Media Updates, page-14867

It's much better to compare against some of these companies mentioned, BGA, Fonterra, etc than to a completely different sector, as was the case that I was responding to. FMCG companies like these in the dairy space have fared much better than IMF companies like A2M over the past few years (though in the case of Fonterra, I think much of the recent SP increase has been due to selling off many of its long term assets and brands).

But the broader point remains that had A2M been more diversified outside of IMF it would have fared better over the past 5 years. Arguably A2M should be more diversified into other dairy categories, but this would be detrimental to the company's margins, at least in the short term, unless they have the manufacturing capacity to do so. So the question is do you and other posters inviting this comparison want to see A2M more heavily involved in capital intensive manufacturing in order to compete in these categories?

In my view it IS a valid question, and it may be where we are headed ultimately, but I do also see the downside i.e. the faster the transition, the likelier that the company's profitability would be impacted, and less likely we will see any direct return of value to shareholders, such as dividends or buybacks.

The alternative is for A2M to remain primarily a China focused IMF company that more gradually branches out from this into other categories and markets. This is more like the current trajectory. Most of A2M's competition are larger multinationals such as Danone, Nestle, Feihe, who all exhibit somewhat similar SP trends as A2M, but they are more diversified and therefore the 5yr-term trend is not as bad. A2M has actually performed much better than these companies over the past year.

Due to consolidation of the market by these bigger companies, most smaller IMF peers have either been bought out (e.g. Bellamy's) or are floundering due to being unable to crack the China market (Bubs, AHF, Nuchev etc). So these are either unavailable or not well suited for comparison.

Ausnutria is probably the closest example I can find to A2M in terms of market cap, China focus, IMF focus. You can see the chart yourself but A2M compares favourably over the short, medium and long-term.

My takeaway from all this is that A2M actually outperforms its peers in the IMF space, but it has been weighed down by lack of diversification into the broader FMCG dairy space. You can blame management for this, but it's a path the company has been on pretty much since 2016 or so, and I'm not 100% convinced the appetite is there among shareholders to invest their capital heavily in the manufacturing capacity to change that path. But that may be what is needed IMO.