ATM - A2 Milk Corporation Limited

[NT001]

Not strictly relevant to A2, but this article by Keith Woodford is certainly serious food for thought for those interested in the future of NZ's dairy industry, and especially the relationship with China which is heavily based on whole milk powder (WMP).

https://keithwoodford.wordpress.com/...ket/#more-1355

[Harrie]

Just happened to pick this up while reading NT's article above from prof Woodford which I think those new to the post should read.
There is some pretty compelling evidence against a1 beta casein here.

https://keithwoodford.wordpress.com/...sein-evidence/

[sb9]

Well, looks like Perpetual accumulated another 6ml shares between 1-8 sep. Notice issued to ASX late in the evening. Explains the hug volume of trades in the past few days.

[Harrie]

Perpetual buying for the same fund profiles as before on behalf of international clients. These are specialised SRI and ethical funds, small growth companies in Australia, and companies that are developing strong brands and that have international growth prospects, positioned in a growing market sector (health).
They have just picked up another 1% of the company and I don't think they will stop there. I suspect they will go the same way as Milford did and will keep building the book and improving the price as they go. ( They will want to protect their mandate with their intl clients...failure will not be an option which will mean that they will take as many shares off weak sellers as it takes to keep the price around these levels and above)
As a significant institutional player, others will start to do their own research (they don't like to be left behind in the performance rankings) and if they come up with the same conclusion, watch the action....

[kiwi_on_OE]

The SMH article reminded, I wonder if/when A2 will try organic A2? I guess they should focus on the basics for now.

[NT001]

The SMH article reminded, I wonder if/when A2 will try organic A2? I guess they should focus on the basics for now.

You're correct, best to focus on the basics. Actually, an organic company in Canterbury did have a licence to market A2 milk in NZ but it's no longer doing so, probably because it wasn't viable commercially. At the time, several years ago, I wrote to ATM making the point that it was very confusing to consumers because it seemed to suggest that the "healthy" point about A2 was that it was organic. It was a distraction from trying to explain the true difference between A2 and A1, which has nothing whatever to do with organics. I think a2MC probably realises this now.

The organic A2 was available only through organic and health product outlets, probably not a big enough market to be profitable. By the time a company has met all the requirements to be registered as organic, PLUS the requirements to guarantee its milk is pure A2, PLUS paid a licence fee to a2MC, the retail price would probably not be very attractive to consumers - or retailers.

[Harrie]

I'm not sure that BAL has progressed quite that much KW. They have gone from around A$1.80 to A$7.60 in the last year, so around 320% increase on my calcs. Nevertheless a whole heap better than a2mc, but they are a more diversified health product producer so not all that growth in SP is predicated on baby formula. Having said that, the growth in a2 baby formula has outpaced BAL in the last few months according to SMH as shown in the graph :

http://www.smh.com.au/business/retai...03-gje6kp.html

I'm wondering if supply is becoming an issue for a2mc?

If supply is an issue, it would make more sense as KW has suggested to produce baby formula and sacrifice the fresh milk supply. There seems to be an endless demand for "healthy" baby formula.

[NT001]

...I'm wondering if supply is becoming an issue for a2mc?
If supply is an issue, it would make more sense as KW has suggested to produce baby formula and sacrifice the fresh milk supply. There seems to be an endless demand for "healthy" baby formula.

I think supply is going to be an issue for quite a while in several markets. But I'm inclined to think on balance that there are significant advantages in continuing to supply plenty of both fresh milk and formula in Australia. One of a2MC's strong selling points globally is that it has captured 9-10% of the Aussie fresh milk market, and that could rise further.

The Chinese in particular like to know that the product they're buying sells well in its "home" market. This would include selling to adults, not just babies.

It also makes Australia a good place to monitor the health and digestion effects of A2 - there's a good pool of literate adult consumers to conduct research on, whereas it's harder to do research on babies, especially Chinese ones.

And when farmers in the US and UK see what can be achieved in the Australian market they're more likely to switch to A2, which will help solve the supply issue. Switching involves some extra costs and work for farmers in the initial stages.

[Leftfield]

Why target a niche market estimated at 25% of the population, who are not big dairy consumers anyway, with a low margin product - when you can target 100% of a market who are high dairy consumers, with a product with a high margin.

Good advice. Reckon you should be charging ATM consulting fee's!

[Harrie]

They were $1.33 a year ago. 575% increase to $7.64.

Ok KW on that basis its a 474.44% increase to be precise, but lets not get bogged down in the detail, its an extremely impressive rise, in fact anything over 20% in a year is what you could term as a stellar performance!
I hear and accept what NT is saying, but I am persuaded by the immense opportunity to concentrate on the baby formula especially when I look at the trajectory of a2's growth in the last few months, if it is a matter of supply.
You could however argue that a2mc is fairly new in the market over there in the supply of baby formula so growth is from a low base, but it looks to me that the growth is primarily predicated on the idea of "health" as is Ballamys "organic" milk especially when comparing the relative success of both of these brands to other brands not associated with the "healthy" label.
Many Chinese wouldn't understand necessarily what was "healthy" about a2 milk, so the brand appears to have successfully created that perception already.