A2 Milk Share Price Up as Results Reveal Improved Profit

At time of writing, the share price of The A2 Milk Company Limited [ASX:A2M] is up 7.13%, trading at $13.22.

The A2 Milk share price has been on a solid run since mid-October:

Source: marketindex.com.au

The latest news out of the company is its half year results which revealed improved NPAT and a strong balance sheet.

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A2 Milk share price reacts to positive news

Some highlights from the half-year results ending 31 December 2018:

• $613 million in revenue, up 41%
• $218 million in EBITDA, up nearly 53%
• $153 million in NPAT, up 55%
• $288 million in cash on hand

Of these, perhaps the most intriguing is the $288 million in cash on hand, indicating that the company still has a sizeable war chest to expand further.

It is also worth noting that the company has experienced 83% growth in their Chinese-labelled infant formula sales, with its infant formula making up $496 million of its total sales (up 45%).

There may have been fear among investors that a slowing Chinese economy could have impacted sales in the final two quarters of last year, but these fears seem to have subsided.

Blackmores Limited [ASX:BKL] was hit yesterday on reduced Chinese sales, but there have been no signs of this happening to A2 Milk’s sales.

Part of it comes down to the differing product offerings of the two companies.

Blackmore’s vitamins may be perceived as a luxury, where A2 Milk’s infant formula is more of a staple style product.

What does the future hold for A2 Milk?

The Chinese e-commerce regulatory environment remains an ongoing source of uncertainty for A2 Milk, but the company is confident it will navigate any hurdles.

There is also the prospect of increased competition.

That being said, there are some pleasing numbers coming out of the US market, with sales growth of 114.1% and distribution exceeding 10,000 stores.

The company remarks that:

‘The a2 Milk™ brand in the US is successfully growing category consumption, sourcing volume across multiple product segments and trading up consumers from conventional milk while demonstrating high levels of consumer loyalty once the brand is trialled.’

Marketing will also remain a key focus for the company, something that is underpinned by its strong balance sheet.

It intends to double its marketing investment in 2H2019 compared to 1H2019.

So if it can continue to grow its brand overseas, the future looks bright for A2 Milk.

Regards,

Lachlann Tierney
For Money Morning

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