Insync Funds Management has underscored its strategy of picking businesses that are riding global megatrends by taking a position in the leading global infant nutrition company.
Insync has invested an undisclosed amount in Mead Johnson Nutrition, the global leader in infant nutrition and third in children’s nutrition.
“Mead Johnson has been one of the darlings of the packaged food world with investors captivated by the company’s strong growth story in paediatric nutrition which has been led by China,” said Insync Chief Investment Officer, Monik Kotecha.
The company is a beneficiary of a number of megatrends including the move to greater urbanisation and the increase in the number of women in the workforce that has driven infant formula growth. Baby food is a high-growth product driven by population growth especially in emerging markets.
The company’s brand portfolio consists of over 70 products, the largest being Enfamil. Mead Johnson operates in more than 50 countries with its largest markets in China, US, Mexico, Philippines, and Thailand.
“Mead Johnson is a highly profitable company with gross and operating margins that drive a high return on invested capital. The company is strongly cash generative and very shareholder friendly with a history of solid growth in dividends augmented by share buybacks,” Mr Kotecha said.
Recently the lack of clarity concerning the current pricing and promotional environment for the category in China, along with worries about the Chinese economy, had created questions about Mead’s future performance.
Mead Johnson was slow to react to a rapidly changing Chinese formula market. These changes include a channel shift away from Mead’s traditional stronghold of modern trade and toward the growing baby store and internet channels.
Consumer preference also shifted from locally labelled and packaged product to imported European product. This was despite Mead Johnson’s local Chinese product using dairy product from outside the country, the same as the imported brand.
“While the current competitive environment is fierce, we believe that the financial results will improve as Mead Johnson focuses on higher growth channels (including e-commerce), and efforts to reshape its portfolio begin capturing market share. Mead Johnson’s strong position in emerging markets and the relaunch of its premium Enfagrow line should gain traction over time,” Mr Kotecha said.
“In addition safer and more nutritious products have strong growth prospects. More sophisticated consumers in emerging markets are focused on quality and nutrition. They are interested in “what’s best for the baby” and are not afraid to pay for top quality.”
The recent price weakness has enabled Insync to invest in an exceptional business at attractive valuations. During the past 52 weeks, Mead Johnson has traded between $US67.11 and $US105.45 and recently at $US69.09.
Media contact
Mr Monik Kotecha
CIO
Insync Funds Management
p (02) 9216 2977
m 0413 768 480
e mkotecha@insyncfm.com.au
w www.insyncfm.com.au