The a2 Milk Company has broad-based growth opportunities. Photo supplied.
Craigs Investment Partners has initiated coverage on The a2
Milk Company with a hold recommendation on the shares given
the broad-based nature of growth opportunities.
The company will change its name from A2 Corporation to The
a2 Milk Company on April 8. Managing director Geoffrey
Babidge said the new name ''instantly and consistently''
described the values and mission in a way the current trading
names did not.
''It reflects our journey from early research and
entrepreneurial pioneers in New Zealand to a unified global
identity,'' he said.
Craigs broker Chris Timms said a2 was ''a little bit frothy''
but genuine and broad-based opportunities existed for the
''A2's demonstration of value associated with A2 milk in
Australia has established credibility for potential to expand
into new markets. Opportunities in the United Kingdom and
infant formula are being implemented and potential exists in
the United States, Southeast Asia, New Zealand and increased
Progress to date remained limited to Australia, with UK and
infant formula opportunities still in their infancy, he said.
Despite a challenging valuation, Craigs rated the shares as a
hold, underpinned by confidence in the sustainability of the
company's competitive advantage and a broad opportunity set
with capacity to execute.
A2 shares recently traded at 94c and Mr Timms putting a
12-month target on the shares of 90c. The 52-week rolling
range had the shares at a high of 96c and a low of 55c.
There was significant value for a2 joining local partners
with established routes to markets and distribution chains to
accelerate the otherwise lengthy and difficult part of of the
There was a strong base on which to market A2 milk to
consumers and opinion leaders but a balancing act was
required, he said.
''The science supporting A2 milk is an important
differentiator in its approach to marketing its proposition.
However, there are limits in what a2 can say in direct
marketing to consumers, which is why it has focused on simple
messaging around general benefits that have proven to
resonate with consumers in Australia.''
In addition, the company made considerable investment - with
longer payback - in public relations activity focused on
healthcare practitioners and other opinion leaders who had
the ability to influence consumer decisions over time. The
increasing use of the internet by consumers was an important
element of a2's public relations strategy, Mr Timms said.
The company was increasing focus on ensuring sufficient
people resources, something critical for investor confidence
in the ability to execute in existing markets while pursuing
With demonstrated success in Australia, and a better
capitalised business, a2 had been focusing on increasing its
''We view this as critical, given the number of opportunities
that a2 is pursuing and it provides us with increased
confidence in the ability to execute.''
Given A2 was a ''natural phenomenon'', some focus was
required on the barriers to entry and the sustainability of
the company's competitive advantage, he said.
It was also important to have some understanding of the
status of the science associated with A2 milk and its
limitations, given it supported a large part of the company's
broader marketing activities.
These included. -
• Science supportive of digestive and health benefits
associated with A2 milk but was not definitive.
• Patents that provided a2 Milk with first-mover advantage in
the commercialisation of the A2 milk opportunity.
• Trademarks, brands and messaging on A2 milk and its
benefits that provided the company with an advantage in the
marketing of A2 milk beyond the initial patents expiry.
• Knowledge and know-how associated with the
commercialisation of A2 milk.
• Goodwill and a genuine ability to claim The a2 Milk Company
as the original supporter and source of A2 milk.
Mr Babidge said a2 Milk was the fastest growing major milk
brand in Australia. It had achieved more than 8% market share
and was helping increase milk consumption. A2 milk products
were also available in the UK, New Zealand and China in
several forms including liquid milk, yoghurt, fresh cream and
At a glance
• Conventional milk today may be present as one of two
primary variant types, A1 or A2.
• A1 and A2 differ by virtue of a single amino acid in a
chain of 209, this has an impact on the protein structure and
subsequently its digestion.
• There is evidence to suggest the difference in structure
between A2 and A1 beta casein variants can lead to a
difference in their breakdown during digestion.
• Consumers of A2 milk commonly report a link between A2 milk
and improved digestive comfort relative to milk containing
the A1 beta casein - in addition to other benefits relating
to adverse milk responses