A2M 1.13% $6.25 the a2 milk company limited

With talk of the recent SP drop attributed to leaks of A2M...

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    With talk of the recent SP drop attributed to leaks of A2M looking to be a finalist in the bidding war for Mataura Valley Milk Company I thought of why they would be seeking to go down this path and the pros and cons in doing so.

    They have stated in the past after the last contract negotiation with Sylait that A2M would be free to look for additional IF capacity if demand exceeded the agreed amount that Sylait has agreed to supply or could supply over the contract period. Its up to A2M to do this by going it alone with their own plant or through a joint venture with a experienced player in the IF manufacturing space. From what I have read the preferred option at the time would be to go down the path of a joint venture with some other party with experience in running the plant for or with them.

    Personally I cant see why speculation of A2M going it alone for further IF manufacturing supply would be considered negative news. They will soon be sitting on nearly $1B NZ in COH which would be lucky to be returning much over 1% return for them. If they were successful in acquiring the new shiny state of the art IF plant that is ready to go I am assuming they would be then getting at least another 25% return on their $400M outlay.

    Add that onto your bottom line and see what that would do to A2M's income per share and effect on their PE and SP in a short space of time. The plant is already functional and more importantly has Chinese IF accreditation. Geoff is not a betting man and ultra conservative in nature and in his business dealings and does not like taking on debt to grow. They would not be going down this path if they believed they might be left with a plant that would be idle or under utilized. I believe they see massive and continued growth ahead and are not going to be shouting it from the roof tops. The very fact they are going down this path telegraphs to me they believe Synlait will not be able to keep up with the growth they expect and are forecasting to come despite the complications and threats posed by Covid-19.

    I dont believe its public knowledge in how much $ per tin of IF sales A2M gets to keep or how much its competitors get to keep per tin of IF sales. The closest I could find was a article from a few years back in giving us some idea of how much extra profit we would be getting per tin if we had a new plant of our own to add to our supply. I am sure we had the upper hand in recent negotiations with Synlait and because of the popularity of our product recent negotiations of IF production costs were very favorable to us.

    https://www.ncbi.nlm.nih.gov/pmc/articles/PMC4362817/


    "In recent years, there has been little growth in infant formula sales in high-income countries. The major growth is in low-income countries, or more precisely, in so-called “emerging economies” where there are growing sectors of middle- and high-income people. “China is driving world growth, growing +50% more than the rest of the world combined.” This had led to large investments in the infant formula industry in New Zealand and elsewhere.

    The value chain analyzed in this report examined the major phases of the industry such as procurement of ingredients, processing, packing, marketing, and shipping. The major roles are those of dairy farmers, dairy processors, manufacturers and marketers, retailers, and consumers. A can of infant formula that retails for NZ$47.50 in 2012 yielded about NZ$13.25 for the retailer, NZ$25.58 for the manufacturer, NZ$1.91 for the dairy processor, NZ$2.69 for the dairy farmer, and smaller amounts for other participants in the value chain. Each of them gets a substantial return on their assets, with the highest estimated rate of return, 29%, going to multinational infant formula manufacturers. This helps to explain why New Zealanders are interested in having more of the manufacturing take place in New Zealand, rather than shipping milk powder to manufacturers in Asia.

 
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Last trade - 16.10pm 29/03/2024 (20 minute delay) ?
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