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(Bloomberg) -- Word of Nestle SA’s arrival in a corner of China’s infant formula market sent a2 Milk Co.’s stock price tumbling 10 percent last week, enough for its second largest shareholder to jump back in.
The selloff in a2 Milk was spurred by news that it faces direct competition from Nestle, following its move to sell A2-protein only baby formula in China. Far from a reason to worry, Nestle’s entrance, coupled with a2’s recent tie up with Fonterra Cooperative Group Ltd., is an endorsement of the science and technology underpinning the a2 Milk Co., according to Harbour Asset Management Ltd.
“This grows the market” in China said Shane Solly, a portfolio manager at Harbour. “But there’s more to a2 than just infant formula and China.” His firm has been adding to its existing holdings, he said.
The company sources products from cows that only produce the A2 protein -- regular cow’s milk also contains the A1 protein, which it says can cause discomfort to some people who drink it. This is an advantage given likely new entrants must figure out how to market the benefits of new A2-only variants while still containing A1-proteins in their traditional products, the company said in a statement Tuesday.
“The a2 Milk Company is the only company engaged in the sourcing, processing and marketing of solely A1 protein free dairy and nutritional products in global markets,” the company said. It’s not seen any change in the growth of its China business, the company said.
Still, shares of a2 Milk were set for a third straight loss on Tuesday, down 2.9 percent in Wellington and down 1.2 percent in Sydney as of 10:46 a.m. It remains more than 50 percent higher this year after more than tripling in 2017.
China comprised about 16 percent of its sales last financial year, compared to 80 percent that came from Australia and New Zealand. Revenue from infant formula was NZ$394 million ($285 million) of the firm’s total NZ$549.2 million in sales.
(Updates with company statement from fourth paragraph, stock move in sixth paragraph, chart.)
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