Lucky 8 for Wattle Health in infant formula

Infant formula group Wattle Health’s share price has soared eight times higher than its issue price in just six months while ASX rival Bubs Australia is also surging again as renewed buoyancy about the China market spills over into smaller players.

Wattle Health’s market capitalisation has ballooned to an extraordinary $232 million with its shares jumping to $1.70 after a modest float in mid-March when it had an issue price of 20¢. This is despite its sales revenue being just $928,426 in 2016-17.

Much of the positive sentiment stemmed from a deal struck in early July where Wattle was part of a consortium with Hong Kong financial firm Masons, part of the broader Genius Link Asset Management group, which acquired 80 per cent of Melbourne infant formula manufacturing facility Blend and Pack.

Wattle has now finalised its 5 per cent stake in Blend and Pack, which has the capacity to produce 20 million tins of infant formula annually. Wattle expects an important China regulatory approval in November from the China Food and Drug Administration ahead of new regulations starting on January 1, 2018 for all infant formula companies selling into China.

Bubs Australia has also experienced a sharp jump in its share price along with the much larger Bellamy’s Australia, which has doubled in the past few months to beyond $12.40. In the past two weeks Bubs has climbed from 47¢ to 86¢.

Bubs chief executive Nicholas Simms said on Tuesday that sales had been strong in Coles supermarkets in particular in the past quarter. He said it was very important to build a strong local brand in Australia. He said China sales made up about 20 per cent of the total Bubs sales of infant formula and other organic baby products, with Australia comprising 75 per cent.

He said it was still early days for Bubs, with sales to China rising by 274 per cent for the three months ended September 30, 2017, compared with the same period last year.

“We’re at the beginning of our journey,” Mr Simms said.

Chinese consumers were researching carefully before buying infant formula products. “They’re coming to source our best products,” he said, referring to the broad range of infant formula brands on the market. Success in the home market was an important factor. “I believe it’s important for any brand,” Mr Simms said. Bubs had also been performing well in Costco stores in Australia.

But it’s not just Australian companies benefiting. Global giant Danone last week announced that its infant formula sales in China had risen by more than 50 per cent in its third quarter. Wattle Health finalised the acquisition of its 5 per cent of Blend and Pack in late September and said Wattle’s infant formula range was the first brand to be nominated by Blend and Pack to apply for China Food and Drug Administration approval to sell in bricks and mortar stores, and online from January 1, 2018 as regulatory changes by Chinese authorities occur.

Goat’s milk infant formula company Nuchev, which is now eyeing a potential ASX listing as sales of its Oli6 product climb, makes about half of its sales in Australia and half in China. It is stocked in about 1,000 retail outlets in Australia including category killer Chemist Warehouse and Terry White Chemmart.

Nuchev’s major shareholder and chief executive, Ben Dingle, has a strong track record after earlier in his career co-founding New Zealand’s Synlait Milk, which is now a $1.4 billion company and a supplier to sharemarket darling A2 Milk.

Shares in A2 Milk have more than doubled since June to beyond $7.40, while Bellamy’s Australia has jumped from $6.30 in mid-July to $12.40. Bellamy’s upgraded its profit forecast in early October as it continued a roller-coaster ride for shareholders.

As seen in the Financial Review, 24th October 2017.