Nuchev Ltd (ASX: NUC) shares are up 3.79% today on the release of a strong quarterly report this morning. A relatively new ASX infant formula player, Nuchev is an Australian based, globally orientated food business with a dedicated focus on developing, marketing and selling a range of premium Australian-made goat nutritional products.
Nuchev's primary products include its Oli6 branded goat infant formula and nutritional range, which are sold across multiple sales channels in Australia, China and Hong Kong.
Explosive quarterly report
Earlier today, Nuchev provided a 3rd quarter activity report for the period ending 31 March 2020. It highlighted continued sales momentum of its Oli6 goat-milk infant formula and nutritional products, with significant revenue and volume growth across key distribution channels.
Despite the coronavirus pandemic, the company delivered all-time record sales and an all-time record sales month in March 2020. It notes that it has not experienced any adverse material impacts as a result of COVID-19 and that the strong market demand has been capably met by Nuchev's supply chain.
Volumes and net revenue for the 9 months ending March 2020 increased by approximately 168% and 155%, respectively, on the previous corresponding period (pcp). Its revenue during this period soared from $5.1 million in the pcp to $13.0 million. Nuchev currently has a market capitalisation just shy of $100 million, which places the company at a relatively low sales multiple.
Its sales momentum is driven by its key sales channels of cross border e-commerce, pharmacy and grocery partners. Nuchev submitted its brand application to sell Chinese specification Oli6 product in the offline channel to the State Administration for Market Regulation (SAMR) in 2018. It notes that some brands manufactured in Europe recently received approval, and remains confident that the process will progress to a positive outcome. Should it receive approval, investors can expect a significant volume and revenue boost.
Given Nuchev's recent IPO, the company is in a strong cash position with $13 million cash on hand with no debt. The company is showing improvements in its cash flows but still operating at a loss.
Could it be the next A2 Milk?
The A2 Milk Company Ltd (ASX: A2M) had similar humble beginnings. However, Nuchev's strong performance today is by no means a guarantee that it will become an infant formula giant. One of my personal criticisms is that goat milk is a niche market and not all consumers may be inclined to consume goat-milk related products. The market opportunity at hand may be smaller than cows milk.
That said, Nuchev is making a move in the right direction. The company has achieved very strong growth results with no significant supply chain issues amidst all this chaos. The SAMR application approval could serve as a catalyst for its revenues and share price to reach new highs, however there is an inherent risk as it could be rejected/delayed. Overall, I believe it has potential and is a stock worth having on your watchlist.
