Economics Report on a2 Milk: Analyzing Factors Driving Share Price

This report provides an economic analysis of the factors contributing to the increase in a2 Milk's share price. It highlights the company's positive financial performance, strategic distribution growth, and expansion in Asian markets, particularly China. The analysis emphasizes the role of increased revenue, strategic investments in marketing and sales, and the impact of brand awareness campaigns on the company's growth. The report further discusses how future investments and the exploitation of economies of scale in new markets like Hong Kong have enhanced profitability and increased the demand for a2 Milk's stock, ultimately reflecting in its share price. The provided references support the analysis with insights on switching pricing strategies, market growth in Asian regions and the effect of financial ratios on share prices.

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ECONOMICS ASSIGNMENT

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Table of contents
Article.........................................................................................................................................3
How a2 Milk Share Price Shot up by 3.50% Today...................................................................3
Analysis:.....................................................................................................................................5
Reference....................................................................................................................................6

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Article
How a2 Milk Share Price Shot up by
3.50% Today
June 5, 2018
By Ryan Clarkson-Ledward
At this stage, a2 Milk Limited [ASX:A2M] is known for its consistent share
increases.
Its 3.50% growth surge is nothing out of the ordinary, as results have been nothing
but positive all year.
In its half year report, a2 pointed out the factors which contributed to
its shares increasing on such a consistent basis.
The company has been focusing on distribution growth and expansion in emerging
markets.
Revenue from China has also helped growth take place.
Exceptional performance across Asian regions
a2 has had success in China with its multi-channel infant formula strategy.
While sales and distribution have been strong in the Asian regions, brand awareness
has also been growing at a consistent rate.
While being driven by new investments in sales and marketing, a new brand
campaign, which features live streaming events and TV media segments, has helped
the brand stay relevant in Asia.
a2 Platinum infant formula was also released in Hong Kong and was distributed
through 350 high end pharmacy outlets.
With its marketing focus and new release, China sales have helped a2 turn over
positive results.
a2 has improved its figures across the span of almost a year.
TheSydney Morning Heraldreported in its article:

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a2 Milk said revenue for the nine months ended March 31 was $NZ660 million, up
about 70 percent from last year on the back of strong sales growth in its nutritional
products and liquid milk.’
The strong sales figures reflect China’s increased need in Australasian products, like
the various milk formulas which a2 can provide.
a2 Milk is aware of this opportunity and has undertaken the necessary procedures
required to secure market opportunities.
The future’s looking positive for a2 milk, as it’s potentially more than likely to
capitalise from further sales.
Regards,
Ryan Clarkson-Ledward,
For Markets & Money

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Analysis:
One of the most important factors that influence the cost of the share of a company is the
financial performance. The performance for a2 Milk has been positive in the past. Apart from
that, the company has also distributed the overall growth in order to benefit all the parts of the
business. Economists1 have stated that, the demand for share of a company increases
significantly due to the future investment which has been available to a2 Milk. The
management of the company attracted investment for marketing and sales in many parts of
the world especially in the Asian markets. The growth of the company in the Asian market
has improved over the years as well2. Furthermore, the revenue growth from china has also
strengthened the financial performance of the company. The increased revenue has
implications for higher profitability which in turn increases the demand for the share of the
company. Another important factor is the future investment and their profitability. The
company invested in Hong Kong and expanded the business through more outlets. Studies3
have highlighted that, expanded business uses the economics of scale in order to reduce the
cost of operation further thereby increasing the profitability of the company. Thus, the
stability of the performance of a2 Milk, the sales and revenue in case of the Chinese market
and the future investment to expand the operation in other countries like Hong Kong has
increased the value of the organisation which reflected in the share price through the increase
in the demand for the stock in the share market.
1 Cziehso, G.P., Schaefer, T. and Kukar-Kinney, M., 2017, May. Switching from Free to Fee:
More than Just a Price Increase? An Abstract. In Academy of Marketing Science Annual
Conference (pp. 617-617). Springer, Cham.
2 Clarkson-Ledward, R., Clarkson-Ledward, R., Editorial, M., Clarkson-Ledward, R.,
Clarkson-Ledward, R., Dinse, R. and Clarkson-Ledward, R. (2018). How a2 Milk Share Price
Shot up by 3.50% Today. [online] Markets and Money. Available at:
https://www.marketsandmoney.com.au/how-a2-milk-share-price-shot-up-by-3-50-today-
asxu/2018/06/05/ [Accessed 8 Jun. 2018].
3 Idawati, W. and Wahyudi, A., 2015. Effect of earning per shares (EPS) and return on assets
(ROA) against share price on coal mining company listed in Indonesia stock
exchange. Journal of Resources Development and Management, 7, pp.79-91.

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Reference
Clarkson-Ledward, R., Clarkson-Ledward, R., Editorial, M., Clarkson-Ledward, R.,
Clarkson-Ledward, R., Dinse, R. and Clarkson-Ledward, R. (2018). How a2 Milk Share Price
Shot up by 3.50% Today. [online] Markets and Money. Available at:
https://www.marketsandmoney.com.au/how-a2-milk-share-price-shot-up-by-3-50-today-
asxu/2018/06/05/ [Accessed 8 Jun. 2018].
Cziehso, G.P., Schaefer, T. and Kukar-Kinney, M., 2017, May. Switching from Free to Fee:
More than Just a Price Increase? An Abstract. In Academy of Marketing Science Annual
Conference (pp. 617-617). Springer, Cham.
Idawati, W. and Wahyudi, A., 2015. Effect of earning per shares (EPS) and return on assets
(ROA) against share price on coal mining company listed in Indonesia stock
exchange. Journal of Resources Development and Management, 7, pp.79-91.