ga2MilkandSynlaitFood&BeverageForecastChangeAustralasiaAustraliaNewZealandIndustrya2MilkandSynlaitDate16February2019DeutscheBankResearchExtendingthewinningformulaExecutingwell-reiterateBuyonbothATM/SMLInthisreport,weuseanalysisofrecentindustrydatapointsalongwithourownonlinedatacapturetocalibrateour1H19ATMresultexpectation(20thFeb).Wehavealsotakentheopportunitytoreviewourmedium-termgrowthprospectsforATMfollowinggreaterChinaregulatorycertainty(lateCY18)andtoincludealargerUSopportunityviaadultnutrition.NotwithstandingthestrongpriceperformancesCYTDofATM+14%andSML+7%(NZX50G+5%),wereiterateourBuyratingsonbothstocks.ForATM,ourconfidenceisunderpinnedbystrongChinaInfantperformanceandouradditionalvaluationsupportcomingfromalargerUSopportunityset.SMLrationaleislinkedtoourconfidenceinATM’sinfantformulaprospects,withthecompanystilltoexecuteanymeaningfuldiversificationstrategywithitsotherIFCcustomersandcategories.StrongdaigoufinishtoATM1H19Weexpectrevenue+40%toNZ$609mnandEBITDA+40%toNZ$200mn,margin33%flatononpcp.ThisimpliesastrongNov/Decmonthlyrevenuerunrateof+39%toNZ$120mnonpcpandiscyclingastrongbase.It’salso+30%vs.theavg.Jul–Oct-18(4M19)run-rateofNZ$92mn.Asalways,akeyjudgementfactoristheInfantinventoryposition,whichcouldswingourIFrev.of+47%toNZ$500mnby+/-NZ$20mn.Otheritems:ANZfreshrev.+12%toNZ$95mnandUS/UKfreshrev.+57%toNZ$14mn(exUKIFofNZ$15mn,bothonpcp).Keyfuturehealthfactors:(1)Kantarshare,(2)Chinalabel%,and(3)USfreshupdateInouropinion,thecurrentpriceisnowwelluptospeedonChinaInfant(ourDCFest.c.NZ$10),thereforeinvestorswillbelookingforanunderpinviafurthergainsinKantarshare(DBe+0.2ppqoqto5.8%)andastrongliftinChinalabelsalesmix(DBe+3pphohto15%MAT)followingincreaseddistributionandwithSMAR.Toprovideadditionalvaluationsupport,wenowneedtoseeincreasedconfidenceontheUSgrowthoption,specificallyfurtherfreshdistributionpoints(1Q19was9k),sellthroughKPIs(?)and/orfutureleverageoptionsviaanAdultNutritionproductset(similartoFreedomFoodsportfolio)?.Wemaybeoverlyhopefulonthelatterpointswh...
