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1H19 interim results: 20 February 2019
A2M - The A2 Milk Company
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bigdog
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Encouraging is opening on New Zealand exchange after announcement today. Refer Motley report below
-- there is delay about 20 minutes
-- at NZ time 10:17 am the SP was up 7.61% or NZ$ 0.98
Lets hope momentum continues!!
Motley Fool Reports
https://www.fool.com.au/2019/02/20/a2-milk-delivers-strong-half-year-result-but-softer-outlook/
A2 Milk delivers strong half year result but softer outlook
James Mickleboro | February 20, 2019
The A2 Milk Company Ltd (ASX: A2M) share price will be on watch this morning following the release of the dairy and infant formula company’s half year results.
Here is a summary of how a2 Milk Company performed in the first half compared to the prior corresponding period:
The majority of the company’s revenue was generated in the ANZ market. The ANZ business segment revenue increased 37.5% to NZ$418.4 million and EBITDA was up 64.9% to NZ$192 million.
Supporting this growth was its China segment, which saw its revenue rise 50.1% to NZ$171.7 million and EBITDA increase 41.6% on the prior corresponding period.
Once again it has been the company’s infant formula products driving the majority of its growth.
During the first half group infant formula revenue increased 45.3% to NZ$495.5 million. This was driven by an 82.6% increase in China label revenue, which took its consumption market share in the country to 5.7%. In Australia the company has maintained its leadership position and grown its market share to 35.7%.
The company’s Liquid Milk business had a solid half. Australian fresh milk revenue grew 11.7%, bringing its market share to 10.8%. In the United States the company’s milk revenue more than doubled after its distribution network grew to over 10,000 stores.
What else happened in the half?
The company advised that it is now focused on delivering continued and significant growth through its step-changing strategic investment in consumer insight, brand development, and organisational capability.
This involves accelerating its investment in building brand equity through enhanced marketing campaigns in its key markets of China, US and Australia, as well as continued investments in R&D and further development of its intellectual property.
As a result, its investment in marketing in the first half increased by 75% to NZ$45.5 million. The rate of investment in marketing will increase further in the second half as the company increases in-market brand building activities.
Outlook.
According to the release, management expects group revenue growth in the second half to be broadly in line with the first half.
However, the increased investment in brand building in the second half is expected to push its second half EBITDA margins lower.
As a result, management expects its full year EBITDA as a percentage of sales to be approximately 31% to 32%. As a comparison, in the first half the company’s EBITDA margin was 35.6%.
What now?
Although I thought this was yet another impressive half from a2 Milk, its outlook for the second half could weigh on investor sentiment today.
Whilst I feel that its investment in brand building is a smart thing to do and should support its long term growth, the market is often short sighted with such moves. As a result, I suspect there’s a small chance its shares could drop lower when the market opens. Though it is worth noting that at the time of writing the company’s NZ-listed shares are up 7%, so thankfully this doesn’t appear to be the case.
ASX ANN "Results Commentary" 6 pages
https://www.asx.com.au/asxpdf/20190220/pdf/442rjkkr4kvqq0.pdf
-- there is delay about 20 minutes
-- at NZ time 10:17 am the SP was up 7.61% or NZ$ 0.98
Lets hope momentum continues!!
Motley Fool Reports
https://www.fool.com.au/2019/02/20/a2-milk-delivers-strong-half-year-result-but-softer-outlook/
A2 Milk delivers strong half year result but softer outlook
James Mickleboro | February 20, 2019
The A2 Milk Company Ltd (ASX: A2M) share price will be on watch this morning following the release of the dairy and infant formula company’s half year results.
Here is a summary of how a2 Milk Company performed in the first half compared to the prior corresponding period:
- Total revenue increased 41% to NZ$613.1 million.
- EBITDA rose 52.7% to NZ$218.4 million.
- Net profit after tax jumped 55.1% to NZ$152.7 million.
- Basic earnings per share of 20.9 NZ cents, up 52.9%.
- Operating cash flow of NZ$112.3 million.
- Outlook: Strong revenue growth but lower EBITDA margin.
The majority of the company’s revenue was generated in the ANZ market. The ANZ business segment revenue increased 37.5% to NZ$418.4 million and EBITDA was up 64.9% to NZ$192 million.
Supporting this growth was its China segment, which saw its revenue rise 50.1% to NZ$171.7 million and EBITDA increase 41.6% on the prior corresponding period.
