMF market as a whole – encompassing China and Australia to be valued at $51bn (FY18) – with 70-75% of that market value being attributable to the offline-Chinese retail IMF market.

Importantly, Bubs' (ASX: BUB) current revenue growth is reliant upon Cross-Border E-Commerce and the somewhat fragile Daigou market – with the young company lacking the relevant SAMR approval required to sell their products directly in China’s retail stores.

Were the company to obtain SAMR approval, it would rank as a key positive and a potentially significant share price catalyst for already fast-growing company.

Watch this space.

IGA, may distribute information/research produced by its respective foreign affiliates within the IG Group of companies pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the research is distributed in Singapore to a person who is not an Accredited Investor, Expert Investor or an Institutional Investor, IGA accepts legal responsibility for the contents of the report to such persons only to the extent required by law. Singapore recipients should contact IGA at 6390 5118 for matters arising from, or in connection with the information distributed.

The information/research herein is prepared by IG Asia Pte Ltd (IGA) and its foreign affiliated companies (collectively known as the IG Group) and is intended for general circulation only. It does not take into account the specific investment objectives, financial situation, or particular needs of any particular person. You should take into account your specific investment objectives, financial situation, and particular needs before making a commitment to trade, including seeking advice from an independent financial adviser regarding the suitability of the investment, under a separate engagement, as you deem fit.

Please see important Research Disclaimer.

Seize a share opportunity today

Go long or short on thousands of international stocks.

  • Increase your market exposure with leverage
  • Get spreads from just 0.1% on major global shares
  • Trade CFDs straight into order books with direct market access

Live prices on most popular markets

  • Forex
  • Shares
  • Indices

Prices above are subject to our website terms and agreements. Prices are indicative only. All shares prices are delayed by at least 15 mins.


Prices above are subject to our website terms and agreements. Prices are indicative only. All shares prices are delayed by at least 20 mins.

The Momentum Report

Get the week’s momentum report sent directly to your inbox every Monday for FREE. The Week Ahead gives you a full calendar of upcoming key events to monitor in the coming week, as well as commentary and insight from our expert analysts on the major indices to watch.

For more info on how we might use your data, see our privacy notice and access policy and privacy webpage.

You might be interested in…

Find out what charges your trades could incur with our transparent fee structure.

Discover why so many clients choose us, and what makes us a world-leading provider of CFDs.

Stay on top of upcoming market-moving events with our customisable economic calendar.