Is A2 MILK FPO NZ the next Bellamy’s Australia Ltd?

Credit: Bellamy's

Bellamy’s Australia Ltd (ASX: BAL) has arguably been the ASX’s best performer in 2015, so far. The asset-light infant formula producer has enjoyed explosive success since its listing on the ASX last year.

China’s insatiable appetitive for pure, organic, branded infant formula is being touted as a significant driver for the demand of Australian dairy products in coming years. Anecdotal evidence suggests Bellamy’s infant formula is flying off Australian retail shelves only to be sold and exported to overseas markets at a healthy markup.

But it isn’t only Bellamy’s that stands to benefit. In addition to the dairy farmers, other milk producers are cashing in on the craze and seeking to exploit a market with seemingly boundless growth potential.

For example, Blackmores Limited (ASX: BKL), a vitamin producer by trade, has teamed up with Bega Cheese Ltd (ASX: BGA) to manufacture its own range of formula that’ll utilise its powerful brand in Asia.

However, investors’ eyes are now turning to A2 MILK FPO NZ (ASX: A2M), the ASX-listed shares of New Zealand’s A2 Milk Company Ltd. A2 Milk is involved in the commercialisation of dairy products (milk, creams and infant formula) which contain specific proteins to avoid tummy discomfort. It is growing awareness of its unique offering and brand locally, in Asia, the USA and Europe.

Today, a2 milk announced to the ASX that its push into infant formula and foreign markets has been well-received and based on just four months’ worth of trading in its 2016 financial year it has upgraded its EBITDA (earnings before interest, tax, depreciation and amortisation) expectations from $12 million to $22 million.

It said the performance of its infant formula rollout is tracking well ahead of expectations. “As a result the Company is today issuing revised earnings guidance upwards for the full year,” a2’s announcement read.

“Infant formula is emerging as a more significant growth driver for the Company,” a2’s CEO, Geoffrey Babidge, said. “The Australian and New Zealand (“ANZ”) business continues to perform exceptionally well with fresh milk growing and a2 Platinum® infant formula significantly ahead of plan.”

Buy, Hold or Sell?

a2 Milk remains an unprofitable company but has a market capitalisation of $662 million. Therefore, it’s not exactly cheap and could be considered somewhat speculative. However, there is a lot to like about the future prospects of the company. And while I’m not prepared to suggest it could be the next Bellamy’s, it’s certainly worthy of a spot on savvy investors’ watchlists.

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Motley Fool contributor Owen Raskiewicz has a financial interest in Bellamy's Australia.

Owen welcomes your feedback on Google plus (see below), LinkedIn or you can follow him on Twitter @ASXinvest.

Unless otherwise noted, the author does not have a position in any stocks mentioned by the author in the comments below. The Motley Fool Australia owns shares of Bellamy's Australia. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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