$1/share for A2M is not a too distant future..

It was by observing Bellamy that took me to pay attention to A2M. I have definitely missed the boat on BAL and I would not like to miss out the boat on A2M.

Bellamy had only recently increased its profits to $12M EBITDA in the last financial year, and with the top heading being that they've increased their profits by 600% that caused the meteoric rise of the shares by ~6 times in the past year. In comparison, A2M is just about to post $12M EBITDA for the coming year. However, if you really think about it, A2M posted loss of $2M recently. However, that's taking into consideration the listing cost of ~$2M on ASX. With the underlying EBITDA as $4.8M last FY, the profit growth this year will be close to 250%-300%. Comparing the market cap of A2M and BAL, BAL is $744M vs A2M is $412M today. From one perspective, if you would like to take over A2M today, you would have to fork out at least closer to BAL's market cap considering similar earnings, which would imply that one will have to take it over for at least $1.17/share. Hence, it's not a surprise that management would reject the expression of interests from Freedom Foods and Dean Foods.

In terms of product diversity, you can see that A2M seems to be more diversified than BAL. In terms of fresh milk, it's got Full Cream Milk and Skim Milk; in milk powder, it has Full Cream Milk Powder and also Infant Milk Powder (covering both the adults and children's market!) ; not only that, it has branched off into making even ice-cream (fighting against other ice-cream brands like Peters).

Looking at geographic markets that are being reached, A2M has decided to establish its brand across the UK and USA. Unlike China, the UK and USA has been a large consumer of milk (per capita measurement basis). The way I see it is that A2M will continue to grow sales of their fresh milk in Australia, UK and USA, and their infant milk powder sales (which has grown by 445% last financial year) will grow continue to grow massively (200-300%) in China in near future and other Asian countries (should they choose to start expanding in say South East Asia).

The only concern I have about A2M is about management's ability to maintain focus on how to steer the company in the context of rapid expansion. However, looking at how management had been reducing the losses over the year, the company's management seems trustworthy, with the company positioned at the cusp of returning a very healthy profit to the shareholders in this coming Financial Year.

The way I see things are going on, A2M is just a year behind BAL in terms of profits, however the company is further along than BAL in terms of the product growth (note that it always cost more to grow, but a bigger reward is further down the track) . If one is looking to increase their exposure to a fast-growth stock, A2M would look like a serious contender on one's portfolio. The fact that Perpetual has increased its stakeholding recently is heartwarming, and I'm looking forward to more big players coming onto A2M share register. Considering the fact that ~65% of the shares is owned by big shareholders, this leaves very little for the other big players to snap up shares off the market. When A2M starts to announce big profits increase, the share price could go up very quickly as there won't be much available for sale as it's unlikely the big shareholders would like to let it go at the moment.

With good product differentiation, product diversification and geographic diversification, A2M looks to be a very promising stock to hold onto. Observing the trading pattern recently, it seems that there's quite some accumulation going on with shares trading at a very narrow price range- so I think it's not a bad time to buy some for yourself!

Good luck!