At the time of writing, shares of Baby Bunting Group Ltd [ASX:BBN] are up by 33.33%, to $2.32 per share. Baby Bunting Group is Australia’s largest nursery retailer, with 37 retail locations nationwide.
Why did Baby Bunting Group Ltd shares do this?
The company reported that pro-forma EBITDA (i.e. core earnings) was $18.6 million for the 2018 Financial Year (FY18), down 18.9%. However, the earnings report also announced a few positives, which is why the share price is surging today.
What now for Baby Bunting Group Ltd?
Baby Bunting Group’s EBITDA did fall by 18.9% over the past financial year. However, the company expects better days ahead. Excluding employee equity incentive expenses, FY19 EBITDA is estimated in the range of $24–27 million.
That’s a nice improvement…
CEO and Managing Director, Matt Spencer told the market:
‘The past financial year has seen Baby Bunting strengthen and consolidate its market leading position as the largest specialty baby goods retailer in Australia. In unprecedented times, Baby Bunting’s top 4 specialty baby goods competitors all entered external administration resulting in significant price deflation as a result of distressed retailing. Despite this, Baby Bunting was still able to grow sales and transaction volumes within the difficult trading environment.
‘The focus for the year ahead is to grow our business by continuing to deliver to our customers the broadest range, at the best value, conveniently across multiple channels while providing excellent service and advice.’
The bottom line? The turnaround story is happening as we speak.
The enterprise valuation (market cap plus net debt) stands at $327 million. In other words, the forward looking EV/EBITDA is roughly 13.63 times at the lower earnings estimate. That’s no bad, considering forward-looking EBITDA growth is roughly 30–45%. If the company continues to hit targets and demonstrate continued positive cash flow, more institutional investors are likely to join the party and the share price could explode in the months ahead.
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