Once again it has been the company’s infant formula products driving the majority of its growth.
During the first half group infant formula revenue increased 45.3% to NZ$495.5 million. This was driven by an 82.6% increase in China label revenue, which took its consumption market share in the country to 5.7%. In Australia the company has maintained its leadership position and grown its market share to 35.7%.
The company’s Liquid Milk business had a solid half. Australian fresh milk revenue grew 11.7%, bringing its market share to 10.8%. In the United States the company’s milk revenue more than doubled after its distribution network grew to over 10,000 stores.
What else happened in the half?
The company advised that it is now focused on delivering continued and significant growth through its step-changing strategic investment in consumer insight, brand development, and organisational capability.
This involves accelerating its investment in building brand equity through enhanced marketing campaigns in its key markets of China, US and Australia, as well as continued investments in R&D and further development of its intellectual property.
As a result, its investment in marketing in the first half increased by 75% to NZ$45.5 million. The rate of investment in marketing will increase further in the second half as the company increases in-market brand building activities.
Outlook.
According to the release, management expects group revenue growth in the second half to be broadly in line with the first half.
However, the increased investment in brand building in the second half is expected to push its second half EBITDA margins lower.
As a result, management expects its full year EBITDA as a percentage of sales to be approximately 31% to 32%. As a comparison, in the first half the company’s EBITDA margin was 35.6%.
What now?
Although I thought this was yet another impressive half from a2 Milk, its outlook for the second half could weigh on investor sentiment today.
Whilst I feel that its investment in brand building is a smart thing to do and should support its long term growth, the market is often short sighted with such moves. As a result, I suspect there’s a small chance its shares could drop lower when the market opens. Though it is worth noting that at the time of writing the company’s NZ-listed shares are up 7%, so thankfully this doesn’t appear to be the case.
ASX ANN "Results Commentary" 6 pages
https://www.asx.com.au/asxpdf/20190220/pdf/442rjkkr4kvqq0.pdf
Last edited:
Knobby22
Mmmmmm 2nd breakfast
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Smiles all round.
Love how growth in the USA is above 100%. China will not dare to restrict imports from this company, the wealthy will be very upset to miss out on something the USA loves.
I was bemused with the fall in price recently, honestly many analysts have no idea.
Love how growth in the USA is above 100%. China will not dare to restrict imports from this company, the wealthy will be very upset to miss out on something the USA loves.
I was bemused with the fall in price recently, honestly many analysts have no idea.
bigdog
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Great start at opening
All time high of $13.78 is in site
All time high of $13.78 is in site
bigdog
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Another opinion
https://www.livewiremarkets.com/wires/a2-milk-delivers-yet-again
A2 Milk delivers yet again
Andrew Mitchell
Ophir Asset Management
Never before has the Australian small and mid-cap equity market experienced such a broad variety of Australian and NZ-based businesses achieving stellar success in overseas markets. Where offshore expansions have long been an investment graveyard for larger-cap Australian businesses desperately looking for growth avenues to supplement mature domestic market positions (see National Australia Bank, QBE, AMP, Wesfarmers/Bunnings amongst others), a new cohort of globally-focused emerging Australian companies have thrived in entering new territories.
Specialist dairy and infant milk formula producer The A2 Milk Company (A2M) has been one such notable performer, a business that only six years ago was a A$210m market cap NZ-based fresh milk producer generating $48.6m in revenues from the sale of bottled A2-only milk into supermarket chains in Australia and New Zealand.
Today, the same humble Kiwi milk producer now commands a market capitalisation of over A$9.7bn, selling fresh milk and infant milk formula (IMF) products into Australia, New Zealand, China, the US and UK and will deliver an expected ~A$1.25bn in revenue for the 2019 financial year.
The business commands the number one market position for infant milk formula sales in Australia, already speaks for 5.7% of the $20bn Chinese infant milk formula market and recently announced A2-branded bottled milk now being sold in over 12,000 stores in the United States. It now holds more cash on its balance sheet that its entire market capitalisation in 2012.
Key takeouts from today's result
The recently announced first half result from the company again highlights how far the business has come in recent years and the momentum it continues to see across all geographies and product lines.
Group revenues grew +41% on the previous corresponding period, while earnings before interest, tax, depreciation and amortization (EBITDA) grew +53%. The result was a 8-10% ‘beat’ to underlying market expectations, with the stock subsequently rising +8% on the day.
