Upside (NZD2.97ps): An upside scenario would likely involve increased milk market share in Australia, North American and China, as well as increased direct share of the Chinese infant formula market (from 0.5% to 1.0% volume share). This scenario does not include new regional products like North America infant formula or cheese and ice cream in all regions.
Base (NZD2.07ps): Our base case assumption is that Australian drinking milk market share remains around current levels (3.5%) despite likely new competition; Chinese infant formula sales on a direct basis reach 0.5% volume share; current grey market sales remain broadly flat across Asia over the long-term; and, A2M achieves 0.8% market share in the North America drinking milk market.
Downside (NZD1.22ps): A downside scenario would likely involve a withdrawal of the a2 Milk brand in North America (where it is currently loss-making), and new competition reducing the market share potential of the Australia/China milk markets, as well as the Chinese infant formula market. Under this scenario, our fair value would fall to NZD1.22ps.
A2M Price at posting:
$1.38 Sentiment: Buy Disclosure: Held
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