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Top fund manager says A2 Milk could double or triple its market share

The A2 Milk Company Ltd (ASX: A2M) share price has been a very strong performer in 2020.

Since the start of the year, the infant formula and fresh milk company’s shares are up 39%.

Is it too late to buy a2 Milk shares?

Although its shares are admittedly not cheap, I don’t believe it is too late to invest. This is due to the quality of its business and its very positive long term outlook. I believe these justify the premium its shares are trading at.

One leading fund manager that appears to agree is Ophir Asset Management.

Its Director and Portfolio Manager, Andrew Mitchell, recently told Livewire Markets that he believes a2 Milk Company has a “huge runway” and could double or even triple its Chinese market share in the future.

According to the Livewire podcast, the fund manager notes that the premium end of the Chinese infant formula market continues to grow even during the pandemic. This is because Chinese families are not cutting back on infant formula in difficult times.

This is a big positive for a2 Milk Company and offers “downside protection” during periods of time like those we are experiencing at present.

Potential market share gains.

At the end of the first half of FY 2020, a2 Milk Company had an infant formula consumption value share of 6.6% in China. This was up from 5.4% a year earlier.

Mr Mitchell appears confident that the company’s growth in the market is only just getting started and has suggested it is “headed towards 15% to 20% in market share.”

In addition to this, the fund manager sees opportunities for the company to expand its “innovative product” globally and notes that it has a significant amount of cash on its balance sheet. The latter gives the company a lot of options to bolster its future growth.

And while some investors have concerns that competing a2-only products could stifle its growth, Mr Mitchell doesn’t believe this will be the case. In fact, Ophir’s contacts in the China market believe the launch of a2-only products by big multinationals only reinforces the a2 Milk Company’s premium brand with Chinese consumers.

Overall, the fund manager believes a2 Milk Company is a “fantastic” company and on a “trajectory to be a much larger business.” I agree completely with this view and feel a2 Milk Company would be a great buy and hold option.

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of A2 Milk. 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 Scott Phillips.

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