Strong performance at the margin line was particularly noteworthy at this result, with gross margins across the business coming in at a healthy 55.5% as the company benefits from increasing scale, price increases and a continued shift in sales mix towards the more profitable infant milk formula products. The margin performance provides an excellent example of the strength of the business given a material increase in recent months toward investments in marketing and brand.
Growing footprint in China and US markets
Infant milk formula sales into China continue to be a key driver, with the business now benefiting from landing product into China via a variety of channels. Where initially the company saw enormous growth via the cross-border e-commerce channel (where individuals would purchase tins of A2 formula in Australia, take offshore and sell to Chinese parents via online market places such as Tmall or Taobao), the company now has an in-country presence in over 12,250 Mother and Baby stores, resulting in +83% growth in China-label tins from the same period last year.
While still only a small market by current revenue contribution, the growth the business has experienced this half in the United States is worthy of mention. Fresh milk sales in the US doubled over the period, with management noting they are seeing similar parallels to the brand building experience of their initial Australian roll-out – a pleasing anecdote considering the US milk market is worth in excess of US$13 billion per year with an underlying consumer already sympathetic to the alternative dairy market. With further distribution agreements recently signed with national US supermarket chain Krogers and additional regions with Costco, Walmart and Safeway stores we expect the growth to continue to compound from here. Importantly, it was the success of the fresh milk product in the Australian market that ultimately provided the company with the credibility required to underpin the success of its now immensely popular infant milk formula business – a market opportunity within the US that isn’t yet garnering any attention.
Significant growth opportunities still lay ahead
With a significant amount of runway left for the business in the two largest economies in the world, we continue to maintain confidence that the company will be a significantly larger one in years to come. Pleasingly, we entered February with the stock as the second largest held position across the Ophir Funds and we very much look forward to continuing to monitor and enjoy the business’ growth from here.
I hold
https://www.livewiremarkets.com/wires/a2-milk-delivers-yet-again
A2 Milk delivers yet again
Andrew Mitchell
Ophir Asset Management
Never before has the Australian small and mid-cap equity market experienced such a broad variety of Australian and NZ-based businesses achieving stellar success in overseas markets. Where offshore expansions have long been an investment graveyard for larger-cap Australian businesses desperately looking for growth avenues to supplement mature domestic market positions (see National Australia Bank, QBE, AMP, Wesfarmers/Bunnings amongst others), a new cohort of globally-focused emerging Australian companies have thrived in entering new territories.
Specialist dairy and infant milk formula producer The A2 Milk Company (A2M) has been one such notable performer, a business that only six years ago was a A$210m market cap NZ-based fresh milk producer generating $48.6m in revenues from the sale of bottled A2-only milk into supermarket chains in Australia and New Zealand.
Today, the same humble Kiwi milk producer now commands a market capitalisation of over A$9.7bn, selling fresh milk and infant milk formula (IMF) products into Australia, New Zealand, China, the US and UK and will deliver an expected ~A$1.25bn in revenue for the 2019 financial year.
The business commands the number one market position for infant milk formula sales in Australia, already speaks for 5.7% of the $20bn Chinese infant milk formula market and recently announced A2-branded bottled milk now being sold in over 12,000 stores in the United States. It now holds more cash on its balance sheet that its entire market capitalisation in 2012.
Key takeouts from today's result
The recently announced first half result from the company again highlights how far the business has come in recent years and the momentum it continues to see across all geographies and product lines.
Group revenues grew +41% on the previous corresponding period, while earnings before interest, tax, depreciation and amortization (EBITDA) grew +53%. The result was a 8-10% ‘beat’ to underlying market expectations, with the stock subsequently rising +8% on the day.
Strong performance at the margin line was particularly noteworthy at this result, with gross margins across the business coming in at a healthy 55.5% as the company benefits from increasing scale, price increases and a continued shift in sales mix towards the more profitable infant milk formula products. The margin performance provides an excellent example of the strength of the business given a material increase in recent months toward investments in marketing and brand.
Growing footprint in China and US markets
Infant milk formula sales into China continue to be a key driver, with the business now benefiting from landing product into China via a variety of channels. Where initially the company saw enormous growth via the cross-border e-commerce channel (where individuals would purchase tins of A2 formula in Australia, take offshore and sell to Chinese parents via online market places such as Tmall or Taobao), the company now has an in-country presence in over 12,250 Mother and Baby stores, resulting in +83% growth in China-label tins from the same period last year.
