A2.....but not A2

First NZ Capital Comments

The a2 Milk Company - "A2" but not "a2"



The strength of ATM's patents about to be tested: In recent weeks, it has come to our attention that there are other unrelated parties to ATM ("The a2 Milk Company") who have recently launched or have plans to launch A2 type milk products in some markets, including the US and The Netherlands. ATM is aware of this and has been in communications with some of these parties. We note one party has references to "A2" on its packaging. From our perspective, albeit these parties appear to be small scale operators, the breadth and depth of ATM's registered patents may be about to be put through significant tests. Conversely, it also be seen as an endorsement of the potential benefits that the A2-type milk could bring to some dairy consumer beyond the lone voice of ATM in the market to date. We await further clarification in the coming moments from ATM on this development.

TP unchanged at NZ$1.67: Based on a probability-weighted rolled forward sum-of-the-parts DCF which assumes 1,244 and 1,352 tonnes IF sales per month in FY17F and FY18F, respectively, compared with a recent average run rate of c857 tonnes in the Nov-Dec 2015 period.