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Why are the Bubs (BUB) and a2 Milk (A2M) share prices in focus?

Posted: 31 May 2022 12:45 pm
News
BUB-shares-31May_1800x1000_Finder

Shares in the 2 formula makers are up 36% and down 14% respectively so far this year.

Shares in infant formula producers Bubs Australia (ASX: BUB) and bigger rival a2 Milk (ASX: A2M) are among the top traded shares on the ASX for a second straight session.

The 2 stocks are trading slightly lower on Tuesday, down 4% and 1% respectively, but this is likely on account of some profit taking, after the surge seen in the previous session.

Why this sudden interest in the BUB and A2M stock price?

Both ASX-listed specialty milk companies came into the spotlight on Monday after US President Joe Biden announced over the weekend that Bubs Australia had secured US FDA approval for its product and would send 1.25 million tins of infant formula, the equivalent of 27.5 million bottles, to the United States.

That helped Bubs Australia shares rocket more than 40% on Monday to 68 cents a share while those in rival a2 Milk also jumped 10% to $4.77 during the session. Some of that profit is being booked by traders today although most of the gains have sustained.

This comes as the US is experiencing its worst infant formula shortage that has already lasted months after that country's largest formula manufacturer, Abbott Laboratories, was forced to close its Michigan plant in February after recalling its product from stores due to contamination.

The US has since been struggling to source infant formula and has even shipped in emergency supplies recently from Europe.

But that could turn into a golden opportunity for the 2 ASX manufacturers to gain a foothold for their products in the key US market.

Growth opportunity

Australian infant formula producers like Bubs and a2 Milk have largely focused on China, the world's largest infant formula market, to fuel their export sales although the pandemic-fuelled collapse of the daigou trade in recent years has heavily affected their revenue growth.

Meanwhile, they have been unable to dent the American market in the face of established multinational players there such as Abbott, Meade Johnson and Nestle.

But by assisting the US government, both companies hope to secure crucial market share and diversify their revenues.

Bubs has already secured the FDA approval within 6 months and has now got a firm supply contract. Earlier this year, the company set a goal for the US to account for 10% of its revenue within 5 years.

a2 Milk, which launched its fresh milk products in the US 5 years ago and has a retail presence there, has submitted its application for an FDA approval last week.

The company had set an ambitious target of US$100 million revenue from that market by 2026, although its half-year results in February revealed that US segment revenue slipped 5% to $32.4 million.

Investors are now hoping the US crisis gives fresh wings to the 2 companies' goals.

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Considering buying A2M or BUB shares?

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Do keep in mind that not all platforms offer the same set of stocks. Some only offer US stocks, so make sure to select a platform that offers ASX-listed stocks.

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Disclaimer: This information should not be interpreted as an endorsement of futures, stocks, ETFs, CFDs, options or any specific provider, service or offering. It should not be relied upon as investment advice or construed as providing recommendations of any kind. Futures, stocks, ETFs and options trading involves substantial risk of loss and therefore are not appropriate for all investors. Trading CFDs and forex on leverage comes with a higher risk of losing money rapidly. Past performance is not an indication of future results. Consider your own circumstances, and obtain your own advice, before making any trades.

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