Morningstar | We expect A2 Milk's solid growth and stellar returns on capital to continue.
While A2 Milk’s highest-growth days are behind it, we still expect solid future gains, with market share opportunities in Chinese infant formula, U.S. fresh milk, and global follow-on dairy products supporting our outlook for nearly 20% annual earnings growth over the next decade. And with minimal capital investment needs, A2 is set to enjoy stellar returns on invested capital and strong free cash flow. We think the company has carved out a narrow economic moat, owing to its brand intangible assets. However, the future success of the firm relies mostly upon developments in the Chinese infant formula market, where we estimate A2 generates nearly 90% of its earnings through both direct sales and Australian third parties. We expect the firm’s market share to climb to about 15% over the next 10 years from 5% in fiscal 2018, but continued competition and scientific developments regarding A2 Milk present sizeable risks.A2 Milk is principally engaged in the commercialization of a2 Milk™ related products as supported by the ownership of intellectual property that enables the identification of cattle for the production of a2 Milk™. Through its associated companies, Co. is also engaged in the distribution and marketing of a2 Milk™ in Australia and Japan and commercialize the sales and licensing rights for the supply, distribution and marketing of a2 Milk™ in the U.S. Co. products are also sold under the Jalna and Fresha Valley brand names. Co. operates predominantly in New Zealand and Australia.
Morningstar, Inc. is a leading provider of independent investment research in North America, Europe, Australia, and Asia. The company offer an extensive line of products and services for individual investors, financial advisors, asset managers, and retirement plan providers and sponsors.
Morningstar provides data on approximately 530,000 investment offerings, including stocks, mutual funds, and similar vehicles, along with real-time global market data on more than 18 million equities, indexes, futures, options, commodities, and precious metals, in addition to foreign exchange and Treasury markets. Morningstar also offers investment management services through its investment advisory subsidiaries and had approximately $185 billion in assets under advisement and management as of June 30, 2016.
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