Infant Formula Stocks- Updates on A2M, BAL, SM1, WHA

If it’s for the youngest one in the family, it must be healthiest and safest. With infants being perhaps the most nurtured member of any household across the globe, every aspect of their presence is taken care of with utmost priority. Each existent culture and in various regions, no matter how diverse on the macro and micro levels, has a common trait of sheer infant care.

Food and nutrition are the basic requirements of any individual and if it is for the baby in the family, guardians tend to be anything but precarious about it. This leads to an altogether new business to spring up and flourish over time, of production and distribution of infant formula. The business serves the twin advantage of providing for the requirements of infant needs, while making money, raising employment opportunities, promoting global healthcare and so on.

Infant Formula Explained:

Often interchangeably referred to as baby formula, Infant formula refers to the food that is manufactured, marketed and exclusively designed for feeding to babies and infants under 12 months of age. These formulas are for special dietary use and are mostly in the powdered or liquid form and is also called baby milk, first milk or infant milk. They are the complete or partial substitute for human milk, and is manufactured as close as possible, using the compositions of human mother’s milk, with few nutrition variances.

The history of infant formula dates back to the 1860’s, when the first infant food was invented. To combat medical problems and infant mortality issues, there was a dire need to improve the quality of the manufactured baby foods. Justus Freiherr von Liebig, a German scientist, developed the world’s first commercial infant formula, which was called Liebig’s Soluble Food for Babies. Post the acceptance of this product, brands like Nestle, Ridge’s Food for Infants and Mellin’s Food, stepped up in the game and started infant formula production.

Infant Formula in Australia:

Looking closer at home front, the infant formula in Australia is quite stable, with dedicated companies working towards providing baby nutrition across the country. Each baby formula manufactured and distributed in Australia needs to adhere to the strict Australian Standards.

In the country, the MAIF Agreement, which is a voluntary and self-regulatory code of conduct between the producers and importers of infant formula, has prevailed since 1992. Few companies that are current signatories to the MAIF Agreement include Bayer Australia Ltd, Nestlé Australia Ltd, The a2 Milk Company Limited and Wattle Health Australia Limited.

In the light of this context, let us look at the four infant formula stocks, their latest updates and recent stock performances on the Australian Securities Exchange:

The a2 Milk Company Limited (ASX: A2M)

Company Profile: Trading both on ASX and NZX, A2M was founded in 2000 by Dr. Corran McLachlan in New Zealand and is a producer, marketer and seller of branded dairy and infant formula products. The a2 Milk™ comprises of the A2 protein not A1. The company’s products and trade activities are present in the ANZ region, The UK, China, The US and few Asian markets. The company was listed on the ASX (Australian Securities Exchange) in 2015.

A2M’s products (Source: Company website)

Stock Performance: The stock of A2M ended the trading session, up by 7.793 per cent from its prior closing price and was at A$15.63, on 10 July 2019, with a market capitalisation of A$10.66 billion and ~735 million outstanding shares. In the last one, three and six months, the stock has generated returns of 3.94 per cent, 5 per cent and 34.26 per cent, respectively.

A2M stock soars up: The A2M’s stock has been the hot pick on 10 July 2019, as its stock rose up ~8 per cent, relative to its last trade. This indicates that the stock is up by ~45 per cent since the year began. On 10 July 2019, on NZX, the company’s stock was trading as (NZE: ATM) at NZ$16.25, up by ~6.56 per cent (at 5:00 PM GMT+12). Considering the performance, market experts are predicting that the stock would perform well in the coming times.

Bellamy’s Australia Limited (ASX: BAL)

Company Profile: A producer of premium certified organic formula and baby food, BAL’s certified organic toddler milk is tagged to be the number one in Australia. The company has been in the business since 2004 and focuses on the use of organic products. The company has manufactured both formula and food products like cereal, pasta, rusk and snacks.

