A2 shares climb 7.7% as Chinese formula sales grow

Wednesday 17th October 2018

A2 Milk Co shares jumped 7.7 percent after the company reaffirmed its expected annual revenue growth, piggybacking off the strength of its infant formula products.

The milk marketer today said its share of China's infant formula consumption grew to 5.6 percent in the three months through September, from 5.1 percent in the June quarter. It also now has more than 10 percent of the branded fresh milk market in New Zealand and Australia.

Sales through that period were in line with A2's expectations, which the company said reflected strong growth in infant formula and milk products. Growth in the formula products was across both English and Chinese labels.

The stock rose 75 cents to $10.45 at 1pm. It fell to an eight-month low of $8.67 on Friday and is now down 16 percent since chief executive Jayne Hrdlicka sold shares in September having recently joined the firm. That disclosure coincided with increased volatility in the market.

"When there's as much market volatility as we have seen over the last two weeks, growth or momentum stocks are the ones that can get hit pretty hard," said Grant Williamson, a director at Christchurch broking firm Hamilton Hindin Greene. "That's exactly what we've seen in A2."

A2 today reiterated that it expects revenue growth from infant formula sales in Australasia and China and liquid milk sales in the US. The firm's earnings before interest, tax, depreciation and amortisation margin will largely reflect that growth in the June 2018 financial year, the company said.

It hasn't provided formal guidance, but the mean forecast among analysts predicts revenue of $1.25 billion in the current June year and ebitda of $385.4 million.

A2's weaker share price was seen as a good buying opportunity by Morningstar Research, which added the stock to its top 10 picks for Australia and New Zealand earlier this month.

Meanwhile, Fisher Funds Management senior portfolio manager Sam Dickie yesterday said the Hrdlicka sale was poorly managed and communicated, but didn't indicate any problems with the company's performance. Fisher Funds-managed Kingfish has allocated about 10 percent of its portfolio to A2.

(BusinessDesk)

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