Media Updates, page-5456

Seems Analysts have given the Mataura Valley purchase the big tick........From the Australian (Like the excess of 20% return on capital highlighted below)

NZ move will help a2 manage China:

Analysts are tipping a2 milk’s potential acquisition of a majority stake in NZ based Mataura Valley milk as a move that could allow the dairy giant to better manage an increasingly complicated relationship with China while growing margins.The $NZ270m ($246.55m) cash bid, first tipped in DataRoom on July 21, would grant a2 a 75.1 per cent stake in Mataura, with Chinese government owned China Animal Husbandry group owning the remainder.In a note, analysts from Citi said the acquisition could grant a2 an “increased ability for a2 to comply with evolving Chinese regulations longer term,” an important ability as the analysts consider increasing geopolitical tensions between Australia and China as one of the company’s largest risk factors. However, the analysts said that due to growing Chinese consumer preference for locally-owned dairy brands - a reversal of the current trend - a more strategic move would have been to establish a joint venture in China with a local partner.The Citi analysts also said the acquisition would improve a2’s bargaining powers with existing suppliers, boosting margins, while the increased manufacturing capacity could improve product development.However, capital spend is estimated to be $38m due to the stated intention to establish a fully-integrated baby powder plant, reducing short-term returns.Analysts from Macquarie also touched on geopolitical tensions as a risk factor, but were confident that the infant formula market would remain excluded from tit-for-tat trade wars as China is not yet self-sufficient in its production, while China Animal Husbandry’s involvement would strengthen the company’s relationship with China.“Through the recent period of regulatory changes around daigou and CBEC channels, infant formula has been more immune to challenges given the essential nature and sensitive consumer base (compared to luxury goods as an example),” they wrote in a note.“We hence think this, and lack of China self-sufficiency for infant formula is somewhat prohibitive of large infant formula producers and brands being tied up in political tensions.”With the purchase of the stake to come from a2’s hefty $854m cash balance, Macquarie analysts said that the purchase and creation of a new facility will reach break-even point “relatively quickly,” with the facility to produce a return on capital employed in excess of 20 per cent.