BAL Products (Source: Company Website)

Stock Performance: The stock of BAL, by the closure of trading session, was up by 1.896% per cent from the prior close and was at A$8.6, with a market capitalisation of A$956.83 million and ~113.37 million outstanding shares. In the last one and six months, the stock has generated returns of 6.57 per cent and 12.99 per cent, respectively.

SAMR approves new branded series: On 24 April 2019, the company announced that SAMR had given its nod for a new branded formulation-series to be generated at the ViPlus Dairy facility situated in Toora region, Victoria. This series would focus on the premium segment of the offline channel and Tier 3 and 4 cities, targeting China region. However, the application on manufacturing organic formula-series is still pending, which would be manufactured at its Camperdown Powder in Melbourne area and a go-ahead signal from SAMR is awaited on it.

Synlait Milk Limited (ASX: SM1)

Company Profile: An amalgamation of the words Synergy and Milk, Synlait’s journey began in 2000 and the manufacturing of the product commenced in 2008. The company expanded by the acquisition of New Zealand Dairy Company in May 2017. The company is a diary manufacturer and provides its products to milk-based health and nutrition firms. It was listed on the ASX in 2016 and trades both on ASX and NZX.

SM1’s Milk Prices Over the Years (Source: Company Website)

Stock Performance: The stocks of SM1 last traded, up by 2.233 per cent from its last trade and was at A$8.7, on 10 July 2019, with a market capitalisation of A$1.53 billion and ~179.22 million outstanding shares. In the last one, three and six months, the stock has generated negative returns of 4.27 per cent, 16.98 per cent and 3.95 per cent, respectively.

Date for FY19 Annual Results: On 9 July 2019, the company notified that it would announce its annual results for FY19 ended 31 July 2019, on 12 September 2019. For the current dairy season 2019 / 2020, the company might revise its forecast milk price and advance rates and would also announce the final milk price for the 2018 / 2019 dairy season.

Appeal in the Court: On 7 June 2019, the company announced that it had applied for leave for the purpose of appealing to the Supreme Court regarding the elimination of land covenants on its Pokeno land, which it had purchased in February 2018.

Looking at the history of the matter, in November 2018, the High court had eliminated covenants over the land, which would disturb the company’s development of the land, post which the company took the land’s ownership. In May this year, the Court of Appeal reversed the High Court verdict of eliminating the historic covenants. The company would be working towards the existing project timetable in the land and is hopeful of an optimistic court result.

Wattle Health Australia Limited (ASX: WHA)

Company Profile: With the focus on locally grown ingredients and creating formulations with leading scientific and nutritional benefits, WHA’s aim is to be make the sustainable Aussie health and wellness products to be accessible across the globe. The company was listed on the Australian Securities Exchange in 2017.

WHA’s products (Source: Company website)

Stock Performance: The stocks of WHA last traded down by 1.818 per cent at A$0.54, on 10 July 2019, with a market capitalisation of A$106.98 million and ~194 million outstanding shares. In the last one, three and six months, the stock has generated negative returns of 45 per cent, 28.10 per cent and 48.84 per cent, respectively. The YTD return has been a negative 39.56 per cent.

Revised debt facility term sheet for net cash funding: July 2019 began on a good note for WHA, on 2 July 2019, the company notified that it had signed a revised debt facility term sheet for net cash funding with Gramercy Funds Management LLC for ~USD85 million. The prior term sheet amounted to ~USD75 million. The non-binding revised term sheet would be for a tenure of 4 years, with an OID of 13 per cent and coupon rate of 9 per cent per annum. This provides the company with additional working capital to advance towards the purchase of Blend & Pack shares. After the conclusion of procurement process, WHA would be one amid the first completely vertically integrated organic nutritional dairy companies in the nation.

As previously notified by WHA on 9 May 2019, it would also acquire all the shares held in Blend and Pack by Mason Group Holdings Limited. The company would also begin the Uganic nutritional dairy range production by next month, in August this year.


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