While still only a small market by current revenue contribution, the growth the business has experienced this half in the United States is worthy of mention. Fresh milk sales in the US doubled over the period, with management noting they are seeing similar parallels to the brand building experience of their initial Australian roll-out – a pleasing anecdote considering the US milk market is worth in excess of US$13 billion per year with an underlying consumer already sympathetic to the alternative dairy market. With further distribution agreements recently signed with national US supermarket chain Krogers and additional regions with Costco, Walmart and Safeway stores we expect the growth to continue to compound from here. Importantly, it was the success of the fresh milk product in the Australian market that ultimately provided the company with the credibility required to underpin the success of its now immensely popular infant milk formula business – a market opportunity within the US that isn’t yet garnering any attention.
Significant growth opportunities still lay ahead
With a significant amount of runway left for the business in the two largest economies in the world, we continue to maintain confidence that the company will be a significantly larger one in years to come. Pleasingly, we entered February with the stock as the second largest held position across the Ophir Funds and we very much look forward to continuing to monitor and enjoy the business’ growth from here.
I hold
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The Tiny Dairy Stock That Skyrocketed to New Zealand's Biggest
A2 Milk Co. is giving New Zealand equity stalwarts a run for their money.
In a span of about four years, its market cap has surged more than 3,000 percent, making it New Zealand’s most valuable company. It now has a value of about NZ$10.9 billion ($7.5 billion) -- that’s larger than some of the mainstays of the nation’s bourse such as Auckland International Airport Ltd. and Fonterra Co-operative Group Ltd.
More...
A2 Milk Co. is giving New Zealand equity stalwarts a run for their money.
In a span of about four years, its market cap has surged more than 3,000 percent, making it New Zealand’s most valuable company. It now has a value of about NZ$10.9 billion ($7.5 billion) -- that’s larger than some of the mainstays of the nation’s bourse such as Auckland International Airport Ltd. and Fonterra Co-operative Group Ltd.
More...
bigdog
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A2M hit all time high today of $14.61 with no announcements
Knobby22
Mmmmmm 2nd breakfast
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Yes, I almost chose it for the yearly comp but glad to own.
I saw Bell Direct think it's getting pricey but it really depends on the international story now, not just China. How much long term growth is there? How much milk, butter, cheese can the company supply?
I saw Bell Direct think it's getting pricey but it really depends on the international story now, not just China. How much long term growth is there? How much milk, butter, cheese can the company supply?
bigdog
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Wilson Asset Management report
--Wilson were into A2M early and sold too early. Looks like they have bought back in recently
https://www.livewiremarkets.com/wires/why-a2-is-crushing-the-competition-in-china
Why A2 is crushing the competition in China
Tobias Yao View the contributor's profile page
Wilson Asset Management
26th April, 2019
I have just returned from China, looking at how Australian goods such as infant formula are sold and marketed, given the strong Chinese demand for such products. Being able to speak with shop attendants in their native language let me get to the source of information. In this wire, I share the key takeaways.
A2M Chinese labelling creating demand
One retail assistant in a Shanghai mother-baby store told me she had a target to sell 100 tins of A2 Milk per month and was selling well above that. She mentioned one key reason Chinese mums are buying from the store instead of online, which is 50% cheaper, is due to the A2M’s Chinese labelling. The labels promote an active ingredient, Lactoferrin, that the stores advertise as more tailored for Chinese children, which is driving foot traffic.
A2M dominating shelf space in Shanghai mother and baby stores.
Regulatory hurdles
The State Administration for Market Regulation (SAMR) is a market regulator created in March 2018. The new super-ministry for market regulation subsumed three ministries:
There is a Government mandate to increase onsite inspections which is a significant disadvantage to foreign suppliers who must make their factories available to Chinese authorities. Since the onsite audit requirement was implemented only three imported brands have been approved at the time of my visit to China. Two of them have Chinese ownership and one is from Denmark where Crown Prince Frederik intervened and personally lobbied for the SAMR team to visit his country’s facilities.
Point of differentiation
Commoditised infant formula products are struggling to compete in China against incumbent brands unless they offer a point of differentiation. Some trends are products that include non-dairy nutritional items and the promotion of non-cow milk products such as goat’s milk with its associated health benefits.
