The A2 Milk Company Limited (ASX: A2M)

A2M Details

Increased investment in marketing: Down 7.5% on March 28, 2018, a2 Milk Company has been slammed by investors as the group revealed that marketing investment in 2H18 will exceed 1H18 by NZ$35-$40 million owing to higher expenses in China and USA, while group’s inventory levels are improving.
 

Segment-wise Financial Performance (Source: Company Reports)
 
Meanwhile, the group’s comprehensive strategic relationship with Fonterra Co-operative Group Limited is expected to be beneficial as the partnership provides the group with A1 protein-free nutritional products in bulk and with consumer-packaged formats. Fonterra and A2M will develop a new A1 protein free-milk pool in New Zealand and in Australia. Fonterra granted an exclusive license agreement with regards to launching a2 Milk branded fresh milk for sale in New Zealand. A2 Milk has also successfully launched an on-line e-commerce platform which provides access to a2 Platinum to Australian consumers. We believe that the stock has witnessed a good run-up up till now and faces cost-based headwinds. We give an “Expensive” recommendation at the current market price of $12.06
 

A2M Daily Chart (Source: Thomson Reuters)
 

Bellamy’s Australia Limited (ASX: BAL)

BAL Details

Stabilisation Plan is ahead of its schedule: Delta Partners, LP a substantial holder of Bellamy’s changed its holding since 8 March 2018. Initially it was holding 11,505,790 shares with 9.68 per cent of the voting power and after the change it held 10.14 per cent of the voting power.As per the March quarter rebalance of S&P/ASX indices, BAL has been added to S&P/ASX 200 Index and All Australian 200 Index, effective from March 19, 2018.Bellamy’s turnaround remains on track and the underlying health of the business is continuing to strengthen the position.The sales gained momentum and its relative share position has improved.The Group submitted the CFDAapplication and deferred the major facility upgraded at Camperdown which allowed the Group to submit the application.This decision to defer the site upgrade by 12 months came at the back of the group intending to maintain a consistent site plan along with its CFDA application.
 

Cashflow Position (Summary: Company Reports)
 
Based on the developments, the group upgraded the forecast for FY18 and expects revenue growth and EBITDA margin to be 30-35 per cent and 20-23 per cent, respectively. The stock prices climbed up by 195.9 per cent in last six months, but were down by 4.1 per cent on March 28, 2018 and this may be partly owing to the drag seen for A2M and investors trying to book some profits. We recommend to “Hold” the stock at the current market price of $21.60, as there is still a room for improvement.

 
BAL Daily Chart (Source: Thomson Reuters)
 

Bubs Australia Limited (ASX: BUB)        

BUB Details

Building distribution capability: As per the March quarterly rebalance of S&P/ASX indices, BUB has been added to All Ordinaries effective March 19, 2018. Meanwhile, Next Step Global Limited, a substantial holder changed its holding in BUB since 09 March 18 from 26,149,685 of shares with 6.81 per cent of the voting power to 21,447,270 shares with 5.76 per cent of the voting power. Infant Food Business Pty Limited ATF Bubs Australia Trust has also ceased to become the substantial holder of the Group since 28 February 18. BUB recently acquired NuLac Foods and this enabled the Company to become Australia’s only vertically integrated producer of goat milk infant formula. The Gross sales for first half of 2018 were up by 92 per cent and amounted to $3.72 million as compared to the same period in the last year. The Company is still in the developing stage and continues to invest heavily in building its distribution capability and brand awareness.
 

Sales Growth Trend (Source: Company Reports)
 
The stock was up by 56 per cent in the past six months but slipped by 18.9 per cent in the past one month with a further decline of 2.6% on March 28, 2018.Looking at the scenario and the downfall, we believe it will be better to wait for more positive catalysts. We have an “Expensive” recommendation on the stock at the current price of $0.75
 

BUB Daily Chart (Source: Thomson Reuters)
 

Jatenergy Limited (ASX: JAT)

JAT Details

Establishing a strong customer base through partnerships: Jatenergy (an energy-based company that is now dealing with infant formula) entered into an agreement with Jiangsu Jbingo International Co. Ltd and Jbingo has agreed to distribute all JAT’s products which included the Golden Koala range of milk powders through the Jbingo distribution platforms in territories in China which are selected by JAT for both online and offline sales. Under this agreement, Jbingo will pay JAT for all its products prior to the release of the product and Jbingo will be responsible for all the logistic and associated costs.
 

Revenue and Profit Growth Trend (Source: Company Reports)
 
JAT has started raising convertible notes of over $5 million which will convert in shares and will be subject to the approval of JAT shareholders and a large portion of these funds will be used to acquire inventory to satisfy the expected orders from Jbingo and from other distributors. Meanwhile, Golden Koala Group Pty Ltd (in which JAT has 51% interest and has a contract with regards to manufacturing of milk powders) got an approval to sell infant formula in China. The stock has been up 6.25% on March 28, 2018 at the back of this update, while other key infant formula stocks have been on a downswing. JAT’s six months run-up has been quite high with 1900% rise, and we believe this can be a watch for a better buying opportunity given any more positive catalysts emerge from the group. Further, JAT is yet to report sales at the levels that have been seen for A2M and BAL. Given the sector landscape and the level of competitiveness in view of JAT’s current scenario, we put an “Expensive” recommendation at the current market price of $0.255
 

JAT Daily Chart (Source: Thomson Reuters)

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