The 10th anniversary of the collapse of Lehmann Bros has investors and commentators spooked this month. Lehmann Brothers was the wheeling and dealing US investment bank whose collapse in 2008 was the final straw that triggered the Global Financial Crisis, and the anniversary has everyone wondering if, or when, the next one is going to hit. Certainly another crisis is always possible and would be a lot harder to manage this time around, if only because there is less scope to cut interest rates. However, the Punter already has one third of his portfolio in cash, which is pretty cautious, and will continue his policy of cashing in profits when they occur.
He is more worried this week about whether or not Bubs (ASX code BUB), the infant formula group, is trying to run before it can walk. Its sales, both domestically and in China, tripled in the year ended in June. Much of that was due to the takeover of NuLac Foods in December, but overall sales were still accelerating in the fourth quarter. Pre-tax losses soared from $5 million to almost $65m.
However, if you exclude various one-off costs associated with the NuLac deal, the loss comes down to only $7m. The largest write-off was $48m worth of goodwill. Bubs paid $80m (including $25m cash) for NuLac, which had net assets of only $8m.
Only time will tell if Bubs paid too much in its haste to expand into covering the entire business from goats in the paddock to cans in the Chinese supermarket. Bubs' big point of difference is that it makes its formula from goats' milk, and there are not that many goat producers around. Bubs now has the largest goat herd in Australia, and is the country's only vertically integrated producer of infant goat milk formula. The shares have almost halved since their $1.10 peak last November, but picked up a little after the annual results. The Punter has bought 3,000 BUB at 66c each.
- The Punter has no financial qualifications and no links to the financial services industry. He owns shares in a number of companies featured in this column.