Increasing breastfeeding rates
It is our belief that infant formula market growth will come from consumers buying more premium products - while being marginally offset by the headwinds of flat birth rates and increased levels of breastfeeding (the percentage of mothers who breastfeed have gone up from 30%-40% to 50% due to government and hospital awareness programs).
Fight for the cities
The key battlegrounds for infant formula providers are in tier 3 and 4 cities as opposed to tier 1 cities like Beijing and Shanghai. Tier 3 cities like Weifang and Baoding have a population of over 9 million and 10 million respectively so they are still lucrative markets to target. Increased investment is going into lower-tier cities and new challenger brands are trying to secure a foothold in these areas, where established brands such as A2M dominate larger wealthier cities.
Advantage A2
The business’ biggest competitor is Wyeth’s Illuma A2 product which sources its milk from Ireland and is yet to receive a SAMR inspection.
Brands that received registrations early such as A2M have a head start and the regulation delay is a significant advantage for A2M. This competitive advantage is material and the longer the delay for other products, the better it is for A2M.
Having already received registration, A2M should aggressively expand into mother-baby stores to take more premium shelf space and provide mothers with the peace of mind that its products are here to stay.
We believe that A2M can take further ground in the mother-baby store segment through tactical on-the-ground sales and marketing initiatives to promote the brand such as using incentivised sales metrics for retail assistants.
We own A2M as a research-driven investment in WAM Capital and WAM Research. Shares in A2M closed up 14.3% for the month to date.
---------------------------------------------------------------------
Chart list SP at $15.87 and is before opening indicated SP today April 30 2019
--Wilson were into A2M early and sold too early. Looks like they have bought back in recently
https://www.livewiremarkets.com/wires/why-a2-is-crushing-the-competition-in-china
Why A2 is crushing the competition in China
Tobias Yao View the contributor's profile page
Wilson Asset Management
26th April, 2019
I have just returned from China, looking at how Australian goods such as infant formula are sold and marketed, given the strong Chinese demand for such products. Being able to speak with shop attendants in their native language let me get to the source of information. In this wire, I share the key takeaways.
A2M Chinese labelling creating demand
One retail assistant in a Shanghai mother-baby store told me she had a target to sell 100 tins of A2 Milk per month and was selling well above that. She mentioned one key reason Chinese mums are buying from the store instead of online, which is 50% cheaper, is due to the A2M’s Chinese labelling. The labels promote an active ingredient, Lactoferrin, that the stores advertise as more tailored for Chinese children, which is driving foot traffic.
A2M dominating shelf space in Shanghai mother and baby stores.
Regulatory hurdles
The State Administration for Market Regulation (SAMR) is a market regulator created in March 2018. The new super-ministry for market regulation subsumed three ministries:
- China Food and Drug Administration
- State Administration of Industry and Commerce
- General Administration of Quality Supervision Inspection and Quarantine.
There is a Government mandate to increase onsite inspections which is a significant disadvantage to foreign suppliers who must make their factories available to Chinese authorities. Since the onsite audit requirement was implemented only three imported brands have been approved at the time of my visit to China. Two of them have Chinese ownership and one is from Denmark where Crown Prince Frederik intervened and personally lobbied for the SAMR team to visit his country’s facilities.
Point of differentiation
Commoditised infant formula products are struggling to compete in China against incumbent brands unless they offer a point of differentiation. Some trends are products that include non-dairy nutritional items and the promotion of non-cow milk products such as goat’s milk with its associated health benefits.
Increasing breastfeeding rates
It is our belief that infant formula market growth will come from consumers buying more premium products - while being marginally offset by the headwinds of flat birth rates and increased levels of breastfeeding (the percentage of mothers who breastfeed have gone up from 30%-40% to 50% due to government and hospital awareness programs).
Fight for the cities
The key battlegrounds for infant formula providers are in tier 3 and 4 cities as opposed to tier 1 cities like Beijing and Shanghai. Tier 3 cities like Weifang and Baoding have a population of over 9 million and 10 million respectively so they are still lucrative markets to target. Increased investment is going into lower-tier cities and new challenger brands are trying to secure a foothold in these areas, where established brands such as A2M dominate larger wealthier cities.
