New Zealand Professional Investment Services Firm

Forsyth Barr

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.

New Zealand Professional Investment Services Firm, Forsyth Barr

Equity Bottom-Up

<h2>Food for Thought<br>What's in Store for 2021?</h2>
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<p>COVID-19 has presented a number of challenges for the listed New&nbsp;Zealand&nbsp;Food, Beverage, and Agriculture sector, which look likely to persist into 2021;&nbsp;the issues are well known and in some cases more than factored into valuations. Our preferred names in the sector are The a2 Milk Company (ATM), New&nbsp;Zealand&nbsp;King Salmon (NZK), and Sanford (SAN) —&nbsp;with historically low multiples (on depressed earnings)&nbsp;offering an attractive entry point, particularly against a backdrop of rising valuations in the NZ market. All three companies have been hard hit by COVID-19 (primarily due to channel exposure), however, we view this as largely temporary. Looking through short-term volatility, ATM, NZK and SAN are exposed to attractive longer-term&nbsp;thematics, with ample growth runway and&nbsp;optionality&nbsp;for their respective brands/products. Patience may still be required as these companies navigate what is sure to a bumpy recovery path.</p>
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<h3>Key themes discussed in this report</h3>
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<li><strong>Weather watch</strong>,&nbsp;with&nbsp;the summer months an important growing period. NIWA forecasts highlight a degree of operational risk for NZK and SAN, and to a lesser extent Scales (SCL) and&nbsp;Delegat&nbsp;(DGL), although conditions to date have been largely benign.</li>
<li><strong>COVID-19 related channel disruption has created divergent fortunes</strong>, with pressure on those companies exposed to&nbsp;daigou&nbsp;and&nbsp;foodservice. Key to a recovery in earnings will be consumer mobility linked to vaccine&nbsp;rollout&nbsp;—&nbsp;with any early positive signs likely to be supportive to NZK, SAN, ATM and&nbsp;Synlait&nbsp;Milk (SML).</li>
<li><strong>Market anecdotes suggest Chinese&nbsp;demand for New&nbsp;Zealand&nbsp;product remains healthy</strong>&nbsp;and its brand position has improved, helped by our relative virus success. Trade relationships remain the biggest risk.&nbsp;</li>
<li><strong>Logistic challenges, particularly for fresh produce</strong>:&nbsp;This will likely take many months to resolve, and is adding cost and time. Most exposed is short shelf life product, particularly fresh seafood and produce.</li>
<li><strong>Border closures has reduced the labour pool available to growers</strong>, with SCL&nbsp;most exposed. Although incentives are in place to attract domestic pickers&nbsp;risk remains&nbsp;and we expect cost inflation as a result of the lower productivity of novice labour.</li>
<li><strong>COVID-19 &amp; channel issues likely to dominate performance and discussions in the upcoming reporting season</strong>. Our expectations&nbsp; are summarised on pages 10 and 11. We highlight earnings risk (-ve) for NZK due to a slower COVID-19 recovery path.</li>
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<div><strong>Guy Hooper</strong></div>
<div><a href="mailto:guy.hooper@forsythbarr.co.nz" target="_blank" rel="noopener">guy.hooper@forsythbarr.co.nz</a></div>
<div>+64 4 495 5255</div>
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<div><strong>Chelsea Leadbetter CFA</strong></div>
<div><a href="mailto:chelsea.leadbetter@forsythbarr.co.nz" target="_blank" rel="noopener">chelsea.leadbetter@<wbr>forsythbarr.co.nz</a></div>
<div>+64 4 495 5262</div>
<div></div>
</div>
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<div>
<div><strong>Matt Montgomerie</strong></div>
<div><a href="mailto:matt.montgomerie@forsythbarr.co.nz" target="_blank" rel="noopener">matt.montgomerie@forsythbarr.<wbr>co.nz</a></div>
<div>+64 9 368 0124</div>
</div>
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Food for Thought What's in Store for 2021?


COVID-19 has presented a number of challenges for the listed New&nbsp;Zealand&nbsp;Food, Beverage, and Agriculture sector, which look likely to persist into 2021;&nbsp;the issues are well known and in some cases more than factored into valuations. Our preferred names in the sector are The a2 Milk Company (ATM), New&nbsp;Zealand&nbsp;King Salmon (NZK), and Sanford (SAN) —&nbsp;with historically low multiples (on depressed earnings)&nbsp;offering an attractive entry point, particularly against a backdrop of rising valuations in the NZ market. All three companies have been hard hit by COVID-19 (primarily due to channel exposure), however, we view this as largely temporary. Looking through short-term volatility, ATM, NZK and SAN are exposed to attractive longer-term&nbsp;thematics, with ample growth runway and&nbsp;optionality&nbsp;for their respective brands/products. Patience may still be required as these companies navigate what is sure to a bumpy recovery path.


Key themes discussed in this report



Weather watch,&nbsp;with&nbsp;the summer months an important growing period. NIWA forecasts highlight a degree of operational risk for NZK and SAN, and to a lesser extent Scales (SCL) and&nbsp;Delegat&nbsp;(DGL), although conditions to date have been largely benign.
COVID-19 related channel disruption has created divergent fortunes, with pressure on those companies exposed to&nbsp;daigou&nbsp;and&nbsp;foodservice. Key to a recovery in earnings will be consumer mobility linked to vaccine&nbsp;rollout&nbsp;—&nbsp;with any early positive signs likely to be supportive to NZK, SAN, ATM and&nbsp;Synlait&nbsp;Milk (SML).
Market anecdotes suggest Chinese&nbsp;demand for New&nbsp;Zealand&nbsp;product remains healthy&nbsp;and its brand position has improved, helped by our relative virus success. Trade relationships remain the biggest risk.&nbsp;
Logistic challenges, particularly for fresh produce:&nbsp;This will likely take many months to resolve, and is adding cost and time. Most exposed is short shelf life product, particularly fresh seafood and produce.
Border closures has reduced the labour pool available to growers, with SCL&nbsp;most exposed. Although incentives are in place to attract domestic pickers&nbsp;risk remains&nbsp;and we expect cost inflation as a result of the lower productivity of novice labour.
COVID-19 &amp; channel issues likely to dominate performance and discussions in the upcoming reporting season. Our expectations&nbsp; are summarised on pages 10 and 11. We highlight earnings risk (-ve) for NZK due to a slower COVID-19 recovery path.




Guy Hooper
guy.hooper@forsythbarr.co.nz
+64 4 495 5255





Chelsea Leadbetter CFA
chelsea.leadbetter@forsythbarr.co.nz
+64 4 495 5262





Matt Montgomerie
matt.montgomerie@forsythbarr.co.nz
+64 9 368 0124



Food for Thought: What's in Store for 2021?

A2 Milk Co Ltd

Food for Thought: What's in Store for 2021?