Bubs Australia (ASX: BUB) is an infant formula brand with a major focus on goats milk. This week, BUB announced a four-year strategic alliance with Chemist Warehouse relating to the sale and promotion of its products within its domestic store and online network. The deal is a strong endorsement of the quality of the Bubs Australia brand and will accelerate its growth through the Chemist Warehouse network. 

Over the last 12 months, Bubs Australia has developed a strong go-to-market strategy in China with valuable distribution agreements. We invested in the company due to the potential that these contracts would allow BUB to take market share and lead to earnings upgrades from analysts.

The deal with Chemist Warehouse provides strong alignment between Chemist Warehouse and BUB, including specific sales targets. We see strong momentum in BUB’s products that can drive further upside to earnings.

Portfolio Manager Tobias Yao recently visited China to gain additional insight into the infant formula sector and the local supply chain network (you can read Tobias’ analysis here). Our research suggests that commoditised infant formula products will struggle to compete against incumbent brands, unless they offer a point of differentiation. Bubs Australia does exactly that, having expanded its products to include non-dairy nutritional items and by focusing on the beneficial effects of goat’s milk. We hold BUB as a market-driven investment in WAM Capital, WAM Active and WAM Microcap. Shares in BUB closed up 23.5% for the week. 

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Jimmy Zhu

It seems bub sp has gone much ahead of its fundamentals, agree it has good set up in terms if marketing, manufacturing, it is still questionable how many consumers will switch to its products. Given the size of goat infant formula, it will never become a2.