Advantage A2
The business’ biggest competitor is Wyeth’s Illuma A2 product which sources its milk from Ireland and is yet to receive a SAMR inspection.
Brands that received registrations early such as A2M have a head start and the regulation delay is a significant advantage for A2M. This competitive advantage is material and the longer the delay for other products, the better it is for A2M.
Having already received registration, A2M should aggressively expand into mother-baby stores to take more premium shelf space and provide mothers with the peace of mind that its products are here to stay.
We believe that A2M can take further ground in the mother-baby store segment through tactical on-the-ground sales and marketing initiatives to promote the brand such as using incentivised sales metrics for retail assistants.
We own A2M as a research-driven investment in WAM Capital and WAM Research. Shares in A2M closed up 14.3% for the month to date.
---------------------------------------------------------------------
Chart list SP at $15.87 and is before opening indicated SP today April 30 2019
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bigdog
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ASX announcement today
1/05/2019 Presentation to Macquarie Australia Conference 2019 (in Sydney)
https://www.asx.com.au/asxpdf/20190501/pdf/444qrh2r26cszv.pdf
Motley Reported today
https://www.fool.com.au/2019/05/01/why-the-a2-milk-company-share-price-could-drop-lower-today/
Why the a2 Milk Company share price could drop lower today
James Mickleboro | May 1, 2019 | More on: A2M
The A2 Milk Company Ltd (ASX: A2M) share price looks likely to drop lower on Wednesday following the release of a trading update.
At the time of writing the fresh milk and infant formula company’s New Zealand-listed shares are down 3%.
What was in the update?
Ahead of its appearance at the Macquarie Group Ltd (ASX: MQG) Australia Conference, a2 Milk Company released a presentation to the market which included an update on its performance through to March 31.
For the first nine months of FY 2019 the company has grown its revenue by 42% on the prior corresponding period to NZ$938 million. Management advised that this reflects continued sales growth in nutritional products and liquid milk.
This growth rate is just ahead of what it achieved in the first half when the company reported a 41% increase in revenue to NZ$613.1 million.
However, management has advised that this was the result of volume phasing associated with regulatory changes. This pulled forward orders and is expected to balance out in the fourth quarter.
In light of this, management has reiterated its revenue growth outlook for the second half to be broadly in line with the first half.
Management also held firm with its EBITDA margin guidance. This is expected to be notably lower than the first half due to its increased investment in marketing activities, resulting in a full year EBITDA margin in the range 31% to 32%.
What else was new?
The company has continued to win a greater slice of the Chinese infant formula market. Its share has grown to 6%, up from 5.4% at the end of December.
This appears to have been driven by its increased footprint in the massive market. The company’s mother and baby store distribution now stands at ~13,600 stores, up from ~12,250 at the end of December.
Management also advised of further market share gains for both its fresh milk and infant formula in Australia and New Zealand. Its fresh milk has an ~11% value share and a2 Platinum infant formula has a ~36.8% value share, compared to 10.8% and 35.7%, respectively, at the end of December.
Finally, more progress has been made in the United States, with its distribution increasing to ~12,700 stores. The company has also extended its portfolio to include premium and natural coffee creamers.
Should you invest?
Earlier this week a2 Milk Company’s shares raced to an all-time high. I suspect that some investors were betting on a guidance upgrade today and have been hitting the sell button (in New Zealand) when one failed to materialise.
Due to its strong long-term growth potential, I feel this selling ought to be considered a buying opportunity for investors that are prepared to make a buy and hold investment.
A2M my tip included for 2019 Year tipping comp
Also holder since 2015
1/05/2019 Presentation to Macquarie Australia Conference 2019 (in Sydney)
https://www.asx.com.au/asxpdf/20190501/pdf/444qrh2r26cszv.pdf
Motley Reported today
https://www.fool.com.au/2019/05/01/why-the-a2-milk-company-share-price-could-drop-lower-today/
Why the a2 Milk Company share price could drop lower today
James Mickleboro | May 1, 2019 | More on: A2M
The A2 Milk Company Ltd (ASX: A2M) share price looks likely to drop lower on Wednesday following the release of a trading update.
At the time of writing the fresh milk and infant formula company’s New Zealand-listed shares are down 3%.
What was in the update?
Ahead of its appearance at the Macquarie Group Ltd (ASX: MQG) Australia Conference, a2 Milk Company released a presentation to the market which included an update on its performance through to March 31.
