This meant ensuring that no one distribution channel or partner ever had surplus supply that might lead them to discount a2 Milk’s products and thereby tarnish the premium positioning of the brand. Geoffrey Babidge But then the milk turned sour.

Their partner Synlait Milk did the heavy lifting for them, investing over $560 million on capital expenditures over the same period. But that process of elimination leads us to a precious few companies with very attractive underlying economics. And on three occasions the shares fell by 30% or more. The large dairy incumbents struggle to launch an a2 protein only product and market it aggressively because by doing so they would risk hurting the image of their much larger existing traditional dairy business. A2 generates plenty of cash and boasts a pristine balance sheet with $450m in net cash and another $275m holding in key supplier, Synlait. All indications of performance returns are historical and cannot be relied upon as an indicator for future performance. Catching monsters is hard. Your parents probably believed milk was milk. It is also the story of how we can apply the principles of what I call monster hunting to our own investing, and use the lessons on our quest to find the next potential winner while it is still small and undiscovered. As I see it, there are four steps to catching a monster: We’ll step through each in turn, in the context of a2 Milk. Above all the story of a2 Milk highlights that we should not spend too much time worrying about the general swings in the broader market when we could instead be doing deep fundamental research. Please contact Member Services on support@investsmart.com.au or 1300 880 160. Synlait has other customers than just a2 Milk of course, but it gives some sense of the scale of capital-intensive investment that a2 Milk avoided. | The Inside Investor, The Bizarre, Weird, and Beautifully Inefficient World of Aussie Small Caps, Rocket Lab’s Peter Beck: The Uncut Interview, Rocket Lab: The Kiwis winning the new Space Race. Buyers like Wei have fanned a phenomenal success for New Zealand-based a2 Milk and its controversial milk powder that is marketed as easier to digest than conventional milk because it lacks the A1 caesin protein. The company has seen explosive growth since going public five years ago, specifically in the Chinese market. | The Inside Investor, a2 Milk: The Story of the 2,200% Monster Next Door, The Bizarre, Weird and Beautifully Inefficient World of Aussie Small Caps, What is Gorilla stock investing? As competition heats up, the challenge for a2 will be to keep daigou loyal. The company changed its business model in 2007 from licensing to a full-fledged operating company engaged in sourcing and selling branded A2 milk … One of the reason why the days inventory is high compare to its competitors is that The A2 Milk Company Limited is not very good at demand forecasting thus end up keeping higher inventory both in-house and in channel. Entering new international markets, with an immediate focus on North America and specific markets in Europe. Our countertop, mobile and integrated terminals can move your business in the right direction. For more information about fees and costs, please see the Product Disclosure Statement and Investment Menu. Chinese food safety standards were not up to par, so wealthier Chinese mums sought out trusted overseas brands. That reinvestment has a compounding effect over time, with the company’s value building up faster than a snowball rolling downhill. We’re committed to supporting our small business customers build and grow.

I expect we are not the only sticky customers. Access to third party milk is plentiful - A2 itself is supplied by Synlait which supplies others too - and legacy producers should be able to utilise existing distribution networks to replicate A2's sales channels. Pingback: What is Gorilla stock investing? E-commerce sites and Chinese-labelled supply are supplanting daigous as the main growth channel. If we back out the cash and investments, A2 still trades around 35 times earnings and there are lingering risks. The company expanded from selling $136 million worth of products in 2015 to over $1.7 billion today. An independent legal review of the global intellectual property undertaken during the course of the review has confirmed that the intellectual property rights are strong and of extended duration with the opportunity to further enhance and extend. It has been prepared without taking into account your objectives, financial situation or needs. Consumer wellness products are the same: brands first, and health products second. Monsters are businesses that deliver huge shareholder returns by compounding high returns on invested capital. Your article is part of it. Important risk factors, like trade war and decreasing Chinese fertility may impact a2 shares, and should be noted. All thanks to an international business expansion strategy. Please untick this box when using a public or shared device. Only funds with > three year returns were included in any fee comparison, and were compared to Morningstar's nominated benchmark. But a2 stuck with daigou and it paid off. What made a2 Milk so special – and what most of the market missed – is the power of its business model. The ride can be bumpy, but it’s also a heck of a lot of fun. For middle-class Chinese, quality is more important than price and this attitude is influenced by ‘emperor syndrome’.

Great article mate, learn something every time I read one. Instead, once we got consumer traction, everyone came to us.


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