The a2 Milk Company Ltd (ASX: A2M) is probably the best dairy company in Australia, and could well go on to outperform the S&P/ASX 200 (INDEXASX: XJO) (ASX: XJO) again in 2019.
Who Is a2 Milk Company?
The a2 Milk Company is one of Australia and New Zealand’s largest infant formula producers and the leader in a2-only protein-based dairy products. It has operations in New Zealand, Australia, USA and China thanks to key supply and distribution agreements.
2 Reasons a2 Milk Company Shares Could Outperform in 2019
- More profit growth in store. Despite its shares rising from just $0.50 five years ago to over $10.50 today, I think the opportunity is large enough to support further profit growth many years into the — albeit uncertain — future. During its most recent trading update, a2 Milk reported 40% revenue growth in the first four months of its 2019 financial year. Profit was up 60% year over year.
- The China opportunity. In 2018, a2 Milk increased its supply relationships with Fonterra (ASX: FSF) and Synlait Milk Ltd (ASX: SM1) in anticipation of future growth. Synlait supplies a2 Milk in the global markets.
The key uncertainty for a2 Milk is the heightened regulatory risk, specifically the changes to the Cross-border E-Commerce (CBEC) rules in China. However, demand for the company’s platinum infant formula is incredible but likely underestimated. For example, Australian mothers and fathers are still getting annoyed that Asian buyers are storming Woolworths Group Ltd (ASX: WOW) and Coles Group Ltd (ASX: COL) to buy bulk amounts of tinned formula to send back to China.
Summary
a2 Milk is one of Australia’s (cough New Zealand’s) global success stories. While a2 Milk’s future is uncertain — indeed, nothing is guaranteed — I think the odds might still be tilted in the favour of savvy and thick-skinned long-term investors looking for an overseas growth story.
Having said that, a2 Milk Company is not a company I own in my share portfolio. However, I own one of the overseas growers in the free investment report below.
FREE: 2 of Our Top ASX Growth Shares For 2019
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