Got (a2) Milk? An analysis on ASX-listed a2 Milk Co.

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a2 Milk Company is a consumer staples company with their main products being Infant milk formula, liquid milk and other nutritional products.

The company is geographically diversified, currently operating in:

  • Australia (Core area)
  • New Zealand (Core area)
  • United states (By the end of the 2019 financial their distribution stores exceeded 13100 stores in the US, which represents a growth of 118%)
  • China and other Asian countries. They are gaining market share in China at a rapid pace. (77% growth in China between 1H2019 to 1H2020 and gaining momentum).

It is clear that a2 Milk Company is looking to expand internationally. So far, they are doing it well.

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The current share price is trading at AUD 19.40, listed on the ASX. (12/07/2020)
Year-to-Date performance: +38.37%
Cash on hand 620 million.
Market cap = 14.35 Billion dollars.

It appears that Covid19 did not really affect their bottom-line, perhaps because people still need their nutritional products.

The company has a great reputation as a brand in the respective operating countries, and the clients whom they serve. According to their website, many consumers and healthcare professionals report that some people who experience challenges drinking conventional cows’ milk may experience benefits when they switch to A2 Milk.

In business, QUALITY AND VALUE IS KEY TO SUCCESS. With milk/dairy products being almost impossible to exclude from most peoples' daily lives (ice cream, butter, cheese, chocolates etc.), this may explain why customer retention is so high. 

Reasons why I like a2 Milk Co include:

  • They are in a strong financial position with about 620 million$ in cash.
    The business model is very strong one generating great cash flows, which in turn allows them to invest cash without taking on debt.
  • a2 Milk Co have extremely low debt levels.
    They are profitable, with margins still growing.
  • They are consistently growing their revenue at double figures.
  • China’s potential for A2 Milk is the most attractive factor.
    The growing middle class in China could definitely contribute to their long-term success and growth. Notwithstanding China’s massive population.
  • The company has a special brand with unique products and customer satisfaction.
  • a2 Milk Co re-invests capital and are continuously gaining market share in their geographies.
  • Their competition has much lower traction.
  • A strong demand for their products - a timeless demand for milk products.
  • Their infant milk business is also very strong

There are only 2 risks I encountered, which are:

  • Regulation in a country like China.
    Who knows what can happen or the regulations that can come in the consumer space?
  • Nestle’s rising milk business
    Although I’m not entirely worried about this at all.

Overall, I’m a long-term bull on a2 Milk Co and I’ll be buying their shares. This is a company I will be buying and let my holdings grow over the next 10+ years.

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Read:
FinMeUp looks ten years ahead

Higgo van Biljon
Easy user, Founder & CEO FinMeUp

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Any opinions, news, research, reports, analyses, prices, or other information contained within this research is provided by Higgo van Biljon, Founder and Chief Executive Officer of FinMeUp as general market commentary, and does not constitute investment advice for the purposes of the Financial Advisory and Intermediary Services Act, 2002. First World Trader (Pty) Ltd t/a EasyEquities (“EasyEquities”) does not warrant the correctness, accuracy, timeliness, reliability or completeness of any information (i) contained within this research and (ii) received from third party data providers. You must rely solely upon your own judgment in all aspects of your investment and/or trading decisions and all investments and/or trades are made at your own risk. EasyEquities (including any of their employees) will not accept any liability for any direct or indirect loss or damage, including without limitation, any loss of profit, which may arise directly or indirectly from use of or reliance on the market commentary. The content contained within is subject to change at any time without notice.

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