Implications of a2 Milk's NZ$270m offer to acquire Mataura Valley Milk
We examine the details behind the company’s latest acquisition plans as well as briefly look at its FY20 results.
A look at a2 Milk’s latest acquisition plans
a2 Milk (A2M) today revealed that it has made a non-binding offer to acquire a significant stake in the New Zealand dairy nutrition business, Mataura Valley Milk – in a deal valued at NZ$270 million – aimed at helping the company expand its manufacturing capacity.
Though non-binding, A2M has been provided a period of exclusivity as it conducts due diligence and negotiates finalised transaction documentation.
Importantly, it was flagged that Mataura’s current majority shareholder – China Animal Husbandry Group, a subsidiary of China National Agriculture Development Group, which itself is the parent company of one of A2’s key Chinese partners – supports the acquisition plans.
In its current form, should the acquisition be completed, a2 Milk would hold a 75.1% stake in Mataura, while China Animal Husbandry Group would hold a 24.9% stake.
Ultimately, this acquisition announcement should come as little surprise to observant onlookers, with A2M in its full-year results this week announcing that it was currently reviewing its capital allocation framework, with a focus towards long-term growth opportunities.
Indeed, as A2M’s current Chief Executive Officer, Geoff Babidge, noted in today’s ASX release: the planned Mataura acquisition 'Aligns with this strategic objective as we look to compliment and build upon our current strategic relationship with Synlait Milk and Fonterra Co-operative Group.’
Looking forward, Mr Babidge added that 'Our intention would be to invest further to establish blending and canning capacity at Mataura's facility to support the establishment of a fully integrated manufacturing plant for infant nutrition.’
The company noted that this acquisition would be funded through current cash reserves, which stood at NZ$854.2 million, at the close of fiscal 2020.
Even though the deal remains incomplete, the company aims for the transaction to be finalised towards the end of fiscal 2021.
How to trade a2 Milk, long and short
What do you make of today's news: are you bullish or bearish on a2 Milk's prospects? Whatever your view, you can use CFDs to trade both rising and falling markets, through IG’s world-class trading platform now.
For example, to buy (long) or sell (short) a2 Milk using CFDs, follow these easy steps:
- Create an IG Trading Account or log in to your existing account
- Enter ‘A2M’ in the search bar and select it
- Choose your position size
- Click on ‘buy’ or ‘sell’ in the deal ticket
- Confirm the trade
Revisiting the FY20 results
The market responded with little enthusiasm when a2 Milk reported its full-year (FY20) report this week, with the stock collapsing 6.3% – to $18.25 per share – on the day of the announcement.
The key takeaways from A2M’s FY20 report were:
- Total revenue of NZ$1.73 billion, up 32.8%
- Earnings (EBITDA) of NZ$549.7 million, up 32.9%; against an EBITDA margin of 31.7%
- Profits (NPAT) of NZ$385.8 million, up 34.1%.
- FY21 EBITDA margins guided to come in at 30-31%, while FY21 revenue is expected to remain strong, driven by 'continued investment in marketing and organisational capability.'
- FY21 CAPEX has been guided at NZ$50 million.
IGA, may distribute information/research produced by its respective foreign affiliates within the IG Group of companies pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the research is distributed in Singapore to a person who is not an Accredited Investor, Expert Investor or an Institutional Investor, IGA accepts legal responsibility for the contents of the report to such persons only to the extent required by law. Singapore recipients should contact IGA at 6390 5118 for matters arising from, or in connection with the information distributed.
The information/research herein is prepared by IG Asia Pte Ltd (IGA) and its foreign affiliated companies (collectively known as the IG Group) and is intended for general circulation only. It does not take into account the specific investment objectives, financial situation, or particular needs of any particular person. You should take into account your specific investment objectives, financial situation, and particular needs before making a commitment to trade, including seeking advice from an independent financial adviser regarding the suitability of the investment, under a separate engagement, as you deem fit.
Please see important Research Disclaimer.
Seize a share opportunity today
Go long or short on thousands of international stocks.
- Increase your market exposure with leverage
- Get spreads from just 0.1% on major global shares
- Trade CFDs straight into order books with direct market access
Live prices on most popular markets
Prices above are subject to our website terms and agreements. Prices are indicative only. All shares prices are delayed by at least 15 mins.