New Zealand Professional Investment Services Firm, Forsyth Barr

Forsyth Barr

New Zealand Professional Investment Services Firm

We are proud to be a New Zealand owned firm, with 21 offices throughout the country and over 300 employees. We assist personal, institutional and corporate clients providing a full range of investment services.

Forsyth Barr is a foundation New Zealand Exchange firm (NZX) and accredited market participant. We have been confirmed by the Financial Markets Authority as a Qualifying Financial Entity (QFE).

Research is the cornerstone of our advice. We have one of New Zealand's leading teams of analysts. Our global affiliations ensure comprehensive research coverage of all major investment markets.

Equity Bottom-Up

<ul><li>The a2 Milk Company's (ATM) ASM trading update was modestly positive but hasn't altered our view on future earnings.</li><li>The key positive surprise was the initiation of a dividend policy (60% to 80% of normalised NPAT).</li><li>While we expected ATM to announce some form of capital management over the next 12 months, we expected this to occur around the time of a supply chain acquisition. </li></ul>

The a2 Milk Company's (ATM) ASM trading update was modestly positive but hasn't altered our view on future earnings.The key positive surprise was the initiation of a dividend policy (60% to 80% of normalised NPAT).While we expected ATM to announce some form of capital management over the next 12 months, we expected this to occur around the time of a supply chain acquisition. 

<ul><li>There are a number of potential acquisition opportunities that The a2 Milk Company (ATM) could entertain, in reference to its capital allocation framework and prior commentary.</li><li>On 27 September 2024, the company went into trading halt for it to provide itself additional time to inform the market of a potential acquisition.</li><li>In the past it has mentioned NZ processing, blending and canning, and China (both outright and JVs/alliances). </li></ul>

There are a number of potential acquisition opportunities that The a2 Milk Company (ATM) could entertain, in reference to its capital allocation framework and prior commentary.On 27 September 2024, the company went into trading halt for it to provide itself additional time to inform the market of a potential acquisition.In the past it has mentioned NZ processing, blending and canning, and China (both outright and JVs/alliances). 

The A2 Milk Company -Take With One Hand and Give With the Other?

<ul><li>Kantar data on the China Infant Formula (IF) market, for the four week period ended 9 August 2024, shows a mixed start to FY25 for The a2 Milk Company (ATM).</li><li>Value in the four week period was ATM's lowest in absolute terms since February 2024, albeit up +33% year-on-year given the weak prior period.</li><li>Market share of 7.3% is below the strong prior two months of ~8.5% and ATM's 12-month rolling average of 7.6%. </li></ul>

Kantar data on the China Infant Formula (IF) market, for the four week period ended 9 August 2024, shows a mixed start to FY25 for The a2 Milk Company (ATM).Value in the four week period was ATM's lowest in absolute terms since February 2024, albeit up +33% year-on-year given the weak prior period.Market share of 7.3% is below the strong prior two months of ~8.5% and ATM's 12-month rolling average of 7.6%. 

The A2 Milk Company - Kantar Data — Mixed Start to FY25 External Inbox Updates

<ul><li>The a2 Milk Company's (ATM) FY24 result provided little new information to change our view on the medium/long-term earnings outlook, but did affirm: (1) the solid market share growth, consistent with our data tracking (positively led by early stage products), and (2) the challenging market backdrop (competition and industry volumes), which will continue to be a headwind to margin expansion over the medium-term.</li><li>The canary in the coal mine, where investors may feel uneasy following the FY24 result, is ATM calling out supply issues from its key supplier Synlait Milk (SML.NZ).</li><li>FY25 EBITDA is set to be adversely impacted by at least -NZ$15m as a result, but more importantly it raises questions: (1) that similar issues could occur in the future, and (2) if it will impact new customer acquisition (the timing of which is particularly unfortunate, given CY24 births growth). </li></ul>

The a2 Milk Company's (ATM) FY24 result provided little new information to change our view on the medium/long-term earnings outlook, but did affirm: (1) the solid market share growth, consistent with our data tracking (positively led by early stage products), and (2) the challenging market backdrop (competition and industry volumes), which will continue to be a headwind to margin expansion over the medium-term.The canary in the coal mine, where investors may feel uneasy following the FY24 result, is ATM calling out supply issues from its key supplier Synlait Milk (SML.NZ).FY25 EBITDA is set to be adversely impacted by at least -NZ$15m as a result, but more importantly it raises questions: (1) that similar issues could occur in the future, and (2) if it will impact new customer acquisition (the timing of which is particularly unfortunate, given CY24 births growth). 

The A2 Milk Company - FY24 Result — Canary in the Coal Mine?

<ul><li>Most indicators are pointing to a robust FY24 result when The a2 Milk Company (ATM) reports on Monday, 19 August.</li><li>Our mosaic of data points shows: (1) strong market share gains (supported by ongoing consolidation), particularly in the offline channel, and (2) solid brand health metrics.</li><li>FY25 consensus revenue expectations don't appear stretched in light of ATM's 2H24 exit run-rate (and improving CY24 birth rates), but an EBITDA margin of ~15.2% is at the top-end of our expectations (absent any material US or Mataura Valley Milk [MVM] changes). </li></ul>

Most indicators are pointing to a robust FY24 result when The a2 Milk Company (ATM) reports on Monday, 19 August.Our mosaic of data points shows: (1) strong market share gains (supported by ongoing consolidation), particularly in the offline channel, and (2) solid brand health metrics.FY25 consensus revenue expectations don't appear stretched in light of ATM's 2H24 exit run-rate (and improving CY24 birth rates), but an EBITDA margin of ~15.2% is at the top-end of our expectations (absent any material US or Mataura Valley Milk [MVM] changes). 

The A2 Milk Company - FY24 Preview — Well Formulated External Inbox

Australia

a2 Milk Company Limited produces cow milk which is free of a protein called beta casein A1.  The Company 
offers its products in Australia and New Zealand.

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A2 Milk Co Ltd (A2M AU)

The A2 Milk Company - Milking It

The positive share price reaction has unwound ATM's material derate over the past month (on no news), and it trades on a fair ~24x PE.

Forsyth Barr

The A2 Milk Company -Take With One Hand and Give With the Other?

There are a number of potential acquisition opportunities that The a2 Milk Company (ATM) could entertain, in reference to its capital allocation...

Forsyth Barr

The A2 Milk Company - Kantar Data — Mixed Start to FY25 External Inbox Updates

Kantar data on the China Infant Formula (IF) market, for the four week period ended 9 August 2024, shows a mixed start to FY25 for The a2 Milk...

Forsyth Barr

The A2 Milk Company - FY24 Result — Canary in the Coal Mine?

At this stage we ‘trust’ that the issues will be isolated to 1H25. ATM's PE re-rate over recent months has now unwound, and it trades on ~24x PE...

Forsyth Barr

The A2 Milk Company - FY24 Preview — Well Formulated External Inbox

Our mosaic of data points shows: (1) strong market share gains (supported by ongoing consolidation), particularly in the offline channel, and (2)...

Forsyth Barr

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