Milk companies Bubs Australia (ASX: BUB) and a2 Milk (ASX: A2M) were both up around 2% at the open after posting positive updates this morning. Let’s take a look at what they had to say.

Bubs Australia

While investor concerns with the infant formula company’s plans in China sent the share price lower last week, the market has responded favourably to revelations this morning the company has lodged a letter of intent to the US Food and Drug Administration (FDA) for permanent market access in the US to October 2025 and beyond.

The letter of intent is now required under FDA Guidance for Industry – Infant Formula Transition Plan for Exercise of Enforcement Discretion (Transition Plan) issued on Saturday 1st October 2022 (Australian time).

Bubs Australia is one of only eight infant formula manufacturers globally to receive FDA regulatory acknowledgement, enabling the safe import of all six Bubs Infant Formula products under the enforcement discretion.

FDA yet to respond

It’s understood the FDA plans to issue a Letter of Acknowledgement in response to the Letter of Intent, which if appropriate, will state:

• That the enforcement discretion will be extended under the Transition Plan until October 2025.

• Provided that the manufacturer continues to make meaningful progress toward compliance with the Transition Plan.

Clear pathway

Commenting on the letter of intent, Bubs Founder and CEO, Kristy Carr welcomed this important FDA announcement which provides a clear pathway for a select number of safe, nutritious, international infant formula brands to secure permanent regulatory approval.

Bubs first received a green light from the FDA on 27 May 2022, allowing the company to import all six of its safe and clean infant formula products into the US.

“…we are pleased to be able to commit that Bubs Australia will remain in the United States for the long term," Carr noted.

“This commitment and the FDA’s announcement also mean American parents who are already safely using Bubs Infant Formula products, as well as our retail partners now stocking our formula in 6,500 stores across 42 states, can remain confident in ongoing supply, without interruption, providing more choices for American families seeking safe, clean nutrition for their children.”

Carr expects to launch Bubs Infant Formula products in various new retail groups in the months ahead.

Consensus on Bubs is Moderate buy.

Based on Morningstar’s fair value of $0.69 the stock appears to be undervalued.

Bubs Australia share price over 12 months.

a2 Milk Company

This morning a2 Milk announced that it has renewed its import and distribution arrangements with China State Farm Agribusiness Holding Shanghai (CSFA) for five years from 1 October.

CSFA has been a2 Milk’s strategic distribution partner in China since 2013 and is the exclusive import agent for the company’s China label products.

CSFA is a wholly owned subsidiary of China National Agriculture Development Group, which is also the parent company of China Animal Husbandry Group, which holds a 25% interest alongside a2 Milk’s 75% interest in Mataura Valley Milk located in Southland, NZ.

a2 Milk CEO, David Bortolussi believes the extension of arrangements with CSFA confirms the strength of the company’s relationship with key partners in China.

Today’s market update follows the infant formula group's recent progression through an interim stage of a complex re-regulation process for its crucial infant formula business in China following changes to the country’s food safety rules.

Consensus on a2 Milk is Hold.

Based on Morningstar’s fair value of $6.85 the stock appears to be undervalued.

Goldman Sachs rates a2 Milk a Sell with a target price of $5.65.

The a2 Milk Company share price over 12 months.