Small Caps | 11:00 AM
Permanent FDA approval has removed a major regulatory overhang for Bubs Australia while opening the door to further US distribution.
- Bubs Australia’s FDA approval unlocks US growth opportunities
- Regulatory certainty strengthens a rapidly expanding US business
- Highlighting the opportunity, Bubs holds only 1% US market share
- Potential new markets in Canada and Vietnam, notes Canaccord Genuity
By Mark Woodruff
Companies in the infant nutrition sector, such as Bubs Australia ((BUB)), have long been subject to the vicissitudes of regulation, requiring various licences, approvals and consents to operate.
These carry the risk of not being renewed, being renewed on more onerous terms or, in limited circumstances, being revoked.
By way of background, Bubs entered the US infant formula market in May 2022 under a temporary FDA enforcement discretion pathway.
This pathway was introduced during the formula shortage after US-listed Abbott Laboratories recalled certain Similac, Alimentum and EleCare powdered infant formulas following reports of bacterial infections in infants.
The US has since rapidly become Bubs’ most important market.
Since entering the market in FY22 with virtually no revenue, the company has expanded its distribution to more than 10,000 stores across all 50 states, with the US accounting for around 60% of group revenue in FY26.
Specialising predominantly in goat milk infant formula (IF) management has established operations across Australia, China, the US and other international markets.
Now, in what is regarded a significant reduction of Bubs’ regulatory risk, management announced early this month it had secured full US Food & Drug Administration (FDA) approval to permanently supply three infant milk formula (IMF) products into the US market.
The US is the fastest-growing region and one of the world’s largest IF markets.
Permanent US access covers Bubs Goat, Bubs 365 Day Grass Fed and Bubs Essential infant formula products.
The authorisation confirms Bubs’ products, manufacturing systems and scientific evidence meet US regulatory requirements for safety, nutritional adequacy and quality.
In first-time research published this month, Canaccord Genuity highlights the US IF market is estimated at more than AU$7.3bn annually, including an AU$860m premium natural segment that grew 44% in 2025.
Shaw and Partners believes permanent authorisation could accelerate further expansion by providing retailers with confidence Bubs products will remain available in the US.
Subject to further regulatory, technical and commercial milestones, Bell Potter highlights permanent authorisation also creates opportunities to broaden Bubs’ product offering and potentially enter the US private-label infant nutrition market.
Prior to securing permanent FDA authorisation, Bubs generated US revenue of AU$65.8m in FY26, up 24% year-on-year.
The company held around 1% of the total US infant formula market, including 8% of the premium natural segment and 20% of the goat IF segment.
Major US retail channels for Bubs include Amazon, Walmart, Target, Giant Eagle, Sprouts, HEB, Meijer, Sam’s Club and Kroger.
Both Ord Minnett and Bell Potter agree with Shaw this recent FDA approval removes a key investment risk that had been suppressing the share price, by eliminating regulatory uncertainty associated with the prior temporary arrangements.
Overall, Ord Minnett believes premiumisation, clean-label ingredients and growing awareness of goat milk formula provide favourable structural tailwinds for Bubs.
Logistics
Management has been assessing how best to service the US market, with products currently shipped and flown from Victoria.
Permanent approval now provides the option to manufacture some products in the US, potentially shortening supply chains and reducing transport costs and tariffs.
US air freight and non-Australian tariffs cost Bubs -$3m and -$1m, respectively, in FY26.
Canaccord also highlights the material impact of air freight and US tariffs on FY26 profitability, while substantial inventory investment weighed on cash flow.
These pressures are expected to moderate, with the broker forecasting broadly neutral free cash flow (FCF) in FY27 before positive FCF emerges in FY28.
Distribution growth provides further scope to increase sales, although Canaccord considers sales velocity per store an important metric to monitor.
The broker estimates Bubs currently sells around four-to-five tins per distribution point each week, up from 1.5 tins to 2 tins in the first half of FY23.
Longer term, US manufacturing is anticipated to reduce freight costs, improve inventory turnover and support higher margins.
Canaccord does not currently include domestic US production in its forecasts.
Growth beyond the US
Canaccord sees Australia and China providing additional growth opportunities, despite an uneven recent performance.
Bubs remains the leading player in Australia’s goat milk formula market, where management is seeking to rebuild sales momentum.
While sales in China have been volatile, the analysts highlight recent online-to-offline and cross-border e-commerce sell-through growth of more than 30%.
The broker also highlights Canada and Vietnam as potential new markets, providing further medium-term upside.
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