Executive Summary

Baby Bunting Group Limited is leading retail shop chain of baby products in Australia. The
product includes baby wear, feeding, nappies, toys, Manchester, furniture and associated
accessories. The vast varieties of products cater the needs of babies between age group of 0 and 3
years. There are currently 43 retail stores across Australia. Company sells its product online also.
The purpose of the financially analysis would help to take decision whether company is good for
investment.

Analysis

Following table shows the key statistics of Baby Bunting Group for fiscal year 2017.

Market capitalization $176.37 million

Revenue $278.03 million
Net Income $12.25 million
Sales growth 17.40%
Net profit margin 4.40%
Return on Assets 9.54%
Return on Equity 13.11%
Debt to Equity 5.1
Receivable turnover 31.43
Assets turnover 2.17
Current ratio 2.06
Quick ratio 0.54
P/E current 13.44
P/B ratio 2.56
Beta 0.25
Dividend yield 7.35%
Source: http://www.marketwacth.com

Sales growth is quit high that results in high revenue and income over last year. Store sales also
increases by 6.9% which is in line of company’s expectation and long term’s historical average.
The profitability position of company is measured by Net profit margin, EOA and ROE and all
these three measures improve over last year. The projected earnings growth rate of 42.79% gives
a buoyant outlook and it seems to achieve with improved cost management and sustainable
revenue growth. Leverage position is although not good as Debt to equity is quit high and thus
there is large risk of insolvency. Efficiency ratio like Receivable turnover ratio and Assets
turnover ratio both are better than Industry’s average. Liquidity position is also good although
Quick ratio needs to be improved. P/E ratio and P/B ratio is lower than Industry’s average that
shows company’s share is undervalued. Low beta value makes the shares defensive one.
However, share price fluctuated between AUD$1.7 and AUD$1.34, a 26.49% variability over
past three months; no significant falls in future is expected due to investors’ belief in company
and their personal portfolio rebalancing. Dividend yield in current year is also higher than last
year (in 2016, it was 6.3%). Thus, Over all, company’s financial position is good.
 Following graph shows the stock price movement over past one year. The price of stock is on
declining trend and analyst estimates that in the next quarter, the price will little improve due to
company’s expansion plan of retail stores and high demand of company’s stock by existing and
new investors.

https://au.finance.yahoo.com/quote/BBN.AX/chart
Recent development and future plan -

Baby Bunting is planning to double its size of store network within next seven years. Recently it
is planning to open five to eight new stores in next quarter. It will not only increase the sales
revenue but also be helpful to capture large market share in baby care industry.

Two competitors, Baby Bounce and Baby Savings, have each recently entered into external
administration. Thus, in short run, they may have negative effect on Baby Bunting’s sales on
profit margin in FY 2018.

Company is also planning to launch new premium products and pram offers in FY 2018. Best
buy program is extended to next year also. Thus, such support program would further enhance
the company’s profitability and enlarge market share.

The investment program of company will see $3.5 million of capital invested for infrastructure
like new stores and refurbishments. Company is also looking for expected investment worth $1.5
million in operational expenditure.

Conclusion

Baby Bunting is financially sound company with good financial measures. Profitability,
liquidity, efficiency etc are good. Company has good future prospects with high growth rate.
Despite of tough competition, company is able to capture good market share with expansion of
stores. Fresh investment would obvious propel the company’s performance. Currently, stocks are
underpriced and it is the right time to invest in company’s stock.
Reference:

Baby Baunting’s competitors (2018). Information retrieved from:

https://www.asx.com.au/asxpdf/20180410/pdf/43t2z1rk1pqqhb.pdf

Launching exclusive products (2018). Information retrieved from:

https://www.asx.com.au/asxpdf/20180216/pdf/43rmlf995v76pv.pdf

Annual report (2017). Information retrieved from:

http://www.aspecthuntley.com.au/asxdata/20180216/pdf/01951265.pdf