A2 Corporation has been an exciting and welcome addition to the NZX-50 index, Milford Asset Management portfolio manager Mark Warminger says.
A2 reported its full year 2013 result last week and beat its own forecasts by more than a few crates of milk.
Revenue came in at $94.3 million, beating company forecasts by 11% and Australian operating profit, before inter-company charges, came in at $14.9 million versus expectations of $11.2 million, an upside surprise of 33%.
''More importantly, the growth throughout the year in Australia accelerated as the brand and health benefits of A2 milk gained further attention.''
A2 milk contains only the A2 protein, which was the same as naturally-occurring human milk.
''Run-of-the-mill dairy milk'' was a combination of A1 and A2 milk, Mr Warminger said. There was a growing body of research showing the health benefits of A2 milk over normal milk and many people who considered themselves lactose intolerant could drink A2 milk without any issues.
''The emergence of this new milk category is helping to grow the overall milk market in Australia that has been stagnant for years.''
A2 milk continued to gain share in Australia despite its premium pricing, reaching 7.4% market share. Gross margins increased to 35.7%, helped by a new plant in Sydney that had lowered cost of production, he said.
A new plant in Western Australia would help further with its cost structure and additional products helping drive further brand momentum.
In the United Kingdom, product launch had been slower than expected but A2 products were now being sold through around 850 stores.
Medium-term expectations remained robust as the brand gained recognition and a loyal following, as in Australia, Mr Warminger said.
The company's Platinum Infant Formula first shipment had been dispatched to China with initial sales being expected in November.
The launch of the Platinum product in New Zealand and Australia would start a month before the Chinese launch.
''A2 has grown from a niche New Zealand success story to a truly global brand, with further growth potential through geographic expansion and expanding its product offering.
"Future growth will be supported by a broadening array of supportive research and literature showing the health benefits of A2 milk.''
The company had a $20 million war chest to drive expansion, had a strong balance sheet, was earnings positive and was only just starting to scratch the surface in terms of expansion opportunities, Mr Warminger said.
