What happened to A2 Milk share price?
At time of writing, A2 Milk Company [ASX:A2M] is trading at $10.67, a 22.50% increase from yesterday’s close.
This is a 448% gain from 21 February 2017, an impressive feat for a company approaching a $6.5 billion market capital.
The A2 Milk Company is an Australian-listed, New Zealand-based company which commercialises intellectual property relating to A2 milk, as well as the milk itself and products such as infant formula.
Impressive results for A2
The company posted a cool 70% increase in revenue for the first half of financial year 2018, and an impressive 82% increase on its gross margin. This was in large part attributed to its growth in infant formula and favourable currency movements.
Across the financial board the company outperformed its prior results, with net profit after tax up 150% to NZ$98.5 million, which included the results of a reduced effective tax rate from 37% to 31% due to lower weighting of international tax losses.
They now have a comfortable NZ$240.2 million cash on hand, a benefit of favourable timing of supplier payments.
51.1% of revenue in this half came from infant formula sales, which themselves had increased a huge 84.8% from the prior corresponding period. This was helped by key growth both here in Australia and China.
A2 Milk’s strategy going forward
A2M released a strategy update noting progress on all fronts, including broadening its dairy nutritional product portfolio and exposing itself to targeted attractive regions with the Asia Pacific in focus.
The company also announced the formation of a strategic relationship with Fonterra, the New Zealand-based global dairy nutrition company.
Among other elements under the agreement, Fonterra will exclusively supply A2M with A1 protein-free milk products destined for sale in certain new priority markets in Asia and the Middle East.
It also secures the licensing agreement for Fonterra to produce, distribute, sell and market A2 Milk-branded fresh milk in New Zealand.
This agreement highlights the company’s growth focus to investors, and reaffirms the ability of A2M to meet its strategy targets to explore emerging global marketplaces.
Managing Director Geoffrey Babidge said:
‘Our financial performance reflects the growing strength of our brand proposition, the successful execution of in-market growth strategies and the continued strong performance of our supply chain.’
The company expects revenue growth to continue, but earnings growth to be tempered in the second half by higher marketing expenses. A half-on-half increase is now likely to be in the range of NZ$35–40 million.
A2M was admitted to the S&P/ASX 100 and S&P/NZX 10 indices in December last year.
Editor, Money Morning
Junior Analyst, Money Morning
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