Bridge Street Bites: BUB, FLT

Company News

by Glenn Dyer

Tuesday’s ASX session saw news from infant formula manufacturer Bubs Australia (ASX:BUB) that led to a big selloff, as well as word of an acquisition by travel group Flight Centre (ASX:FLT).


Shares in Bubs Australia (ASX: BUB) crashed 13% at one stage yesterday after the infant formula maker blamed China’s now discarded Covid lockdowns for poor first half sales.

The company said that slower than expected sales in key markets and a transition to a new operating model in China led to soft start to the year.

On top of that there were increased costs and an inventory provision that ended up pushing Bubs to an underlying EBITDA loss in the half.

Bubs shares ended Tuesday down more than 11% at 32 cents, still above the most recent low of 28.2 cents reached in mid-January.

With so many believers in the China re-opening story, you would have thought the Bubs’ problems there from the now ended Covid zero policy restrictions, would have been ignored.

But the China re-opening story seems to be conditional with gains to be made by commodity companies, especially coal, iron ore and gas companies – even if prices are not going the way (for coal and LNG) that the tale tellers would have us believe.

Investors ignored what would have usually been seen as good news that the company is on track to meet regulatory milestones for permanent access to the US market which was the ‘hot’ story for the stock last year when it managed to fill in some of the shortfall in baby formula supplies when the US ran short.

For the three months to December 31, Bubs reported a disappointing 28% decline in revenue to $14.3 million. This reflected a massive 66% decline in China revenue, which offset a 28% jump in Australia revenue and a 26% increase in international revenue.

This ultimately led to first half revenue falling 1% on the prior corresponding period to $37.9 million.

Management blamed this poor performance on slower than expected consumer offtake in key markets and lockdowns in China causing a delay to its transition to a new manufacturer to consumer operating model in the country.

This saw Bubs record an unspecified underlying EBITDA loss for the first half. It has also reduced the company’s cash balance from $64.6 million to $51.4 million at the end of December.

CEO Kristy Carr said in yesterday’s release “As foreshadowed at the Company’s Annual General Meeting in November, group gross revenues for the first two quarters are largely consistent with the first half of last year, arising from strong year-on-year growth in Australia and the United States being offset by the impacts of China’s now abandoned COVID-zero policy on channel dynamics and consumer purchasing activity.

“China’s prolonged lockdowns during the quarter delayed our transition to Bubs’ new ‘Manufacturer to Consumer’ (M2C) model in partnership with AZ Global, as we continue to sell through initial pipe-fill orders from previous quarters, leading to a 66 percent fall in gross revenues compared to the prior corresponding period.

“Nonetheless, the impact on group gross revenues from infant formula was limited to 10 percent for the quarter compared to the prior corresponding period, and strong pricing discipline was maintained across all markets. Group gross revenue for branded products in the first half of FY23 (excluding B2B and low margin bulk powder sales) was up 16 percent compared to the prior corresponding period.”

Bubs is going through the same loss of faith in the market that A2 Milk and Blackmores went through when they ran into problems in China (and A2 had to spend heavily to make headway in the US market).

Bubs will only rehabilitate itself when it fixes the problems in China and produces a strong and sustainable improvement in revenue and earnings.


Flight Centre Travel Group (ASX: FLT) said on Tuesday it would acquire UK-based leisure travel business Scott Dunn in a deal with an enterprise value of 121 million pounds ($A211 million).

Flight centre also released updates interim figures for the six months to December (not finalised) showing a rise in revenues and a small underling profit.

According to Flight Centre, Scott Dunn is a high-margin leisure business in the luxury travel segment with large average booking values and strong repeat bookings. It brought in $US199 million of total transaction value (TTV) and $US51 million of revenue last year.

“Scott Dunn provides an entry point into the UK and U.S. luxury travel market through a well-regarded, scalable brand which will be supported by FLT’s global platform,” Flight Centre CEO Graham Turner, said in a statement.

The travel management firm said the acquisition will add to its fiscal 2023 earnings a share in the mid-teens percentage.

The deal will be funded through a share placement of 12.3 million (or around 6.2% of the issued capital) to raise $A180 million and $A40 million in cash.

Flight Centre shares were halted for the raising at $A15.83.

The raising was done at $A14.60 share, representing a discount of 8.4% to the last closing price.

Flight Centre said it now expects half-yearly group revenue to more than triple to $A1.10 billion.

It also expects to post strong margins and return to profitability, anticipating an underlying half year EBITDA of $A95 million, compared to a loss of $A184 million last year.

It forecast underlying EBITDA to range between $A250 million and $A280 million in 2022-23 thanks to the rush by Australians to travel overseas and the surge in inbound tourism.

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