Ok, back to talking stocks

Ok, enough about the current falls, and enough about Nutanix already :slight_smile: Seriously, I value everyones research and sharing about this complex, incomprehensible business (that I own).

Now, onto an exciting, high growth business, (that is also easy to understand).

ABOUT THE COMPANY:
• Disrupter & first mover: Introduced an innovative product into a staid, commoditised market.
• Recurring revenue stream, built on a strong brand.
• Capital light model, ownership of IP and brand,
• Optionality: Building an ever widening range of products, and entering new markets.
• Economic tailwinds: The dropping of China’s one child policy has led to a baby boom in China, which has a rapidly growing, and affluent middle class.
• Stellar growth in revenue, and is highly profitable.
What is this company? Must be a “Saul SAAS” company ???

ADDRESSABLE MARKET
Just launched in UK and US over the past few years – market share is negligible.
China has been the growth driver, now hold 6% market share in its key market, from a standing start over a few years.
Market Leader in NZ and Australia in the premium end of market.

THE FIGURES: (All Figures NZD)
Annual Revenue: $922 M (2018), $549 M (2017), $353 M (2016), $155 M (2015)
Gross Margins: 50% (2018), 48% (2017), 43% (2016) – Must be a software business???
Net Profit after tax: $196 M (2018), $91 M (2017), $30 M (2016), -$2.1 M (2015)
Current Market Capitalisation: $6.7 Billion
Trailing PER: 34
Company Balance sheet: $340 M in cash – NO DEBT.

Want to know more?

10 Likes

This stock was mentioned a week or 2 ago here in the forum.

  1. FX risk
  2. US/UK markets execution risk.
    are 2 main risks.
    Discl. I Hold the stock (XERO).
1 Like

Try again

What is this company? Must be a “Saul SAAS” company ???

This company is a2 Milk https://thea2milkcompany.com/

In the future, please put the name or ticker of the stock in the subject to make it easier to search at a later date. Thank you.

11 Likes

In the future, please put the name or ticker of the stock in the subject to make it easier to search at a later date. Thank you.

And cliffhangers/building suspense? No thanks, just get to the point (and the company) in the initial post.

48 Likes

OK Loeke,

I get the picture - cut to the chase. The reason for my delay, is I did not want investors biases to get in the way of what has been great performance, with much of the opportunity ahead. So here goes:

So about the company: A2 Milk Company (Ticker: A2M)
US website: https://www.a2milk.com/
Investor website: https://thea2milkcompany.com/

Value: proposition - markets milk, and milk products that only contain the A2 milk protein.

So what? Milk typically contains two proteins A1 and A2. However, it has been shown that some people have adverse reaction to A1 proteins. A2 milk have developed a supply chain, based on cows that produce A2 protein only milk.

The main competition: Up until June this year, A2M had the market to themselves. Since then, Nestle have released an equivalent product. I think the competition is good news, as it confirms A2M are onto something big, and they are unhindered by the lower margin standard milk based products Nestle market.

A2M have created a new product, a product perceived as superior to the standard milk products, enabling them to enjoy higher margins. I think competitors are marketors of A1 milk products, and as a result, would be reluctant to squeeze the A2 margins, out of fear of cannibalising their A1 milk businesses.

RISKS:

  1. CHINESE REGULATION - If A2M becomes too successful, the government may seek to curb their business. I note A2M has been very adept at managing regulatory and supply chain risks.

  2. EXECUTION IN US & UK - If A2M - Current revenue is 3% total company revenue, and growth is around 50% pa. With the small footprint and small start-up product range, there is a long growth pathway ahead. If it fails in these regions, its a relatively small portion of the business, and I do not belive the potential is not factored into the share price. My thesis is that success in Australia, is a good indicator of success in the UK (very similar culturally, and business practices are very similar). The US not so sure, but success in multiple markets is a good indicator.

  3. LEADERSHIP - David Hearn is the Chairman, and has been on the board since 2014, and has a wealth of experience and success in the industry.

CEO - there is a new CEO, folowing the retirement of Geoff Babidge. Jayne Hrdlicka is the replacement CEO, and was headhunted from Jetstar.

The founders of the business are no longer at the helm, something to be mindful of…

2 Likes

More risks in my view:

Chinese economy slow down.

Uncertainty of Chinese rules/regulations about the new licencing.

Global giant Nestle starts to invest big money and another round of push into Chinese infant formula market which it has a big market share and reputable brand.

New CEO sold out all her A2M holdings with a couple of months of her joining the company. She was an executive from Jetstar which is part of Qantas Airline.

Also it has no pricing power, no control of milk supplies and rely on NZ diary companies. Not founder led.

A2M is not a software/cloud company. It may not belong to this forum.

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Non-cloud/software stocks are not automatically OT. It’s just that those stocks tend to grow revenue fast and have lots of recurring income. Other usual criteria are likely continued growth and reasonable debt.

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A2 Milk (A2M) company reports update, 4 months into FY2019:

Revenue growth: 40% on PCP ($368 M NZD - 4 months)
Net profit: 64% on PCP
Gross margin: 50.3%
net cash: $340 M NZD
Trading on a 2019 PE of around 25.

Capital light business, disruptor (A2 protein only milk), recurring revenue, driven by demand in wellness products, food safety concenrs (asia), and growing Asian middle class…

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Yeh - I hold but my Asia growth stocks are getting beaten up almost as much as US. Not many safety areas left, although I notice Tesla and Microsoft are still close to all time highs! Still worried about the Nestle move into the A2 space.
A

A,

I thikn Nestle’s move into the space is a positive sign. The competition has bascially given up fighting A2M and have jumped on the bandwagon.

But they are too late. A2M have established a strong brand, and will always be the brand associated with A2 only protein milk. I see them as being kinda like the Coca Cola of milk as it were.

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Good luck with that. Just watch those margins.