a2 Milk shares soar on profit rise

Company hikes revenue forecast
calendar icon 19 February 2024
clock icon 2 minute read

Shares of New Zealand's a2 Milk Co soared up to 17% on Monday after the company marginally raised its full-year revenue forecast and reported a 15.6% jump in first-half profit, citing a strong performance by its infant milk formula label in China, according to Reuters.

Shares of the dairy producer advanced to an intraday high of NZ$6.320 by 0030 GMT, posting their biggest intraday percentage jump since Nov. 19, 2019.

The stock hit its highest level since April 21 last year and was the top gainer in the NZX benchmark index. Its ASX-listed shares also topped the Australian benchmark index, trading 17.4% higher.

For the current fiscal year, a2 Milk forecast growth in the low- to mid-single digit percentage range. That is a marginal improvement from its prior view of percentage growth in the low single-digits. In fiscal 2023, revenue grew by 10.1% to NZ$1.59 billion ($975.94 million).

The upbeat first-half result came on the back of growth in infant milk formula (IMF) sales in China, even as the market declined significantly due to a lower number of newborns.

Net profit after tax attributable came in at NZ$85.3 million for the six months ended Dec. 31, compared with NZ$73.8 million reported a year earlier. That beat a Visible Alpha consensus of NZ$74.2 million.

Its top money-making segment - China & Other Asia - recorded revenue of NZ$549.5 million, up 16.5%, while IMF sales in China jumped 10.4% to NZ$299.0 million.

"The combination of a better-than-expected result, FY24 guidance upgrade and new product development is likely to trigger investors who have been underweight the stock to revisit it," Citi analysts wrote.

However, a2 Milk warned that its medium-term revenue growth target of around NZ$2 billion was now likely to be achieved by fiscal 2027 or later, instead of fiscal 2026.

"This should not come as a surprise to investors who have closely followed the stock," analysts at Citi wrote, adding that the Visible Alpha consensus for fiscal 2027 revenue of NZ$2.1 billion may now decline about 5%.

A2 Milk said it expected to spend about a total of NZ$30 million in capital expenditure for full year 2024, up from its previous guidance of about NZ$26 million.

($1 = 1.6292 New Zealand dollars)

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