A2 is cream of the crop
Milk company rallies by $1b as shares surge after bumper net profit
The rise and rise of a2 Milk showed no signs of abating after the company reported a 55 per cent lift in net profit for the six months to December.
Shares in the alternative milk company shot up by $1.35, or 10.5 per cent, to $14.22 after it reported a huge lift in its net profit to a record $152.7 million.
That lifted the company’s market capitalisation by a $1 billion to $10.45b.
At that level, a2 Milk is New Zealand’s biggest company by market capitalisation, eclipsing the power generator Meridian ($9.4b), telco Spark ($7.2b) and more than double the size of building materials and construction company Fletcher Building ($4.3b).
On strength of the result, analysts are now looking at revenue coming in at $1.35b for the June year, which would be up 46 per cent on last year’s figure, and ebitda of $420m, up 48.4 per cent.
Harbour Asset Management senior research analyst, and longtime a2 Milk watcher, Oyvinn Rimer, said there was nothing in yesterday’s result to indicate any slowdown in the company’s likely growth trajectory.
“A2 Milk continues to perform very strongly across all channels,” Rimer said. “There is no question that it is doing really, really well,” he said.
A2 Milk’s success started in Australia, which became a springboard for its foray into China.
Over the last few years, a2 milk has turned its sights on the United States, and Rimer said a2 Milk’s experience in America was looking similar to its early days in China.
Seafood exporter Sanford said last week it had been having difficulty getting salmon exports to China cleared through Chinese ports, against the background that China may be turning up the heat on exporters because of the Huawei saga.
Asked if a2 Milk had experienced any similar problems, chief executive Jayne Hrdlicka told the Herald: “No. We stay focused on the things that we control.”
Hrdlicka said growing awareness of the brand in the US, where the company had racked up revenue growth of 114 per cent over the six months, was “promising”.
In its outlook statement, a2 Milk said the company was in a position to reinvest the benefits of scale into increased marketing activities in the second half.
“This is intended to drive brand awareness, predominantly in China, and the US,” the company said.
Increased brand and marketing investment was expected to continue into 2020, it said.
There were strong signs of a closer relationship with
Fonterra after the company entered a joint venture with the co-op last year.
In a2 Milk’s result, the company said the leap in first-half earnings was driven by continued strong sales growth in all key product segments — infant formula, liquid milk and milk powders.
Sales of infant formula totalled $495.5m for the half — an increase of 45.3 per cent on the prior year — driven by share gains in China and Australia.
The company, which markets a1 beta free infant formula and dairy products, also saw growth in its liquid milk business of 20.2 per cent to $83.4m.
A2 Milk’s ebitda came to $218.4m — up 52.7 per cent on the previous corresponding period, and compared with market expectations of $200m.
Analysts pointed to a big improvement in group margins to 55.6 per cent from 51.1 per cent a year earlier as being a key driver.