I hold both these stocks in equal value, as of this post. Starting with:
BAL -
Not cross promoting, but I need to make this point to make the point below. BAL is undervalued at the moment it has future underperformance due to regulatory risk priced in. It is on track to end FY16 at 100% up on Sales and 300% up on NPAT, with 2.5 months to go to an FY17 forecast that includes a significant boost in supply capacity.
Despite this it is valued at 15.7 x EBITDA, which at this growth rate is absurd, before 2016 I would have been comfortable with 30x on a company with this growth rate.
Supporting information: http://www.4-traders.com/BELLAMY-S-AUSTRALIA-LTD-17083790/
A2M -
As of the half year report A2M have clearly shown that they are made of three parts:
1 - Fresh milk business
2 - Infant formula business
3 - Adult whole milk powder business
Ignoring parts 1 and 3, and just look at part 2 to begin with.
As exciting as BAL infant formula business growth rate is, A2M formula has higher growth and overtaken and this is clear in the company forecasts. BAL forecast giving us $155M of sales in H2, with an unknown portion from food, assume 10%, gives $139.5M in formula sales in H2. A2M forecast giving us NZ$154M sales of formula in H2, (derived by assuming milk growth in line with H1), gives us $138.8M AUD. That's close enough for me to call it in favour of the co with higher momentum, A2.
A2M infant formula has higher gross margin, cost of a2 milk is less than organic, and in fact faster supply lead time. A2 have proven ability with SML to bring significant A2 milk supply online quickly, and they have in SML a partner ready to expand formula processing plant. In my opinion converting to A2 is faster than converting to organic and SML will be able to produce an expanded plant (as they are planning) in quick order due to proven track record.
I would say the infant formula segment of A2M business is equal in value to BAL entire business, and BAL is in my opinion hugely under valued (as explained above.)
At today's prices this leaves us with only about $155M in value for Fresh Milk, which is established and has double digit growth in AU, growing fast in UK and expanding in US. And well - $0 value for the Adult milk powder, which is clearly a massive opportunity if you look at Devondale sales numbers.
But I think BAL is due for a large re-rate back to the $11-$12 range, which unless we see a corresponding pop for A2M means we can soon say that: With A2M shares you get a faster growing, higher gross margin formula business than BAL, proven defensive A2 IP, and a BONUS free milk / milk powder business, normally worth hundreds of millions on its own - FREE! Plus bonus sunk expansion costs in the UK and USA.
Happy to argue but best to see how the SP look over next 30-120 days.
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