For the first nine months of FY 2019 the company has grown its revenue by 42% on the prior corresponding period to NZ$938 million. Management advised that this reflects continued sales growth in nutritional products and liquid milk.
This growth rate is just ahead of what it achieved in the first half when the company reported a 41% increase in revenue to NZ$613.1 million.
However, management has advised that this was the result of volume phasing associated with regulatory changes. This pulled forward orders and is expected to balance out in the fourth quarter.
In light of this, management has reiterated its revenue growth outlook for the second half to be broadly in line with the first half.
Management also held firm with its EBITDA margin guidance. This is expected to be notably lower than the first half due to its increased investment in marketing activities, resulting in a full year EBITDA margin in the range 31% to 32%.
What else was new?
The company has continued to win a greater slice of the Chinese infant formula market. Its share has grown to 6%, up from 5.4% at the end of December.
This appears to have been driven by its increased footprint in the massive market. The company’s mother and baby store distribution now stands at ~13,600 stores, up from ~12,250 at the end of December.
Management also advised of further market share gains for both its fresh milk and infant formula in Australia and New Zealand. Its fresh milk has an ~11% value share and a2 Platinum infant formula has a ~36.8% value share, compared to 10.8% and 35.7%, respectively, at the end of December.
Finally, more progress has been made in the United States, with its distribution increasing to ~12,700 stores. The company has also extended its portfolio to include premium and natural coffee creamers.
Should you invest?
Earlier this week a2 Milk Company’s shares raced to an all-time high. I suspect that some investors were betting on a guidance upgrade today and have been hitting the sell button (in New Zealand) when one failed to materialise.
Due to its strong long-term growth potential, I feel this selling ought to be considered a buying opportunity for investors that are prepared to make a buy and hold investment.
A2M my tip included for 2019 Year tipping comp
Also holder since 2015
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Knobby22
Mmmmmm 2nd breakfast
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Sold out today.
bigdog
Retired many years ago
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IFocus
You are arguing with a Galah
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Jeez this news is not going to help my milk based portfolio for the full year comp!!!
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Sharing report from Bell Potter. I am sharing does not imply I believe BP's reports as many times they have advised buy for many stocks which kept on moving south and BP kept on revising their target but kept unchanged the buy recommendation. So DYOR. DNH.
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Looking at the US markets rallying hard overnight, there must be a crystal ball into the future that IFocus on.Knobby you can expect a bounce tomorrow
Knobby22
Mmmmmm 2nd breakfast
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Better stuff around than A2M. It's fully priced.
bigdog
Retired many years ago
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ATM New Zealand (A2 Milk) today is currently down 41 cents
https://www.theage.com.au/business/...d-by-us-china-trade-wars-20190604-p51ufn.html
Australia's infant milk formula stocks spoiled by US-China trade wars
Elizabeth Knight
Business columnist
June 5, 2019 — 12.05am
Australian producers of baby milk formula have become the latest group ensnared by the destructive tentacles of the US-China trade war.
Share prices of Bellamy’s Organic and A2 Milk have been battered this week as Chinese policy makers declared they wanted their local producers to capture a bigger share of the market.
A2 shares lost 8.4 percent and Bellamy’s shares were down more than 5 per cent on Tuesday - after both stocks lost around 3 percent on Monday afternoon.
The biggest exporters of infant milk formula to China are from the US and Europe. But for Australia and New Zealand, the Chinese market is a significant source of growth.
“For A2 Milk Company and Bellamy’s, the risks are that their effective addressable market in China will shrink,” Morgan Stanley analyst Thomas Kierath said in a report.
A report from China’s National Development and Reform Commission kickstarted the sell off in A2 and Bellamy’s late on Monday.
The extent to which the US and China are prepared to damage other nations in this process is becoming more evident each day.
While the report made it clear that authorities want to increase China’s domestic market share to beyond 60 per cent, it was less clear on how that would be achieved.
At this stage there is no suggestion of using traditional weapons like tariffs. Rather, the application of heightened regulations on cross border e-commerce sales and stronger checks around quality will be employed.
The move could impact the flourishing Daigou trade - which sees products like infant formula and vitamins bought off the shelves of Australian supermarkets and chemists, and then sold online in China.
China’s quest to self-supply its needs locally feeds into the trade rhetoric being employed by both the US and China at the moment.
