ATM-A2 MILK

[Shareguy]

Insert from Craig's latest Research.

California dreaming
Reuters
ATM.NZ
Bloomberg
ATM NZ
Ticker Exchange
ATM NZC
4.53 5.76
 ATM can help solve infant formula shortage in the US
The infant formula shortage in the US is now at an acute level, with stock outs hitting 74% across the US as of late May. In an effort to increase supply, the FDA has temporarily relaxed its approvals process. Our understanding is that ATM filed an application with the FDA to sell into the US in late May, but is yet to receive a response. Unlike Bubs and Kendamil, the two international brands which have already been granted temporary approval by the FDA to sell their formula into the US, ATM did not have an FDA application in train prior to the current crisis and is not first cab off the rank. However, we think ATM is well positioned to be approved in coming weeks, given it already has a wide distribution network of c.27k stores in the US for its Fresh Milk product which it could use to speed distribution of its Infant Formula products onto shelves.
US a difficult market
While we see potential for ATM to benefit at the margins from the current shortage (adding c.$6-9m to EBIT over FY22/FY23), the real question is whether ATM can leverage this to establish itself in the US market in the long run. If ATM could capture 2% of the US market at 15% EBIT margin, this would add c.28cps (c.5%) to our valuation. There are however good structural reasons why ATM has not previously attempted to enter the US market. Namely, the US IF market is smaller and much more concentrated than China's, has structurally lower margins, as well as trade barriers in the form of high tariffs and the onerous FDA approval process. As a result, imports accounted for only 1.5% of all US infant formula sales in 2021. For ATM to create a viable infant formula business in the US requires, as first steps, that (1) the FDA approves ATM's IF products for sale on a long term basis and (2) the US needs to axe tariffs applied to IF imports. As yet, there are no signs that this will happen. Inside this note we do a deep dive on the US market.
Secondary benefits in China
The most material impact to ATM's revenue and earnings in the near term may well be in China, with our data suggesting Abbott's sales have collapsed 48% YTD. Abbott's market share was however modest to start with at c.2%, suggesting perhaps c.1-2% upside to ATM's sales.
Retain Neutral, TP -7%
We leave our estimates unchanged (pending greater clarity), but TP reduces 7% to $5.76 to reflect increased RFR since our last update. Retain Neutral.

[snapiti]

I hate  speculating about takeovers on any company but A2 has all the ingredients to look very attractive, great products, great branding, a very dominant market position and best of all for T/O targets, IMO, a management team that is floundering which has helped the SP tumble with little recovery.......given how big some of the world dairy company players are and their own interest in entering the A2 milk market me thinks this one looks likely to attract a T/O 

[Poet]

I hate  speculating about takeovers on any company but A2 has all the ingredients to look very attractive, great products, great branding, a very dominant market position and best of all for T/O targets, IMO, a management team that is floundering which has helped the SP tumble with little recovery.......given how big some of the world dairy company players are and their own interest in entering the A2 milk market me thinks this one looks likely to attract a T/O 

Do you think there is any possibility of a takeover while there are three class action lawsuits in progress?
Seems those would be a big negative for any potential suitor

[Shareguy]

Bellermys get FDA approval.  When will ATM get there's . 

https://www.fda.gov/news-events/press-announcements/fda-infant-formula-update-june-27-2022

[Raven]

Bellermys get FDA approval.  When will ATM get there's . 

A long time after everyone else.

[kasper]

Bellermys get FDA approval.  When will ATM get there's .

A long time after everyone else.

And what does that tell you? Inept management?

[Sideshow Bob]

Bellermys get FDA approval.  When will ATM get there's .

A long time after everyone else.

And what does that tell you? Inept management?

I don't think can read too much into it (at this stage) - going through US FDA bureaucracy wouldn't be much fun. Likely Bellamys were earlier in the queue, or the Australians might have been more on to it, and got in their first. 

Where is Fonterra and their approvals?

[KW]

Bellermys get FDA approval.  When will ATM get there's .

A long time after everyone else.

And what does that tell you? Inept management?

Government help.  Jacinda went to Washington on a trade mission and came back with absolutely nothing.  Fonterra even went with her, but went home before going to see the President.  The reason the Aussie companies are getting deals is because they are using a consultancy/lobbying company owned by Joe Hockey, ex USA Ambassador.  Its not what you know but who you know.  Which is why NZ companies have been left out in the cold.

The Abbott factory will be back in full production in a few months.  And most of the slots for import have been filled by US companies importing from overseas manufacturing sites (Abbott, Mead Johnson, Reckitt etc).  And the Australians who appear to be getting favourable treatment politically.

[lorraina]

Silver Fern Farms were very pleased with the PM's help at their New York do..
Glowing reports from them.

[snapiti]

I hate  speculating about takeovers on any company but A2 has all the ingredients to look very attractive, great products, great branding, a very dominant market position and best of all for T/O targets, IMO, a management team that is floundering which has helped the SP tumble with little recovery.......given how big some of the world dairy company players are and their own interest in entering the A2 milk market me thinks this one looks likely to attract a T/O 

Do you think there is any possibility of a takeover while there are three class action lawsuits in progress?
Seems those would be a big negative for any potential suitor

you raise a good point however history shows us that these sorts of lawsuits are easily defendable......at worst one can exspect a slap with a wet bus ticket

[kasper]

I hate  speculating about takeovers on any company but A2 has all the ingredients to look very attractive, great products, great branding, a very dominant market position and best of all for T/O targets, IMO, a management team that is floundering which has helped the SP tumble with little recovery.......given how big some of the world dairy company players are and their own interest in entering the A2 milk market me thinks this one looks likely to attract a T/O 

Do you think there is any possibility of a takeover while there are three class action lawsuits in progress?
Seems those would be a big negative for any potential suitor

you raise a good point however history shows us that these sorts of lawsuits are easily defendable......at worst one can exspect a slap with a wet bus ticket

Bellamy's wet bus ticket cost them 50 million.

[Arbroath]

Class action suits like this are just short term noise. If an acquirer wants to buy A2 they won't care about a couple of Aussie law firms throwing mud for their own benefit.

[winner (n)]

Bubs hit the jackpot in the US

Will A2 follow

https://www.smh.com.au/business/companies/bubs-australia-looking-to-raise-63-million-to-meet-unexpected-us-demand-20220705-p5az5s.html

[KW]

Bubs hit the jackpot in the US

Will A2 follow

https://www.smh.com.au/business/companies/bubs-australia-looking-to-raise-63-million-to-meet-unexpected-us-demand-20220705-p5az5s.html

I'm not sure what the raising is really for.  The ability to import infant formula into the US is only a temporary one and it expires on 14 November 2022.  So they do not have an ongoing infant formula US business, other than for their products that are not baby formula (eg. toddler formula, pureed food sachets, etc).  I'm not sure the market understands this, it would appear Bubs is taking advantage of any such misunderstanding. 

[Minimoke]

Bubs hit the jackpot in the US

Will A2 follow

https://www.smh.com.au/business/companies/bubs-australia-looking-to-raise-63-million-to-meet-unexpected-us-demand-20220705-p5az5s.html

I'm not sure what the raising is really for.  The ability to import infant formula into the US is only a temporary one and it expires on 14 November 2022.  So they do not have an ongoing infant formula US business, other than for their products that are not baby formula (eg. toddler formula, pureed food sachets, etc).  I'm not sure the market understands this, it would appear Bubs is taking advantage of any such misunderstanding. 

sounds to me like they are using it as a will times excuse to raise some cash.

Maybe A2 should help them out since they seem devoid of any ideas to use their can stockpile