The Bubs Australia Ltd (ASX: BUB) share price has come under significant pressure this week.
This morning the junior infant formula company's shares are down over 1% to 37 cents, bringing their week-to-date decline to a sizeable 16%.
It also means the Bubs share price is now down 57% from its 52-week high.
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What's going on with the Bubs share price?
Investors have been selling the company's shares following the release of a very disappointing first quarter update on Monday.
That update revealed softer than expected sales growth, a large cash burn, and very weak outlook in China.
In response to the update, the team at Bell Potter has downgraded the company's shares to a speculative hold rating and slashed the price target on them by 40% to 45 cents.
What did the broker say?
Bell Potter's analysts were disappointed with Bubs' first quarter performance. They commented:
1Q23 gross revenue of $23.6m was up +28% YOY, but sequentially down -51% QOQ. IMF made up 92% of quarterly revenues with the US making up 40% of revenues at A$9.6m. China IMF sales grew +4% YOY, with +20% YOY growth in Daigou sales. At face value IMF gross revenues of ~$22m was below our expectations, where we had anticipated completion of the original AZ Global Bub's Supreme purchase order and continued US inventory fill to make a more meaningful 1Q23 contribution.
Unfortunately, the broker isn't expecting things to improve and has made major revisions to its estimates. It said:
Following a softer than expected 1Q23 sales outcome, cautionary 2Q23e China IMF commentary and peer group comments on the US competitive landscape, we have adopted softer near term revenue forecasts, with our forecasts down -27% in FY23e, – 23% in FY24e and -20% in FY25e. Revenue downgrades along with higher marketing costs results in EBITDA downgrades of -98% in FY23e, -61% in FY24e and -50% in FY25e.
Overall, while Bell Potter acknowledges that there are bound to be a few bumps on the road, this bump was too large to ignore. It concludes:
While cognisant that the pathway to building brands is never linear, the shortfall in 1Q23 IMF revenues versus our expectations results in a more cautionary approach to near term revenue growth, earnings growth and valuation.
