I know that a link was uploaded of this story, this is for those who can't open it - today's Australian Business Section
Surging a2 Milk knocks AMP out of ASX top 50

Geoff Babidge, CEO of a2 Milk. Picture: Hollie Adams

• JARED LYNCH

  REPORTER

  
• 10:26PM JUNE 14, 2020
• 3COMMENTS

Trans-Tasman dairy brand a2 Milk has knocked index stalwart AMP out of the 50 biggest companies on the ASX, as the financial services juggernaut continues to reel from the fallout of the banking royal commission.

More than $13bn has been blasted off AMP’s market cap since 2017, when the company had a valuation of about $18.8bn.

Meanwhile, a2 Milk has been riding the wellness and infant formula boom, with its market cap soaring in the past three years from about $2.4bn to $13.2bn — more than double the value of AMP, which is now hovering around $6bn.

a2 Milk’s success has sparked a range of copycats, with Nestle, Karicare, Cow & Gate, Junlebao, Mead Johnson and Bellamy’s Organic launching their own “A2” infant formula ranges.

The company is also ina legal battle with Braum’s, a family-owned chain for fast food restaurants and stores in Oklahoma, claiming Braum’s has infringed on its trademark after Braum’s launched its own brand of a2 fresh and flavoured milk.

The inclusion of a2 Milk in the S&P/ASX 50 comes three months after biotech CSL toppled Commonwealth Bank in becoming the biggest company on the ASX, if BHP’s London-listed shares are excluded.

The move further underscores the changing fortunes of the big four banks, which have seen their record low interest rates crunch margins and their shares come under pressure amid a slowing housing market and the launch of a royal commission.

a2 Milk’s entrance into Australia’s 50 biggest listed companies — historically dominated by financials, resources and industrial companies — is remarkable, given it is essentially a marketing company, with its range of dairy products and infant formula produced under contract agreements.

But chief executiveGeoff Babidge signalled earlier this yearthe company was looking to invest in manufacturing partnerships. It is a risky move given the difficulties vitamins maker Blackmores has faced transitioning from being solely a brand owner to manufacturer after it bought its own factory for $43m from US pharmaceutical giant Catalent in Braeside, east of Melbourne.

Citi analyst Sam Teeger said at the time if a2 followed Blackmores and built its own factory, it would reduce the “capital-light nature of the business”.

“But (a2’s own factory) is required in our view to ensure it can comply with evolving Chinese regulations over the longer term,” Mr Teeger wrote in a note to investors.

Mr Babidge indicated a2 Milk would prefer to work with other companies in regard to manufacturing investments. The market is watching closely to see which path it will take.

Mr Babidge told The Australian on Sunday that the company was delighted to make the ASX top 50. “It is indeed quite a unique story that a once fledgling consumer goods company has been able to establish such a strong global brand in the face of intense competition from some of the world’s largest multinational consumer goods companies,” he said.

“We are delighted that so many consumers have responded to and engaged with our brand, as our loyal consumers have experienced the significant health benefits of a2 Milk personally, which has in turn delivered stellar returns for our shareholders who have supported us on the journey.”

Maven Funds Management chief investment officer Matt Joass said the key to a2’s success was its simplicity.

“I first purchased my shares in a2 Milk in late 2015. It’s been a fun ride. In just four and a half years the shares have delivered a 2200 per cent return for shareholders,” Mr Joass said in a note to investors.

“This was a company that could be purchased at multiple times throughout its growth journey for a very reasonable price. Its business is simple and its customer value proposition is easy to understand. Most of all, the returns were not driven by price swings, they were primarily driven by astounding organic earnings growth.”

Other company movements in S&P’s June index rebalancing include poker machine maker Aristocrat, which is backed by Australia’s oldest billionaire Len Ainsworth, moving into the ASX 20, ousting box maker Amcor.

Meanwhile stem cell-focused biotech Mesoblast,which has more than doubled its revenuein its first three quarters to $US31.5m ($47m), as it pushes ahead on a treatment for patients with potentially lethal coronavirus complications, has entered the ASX 200, knocking out Mayne Pharma.