Guide to Infant formula stocks; 5 Leading Stocks under preview

Infant Formula, also referred to as Baby Formula/Infant Milk, are specified products designed specifically for managing the dietary requirements of infants aged 0-12 predominantly, to substitute the nutrition that would be received through breast milk.

The ingredients of infant formula include necessary amount of water, carbohydrate, protein, fat, vitamins, and other important minerals an infant need to accomplish and maintain normal health and growth.

Effective and efficient nutrition is the prime need of every infant, besides proper care, deficiency of which might lead to serious disorders and malnutrition. The crux of this notion gave birth to firms that develops infant formulas and baby foods.

In the recent times, Australian Infant Formula stocks have seen challenging times on ASX amidst tighter SAMR registration for infant formula sales in lucrative Chinese market with the nation eyeing 60% self-sufficiency in three years.

There was also an action plan to encourage domestic Chinese players for purchasing foreign infant players and establishing production facilities abroad. We saw China’s local manufactures trying to capture a bigger share of the AU market, with one of the Australia’s prime infant formula company Bellamy’s Australia Limited (ASX:BAL) already been acquired by a Chinese firm Mengniu Dairy Company Limited.

Let’s dig into five infant formula stocks in detail.

Wattle Health Australia (ASX: WHA) Provides Update on Right Issue

Founded in 2011 and listed on ASX in 2017, infant formula company Wattle Health Australia (ASX: WHA) recently provided an update on its right issue and the proposed acquisition of Blend and Pack.

• Wattle Health received a total of $11.7 million from existing entitled Shareholders through Computershare - the Company’s share registry which is in accordance to the Rights Issue Prospectus released by the company on 18 November 2019.

• During this offer period, WHA carried out investor roadshows and underwent discussions with several interested parties regarding the shortfall funding.

• Further, a full amount of $55 million was mandatory as the minimum offer amount under the Prospectus, however, Wattle Health failed to secure that despite receiving considerable investor interest beyond $11.7 million. Consequently, the underwriting contract with Claymore Capital Private Limited lapsed on the 31 December 2019.

Wattle Health’s Blend & Pack Transaction

• The company further announced that Mason Financial Holdings (Mason) has agreed to extend the Sunset Date of the proposed transaction to acquire 75% of Blend and Pack (B&P) to 7 January 2019.

• Following the failure of the rights issue offer, this extension will allow both parties to further negotiate on a potential amended proposal. However, the company’s management advised that there would be no guarantee that a new contract will be signed with Mason.

• It is important to note that, pending a further update related to transaction, Wattle Health’s shares will remain voluntary suspended.

NZ based dairy firm Synlait Milk Limited (ASX: SM1) Joins NZX Debt Market

In an announcement dated 18 December 2018, the company updated the market that it has joined the New Zealand Stock Exchange (NZX) debt market with its inaugural bond issuance wherein the company issued NZ$180 million of unsecured, subordinated, fixed rate bonds.

• The earnings from the bonds would be utilised to settle a part of Synlait’s existing bank debt.

• The bond precedings also provide divergence of funding sources in order to underpin its growth strategy.

• This listing was one of the largest unrated bonds listed on the NZX debt market in last ten years since November 2010 and the largest unrated corporate subordinated bond to get listed in New Zealand in last 14 years, since December 2006.

With this, Synlait stood as 3^rd new debt issuer to enter the NZX debt market in the final listing for 2019.

SM1’s shares traded at $8.650, up 0.35% on 03 January 2020. The market capitalization of the company stood at $1.55 billion with 179.31 million outstanding shares.

The a2 Milk Company Limited (ASX: A2M) - FY2020 Outlook

Founded in New Zealand in 2002 by Dr Corrie Mc Laughlan with operations in the U.S., China, Hong Kong, Singapore, Australia and New Zealand, The a2 Milk Company provided outlook for the financial year 2020. Key Highlights are:

• Strong growth in revenues across its main regions.
• Brand and marketing investment in United States & China.
• In-market execution supported by capability and infrastructure development.
• Stronger full year EBITDA margin % than what was previously communicated.
• Gross margin anticipated in the range of 29-30%, profiting from an improved price yieldreduction in COGS.

1H 2020 Outlook

The company anticipated revenues in the range of $780 million to $800 million with growth displaying strong performance against company’s strategy.

• Representing a growth of 84%, China label infant nutrition sales estimated to be nearly $135 million.
• Representing a growth of ~54%, Cross Border e-commerce (CEBC) infant nutrition sales estimated to be ~ $155 million.
• Reflecting a growth rate of ~9%, ANZ English label infant nutrition sales is predicted to be nearly $350 million.
• Reflecting a growth rate of ~110%, US sales predicted to be nearly $27 million representing a growth rate of ~110%
• Reflecting a growth rate of ~10%, Australia fresh milk sales projected to be $75 million.

A2M’s shares traded at $14.030, up 0.071% on 03 January 2020. The market capitalization of the company stood at $10.32 billion with 735.88 million outstanding shares.

Bubs Australia Limited (ASX: BUB) Completed Share Purchase Plan

Listed on ASX in 1993, infant formula manufacturer and a consumer staple player, Bubs Australia Limited) announced on 20 December 2019 that it has successfully completed the share purchase plan (SPP).

Moreover, 5,263,158 shares were issued to Bubs shareholders. These shares to rank equally with existing Bubs Australia shares.

BUB traded at $0.975, up 1.04% on 03 January 2020. The market capitalization of the company stands at $540.68 million with 560.3 million outstanding shares.

Keytone Dairy Corporation Limited (ASX: KTD) - Powder Manufacturing Sites Integrated

Listed on ASX in 2018, manufacturer, packer and exporter of dairy and nutrition products, Keytone Dairy Corporation Limited announced completion of integrated powder manufacturing facilities.

• The company informed that integration of Keytone Dairy’s powder manufacturing sites which is located in Melbourne has been completed ahead of its planned schedule.
• KTD’s large-scale facility has 8 hygiene packing rooms that includes a dairy-free, gluten-free room and a new laboratory dedicated to product development.
• This integration would result in remarkable annualised synergies and operational efficiencies.

The company further informed that all the necessary licensing and accreditations including Dairy Food Safety Victoria and Certification and Accreditation Administration of the People’s Republic of China (CNCA) have been received.

KTD’s shares traded at $0.385, on 03 January 2020. The market capitalization of the company stands at $82.82 million with 215.12 million outstanding shares.

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