It’s a $27 billion industry in China wants to be 60 per cent self sufficient - a significant leap from the 47 percent level it is today.
According to Euromonitor International, the top four infant formula firms in China are all based in the U.S. and Europe, accounting for 40 percent of the market.
The extent to which the US and China are prepared to damage other nations in this process is becoming more evident each day.
The trouble with China’s attempts to push its people into buying local baby formula product is that it requires consumers to overcome a level of mistrust they have with the quality - asking parents to take a chance on what they feed their babies.
Back in 2008 the image of Chinese baby formula producers was tarnished when some were found to have been contaminated with chemicals.
This opened the floodgates to foreign suppliers including those from Australia.
Australian producers have always been aware that their Chinese sales are vulnerable to regulatory changes, and as recently as last year had to deal with additional requirements for registration.
But the New Zealand and Australian suppliers have been trusted by Chinese consumers around quality.
The second leg of China’s plan is to encourage local companies to buy offshore supply and motivate offshore producers to invest in China.
It is too early to guess whether this may make Australia or New Zealand companies potential merger or acquisition targets.
At this point they look more like victims of the Trump induced trade war.
https://www.theage.com.au/business/...d-by-us-china-trade-wars-20190604-p51ufn.html
Australia's infant milk formula stocks spoiled by US-China trade wars
Elizabeth Knight
Business columnist
June 5, 2019 — 12.05am
Australian producers of baby milk formula have become the latest group ensnared by the destructive tentacles of the US-China trade war.
Share prices of Bellamy’s Organic and A2 Milk have been battered this week as Chinese policy makers declared they wanted their local producers to capture a bigger share of the market.
A2 shares lost 8.4 percent and Bellamy’s shares were down more than 5 per cent on Tuesday - after both stocks lost around 3 percent on Monday afternoon.
The biggest exporters of infant milk formula to China are from the US and Europe. But for Australia and New Zealand, the Chinese market is a significant source of growth.
“For A2 Milk Company and Bellamy’s, the risks are that their effective addressable market in China will shrink,” Morgan Stanley analyst Thomas Kierath said in a report.
A report from China’s National Development and Reform Commission kickstarted the sell off in A2 and Bellamy’s late on Monday.
The extent to which the US and China are prepared to damage other nations in this process is becoming more evident each day.
While the report made it clear that authorities want to increase China’s domestic market share to beyond 60 per cent, it was less clear on how that would be achieved.
At this stage there is no suggestion of using traditional weapons like tariffs. Rather, the application of heightened regulations on cross border e-commerce sales and stronger checks around quality will be employed.
The move could impact the flourishing Daigou trade - which sees products like infant formula and vitamins bought off the shelves of Australian supermarkets and chemists, and then sold online in China.
China’s quest to self-supply its needs locally feeds into the trade rhetoric being employed by both the US and China at the moment.
It’s a $27 billion industry in China wants to be 60 per cent self sufficient - a significant leap from the 47 percent level it is today.
According to Euromonitor International, the top four infant formula firms in China are all based in the U.S. and Europe, accounting for 40 percent of the market.
The extent to which the US and China are prepared to damage other nations in this process is becoming more evident each day.
The trouble with China’s attempts to push its people into buying local baby formula product is that it requires consumers to overcome a level of mistrust they have with the quality - asking parents to take a chance on what they feed their babies.
Back in 2008 the image of Chinese baby formula producers was tarnished when some were found to have been contaminated with chemicals.
This opened the floodgates to foreign suppliers including those from Australia.
Australian producers have always been aware that their Chinese sales are vulnerable to regulatory changes, and as recently as last year had to deal with additional requirements for registration.
But the New Zealand and Australian suppliers have been trusted by Chinese consumers around quality.
The second leg of China’s plan is to encourage local companies to buy offshore supply and motivate offshore producers to invest in China.
It is too early to guess whether this may make Australia or New Zealand companies potential merger or acquisition targets.
At this point they look more like victims of the Trump induced trade war.
IFocus
You are arguing with a Galah
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No crystal ball and I am being unfair on Knobby, lost count the times I have sold a stock to watch it take off (I am hopeless as an investor) a couple of beauties years ago sold CTX at $1.80 and WPL at $11 have a look at the charts perfect timing (loser
)
bigdog
Retired many years ago
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A2M up $0.43 this morning but lost $1.23 yesterday
