Growth Focus: Baby Bunting Group Ltd (BBN)

by Patrick Taylor

 Date of Data Capture: 29/11/2018


Classification: Toys & Juvenile Products

Current Price: $2.27

Market Capitalisation: $277 M

Forecast EBITDA Growth: 39.78%

Yield Estimate: 3.64%

Consensus Price Target: $2.67

# Covering Analysts: 4

Discount at Current Price: 17.62%

Price Target Trend: Increasing-Flat

Signal Timeframe: Quarterly-Monthly-Daily

Trend Bias: Up-Down / Long-Short
Short-term: Positive
Medium-term: Positive-Neutral
Long-term: Positive

Recommendation: Buy

 Focus: Dividend Income & Capital Growth

Set up Notes:

·    BBN looks ready to continue its recovery off fresh price support, and is backed by improving earnings, strong forecasting and signs of a new longer-term uptrend emerging here.

·    An earnings slump over the last year is giving way to renewed growth and a greater recovery seems to be underway - this is backed by favourable expectations for expansion across sales, earnings and yield out to 2021.

·    Pricing broke out of a twenty two month linear downtrend earlier this year, rallying up to major resistance before backing down to successfully retest new support as signalling turns positive.

  ·    Price targets sit higher at $2.50, $2.70 and $3.00 with good support layered down to $2.00, $1.70, $1.60 and $1.50 if required.


Our primary focus here is capital gain, we will select our stocks from the ASX Top 500 All Ordinaries Index.

Patience can help you avoid making rash decisions, and sometimes it can help you get wind of a good opportunity after the market has already spat the dummy. We think we have both here with Baby Bunting Ltd as the children’s toy and clothing company looks to get back to its feet after taking a tumble.

Born in Balwyn 1979, BBN remains based in Victoria and has grown into one of Australia’s leading nursery retailers, operating 50 one-stop-shops catering for children aged 0-3. The company has a wide product offering, ranging from prams and nappies to furniture and food, including well-known brands like Ergobaby, Steelcraft and Bugaboo.

The stock is coming out of a tough year, which was caused in part by the failures of competitors and the knock-on effects of clearance sales affecting profits in the short-term. Hidden within this price decline is a great opportunity for enhanced recovery as it looks to capture this abandoned market share while also increasing own-label sales. Roughly seventy competitor stores have left the market and this offers a rare opportunistic market window and management are looking to drive growth with plans to ramp up to eighty stores, with five already opening in 2018, with two more expected by Christmas.

The slow 2018 is already starting to give way to new growth, with a recent update reporting stronger earnings and analyst consensus forecasts predict further strong growth out to 2021. There is a decent 3.8% dividend yield here that is set to continue rising past 5% within the next two years – but our main focus is capital growth and we like the broad expectations for aggressive sales, margins and earnings growth going forward.

Pricing has benefitted from the early signs of recovery with recent reporting helping to lift BBN out of a two-year downtrend mid-2018, with a sharp rally raising prices up from $1.50 to meet resistance at $2.50 before falling back to successfully test new support at $2.00 in recent weeks. With prices rebounding off support BBN now looks ready to go higher with positive signalling present across short, medium and long-term timeframes. We expect price to follow earnings higher and with a great recovery background picture, and exciting technical setup, we think Baby Bunting could be about to experience a newborn uptrend.



This report was produced by Taylor Securities Pty Ltd, which is a Corporate Authorised Representative (Number 414063) of Bespoke Portfolio Pty Ltd (AFSL 341991). Taylor Securities and Patrick Taylor (Representative number 414064) have made every effort to ensure that the information and material contained in this report is accurate and correct and has been obtained from reliable sources. However, no representation is made about the accuracy or completeness of the information and material and it should not be relied upon as a substitute for the exercise of independent judgment. Except to the extent required by law, Taylor Securities and Patrick Taylor does not accept any liability, including negligence, for any loss or damage arising from the use of, or reliance on, the material contained in this report. This report is for information purposes only and is not intended as an offer or solicitation with respect to the sale or purchase of any securities or financial products. The securities or financial products recommended by Taylor Securities and Patrick Taylor carry no guarantee with respect to return of capital or the market value of those securities or financial products. There are general risks associated with any investment in securities or financial products. Investors should be aware that these risks might result in loss of income and capital invested. Neither Taylor Securities and Patrick Taylor nor any of its associates guarantees the repayment of capital. WARNING: This report is intended to provide general financial product advice only. It has been prepared without having regarded to or taking into account any particular investor’s objectives, financial situation and/or needs. Accordingly, no recipients should rely on any recommendation (whether express or implied) contained in this document without obtaining specific advice from their advisers. All investors should therefore consider the appropriateness of the advice, in light of their own objectives, financial situation and/or needs, before acting on the advice. Where applicable, investors should obtain a copy of and consider the product disclosure statement for that product (if any) before making any decision.

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