A2M was experiment with shortage of supply toward demand. This is the best time to buy and best option of all. They got 92% increased in the US alone and going forward, this is the magic of best CEO and BOARD.
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I cannot see it being of much benefit to Southland without more milk supply and the public in their wisdom have decided farmers are not allowed to do that.
Re electricity vs coal, I saw something from Fonterra that said electricity would be several times the cost of coal
Watch this space $19.50/share is going to be history.
Fonterra has clearly indicated that their strategy going forward is to use biomass / woodchips to power their dryers etc in the South Island
eg https://www.stuff.co.nz/environment/...p-in-september
https://businessdesk.co.nz/article/f...sion-reduction (Paywalled)
https://www.newshub.co.nz/home/new-z...iott-dies.html
Sorry if posted earlier, but
What a man!!!
A different take on the 2018 marketing/partnership agreement between Fonterra and ATM by Keith Woodford shows just how smart ATM is/was. See full blog here.
"Fonterra fought the concept of A2 milk from the outset nearly 20 years ago. Fonterra saw A2 as a risk rather than an opportunity. Then, in a remarkable turnaround, Fonterra announced in February 2018 that they were forming a partnership with The a2 Milk Company (A2M) primarily to supply ingredients. At the time, it seemed an exciting move. But alas, Fonterra messed-up badly with that agreement. It effectively meant that Fonterra could not sell A2 ingredients to anyone apart from A2M unless A2M agreed. And as I found out when asked to assist an overseas company in obtaining such products, A2M was never going to agree to that.
So, what that agreement achieved was to effectively take A2M’s potentially biggest competitor out of the market. Most of the big international dairy companies are now putting together A2 dairy offerings but none can purchase those A2 ingredients from Fonterra. Fonterra could still be the global leader in A2 ingredients, sold through long-term supply contracts. But it cannot happen until the current agreement between Fonterra and A2M runs its course.
Ironically, the biggest New Zealand value-add dairy company is The a2 Milk Company itself (coded A2M on the ASX and ATM on the NZX). Although the Head Office is in Auckland, all of the key executives are in Australia, China and the USA, with the Chair based in the UK. Most of the shares are also held by investors outside New Zealand. (For those wanting further information on this company and its journey, I have been writing about it for more than 15 years, with many of those articles at my own site here .)A2M continues its journey of exponential growth, with a further increase of over 30 percent in annual profit recently announced. The company is now valued at around $NZ15 billion, well over twice that of Fonterra."
Impressive and v cunning!
Good to see the SP settling down above $NZ20.00 after the recent results and announcement re Mataura Valley.
Macquarrie have now upgraded their analysis of ATM to 'outperform' targeting a SP of $A21.25 ($NZ 23)
...and this from an article in the AFN.
"Analysts are tipping a2 milk’s potential acquisition of a majority stake in NZ based Mataura Valley milk as a move that could allow the dairy giant to better manage an increasingly complicated relationship with China while growing margins.
Macquarie also touched on geopolitical tensions as a risk factor, but were confident that the infant formula market would remain excluded from tit-for-tat trade wars as China is not yet self-sufficient in its production....... (saying) " infant formula has been more immune to challenges given the essential nature and sensitive consumer base (compared to luxury goods as an example),” they wrote in a note.“We hence think this, and lack of China self-sufficiency for infant formula is somewhat prohibitive of large infant formula producers and brands being tied up in political tensions.”....
....Macquarie analysts said that the purchase and creation of a new facility will reach break-even point “relatively quickly,” with the facility to produce a return on capital employed in excess of 20 per cent."
All this pretty obvious IMHO, but nice to have it confirmed by pointy heads.
A few c from me... I have personally walked around the MVM plant and spoken to senior stuff (other business matters, not to disc)
Other than the coal fired boiler it is one of the most advanced facilities of its kind, runs on a skeleton crew and highly automated. It currently is set up to manufacture IF base powder + commodities, it is potentially likely in the short term may supply Synlait for wet blend and canning.
The farmer suppliers are passionate and operate with one of the most stringent farm assurance program in the sector, they have a line out the door of farmers who want to supply and have been very choosey so far.
The purchase arrangement is curious to me....
"The transaction, which is subject to a period of exclusive due diligence, would involve A2 Milk acquiring 75.1% of Mataura Valley Milk for approximately $270m, with the bulk of the money used to pay down Mataura Valley’s debt.
As of December 2019, Mataura Valley had debt of $240m and was in breach of its banking covenants.
Babidge said under the proposed transaction, only about 10–15% of the debt would remain on Mataura Valley’s balance sheet"
With most of it to pay down debt (I believe its via shareholder loan to the Chinese parent + banks) that's not alot of equity currently existing with the business, my read is existing MVM shareholders are talking a bath on the investment, esp considering my comments on the plant above.
The real benefit for a2 is locking up what would be a large A2 source coming to the market (c.f. points made by Keith W on the Fonterra deal), my understanding was that the suppliers were already a long way in transitioning the herds to exclusive A2 milk