A2 Milk’s Mataura Deal Diversifies Manufacturing but Requires Transition Time and Investment

Narrow-moat A2 Milk has agreed on terms to acquire 75% of Mataura Valley Milk for NZD 279 million on May 31, 2021, pending regulatory approval. We view this as strategically sound as it will enable a2 to complement existing supply relationships with Synlait Milk and Fonterra, while also capturing manufacturing margin for nutritional products through the new facility. However, the company expects Mataura to continue to operate at approximately EBITDA breakeven as a manufacturer of commodity powders until fiscal 2024, as the facility still requires a blending and canning facility and an A1 protein free milk pool to produce its desired consumer packaged nutritional products.