Geoff Babidge says A2 is working hard to meet demand for its Platinum infant formula.
Geoff Babidge says A2 is working hard to meet demand for its Platinum infant formula.
Milk company's forecast and expansion plans make it index's top performer.
Shares of A2 Milk soared to a record after the milk marketer raised its annual earnings forecast on strong demand for its a2 Platinum-branded infant formula, giving investors confidence in its ability to diversify its range of products and expand into more markets.
Operating earnings before interest, tax, depreciation and amortisation are expected to rise to between $33 million and $37 million in the year ending June 30, 2016, ahead of its November forecast of $22 million and year-earlier ebitda of $4 million, said the Auckland-based, Sydney-headquartered company.
Annual revenue is forecast to rise to between $300 million and $315 million, ahead of the November forecast of $285 million and from $154 million in 2015, it said.
Its shares surged 29 per cent to close at $1.43. Ahead of yesterday's gain the shares had jumped 91 per cent so far this year, making them the best performer on the S&P/NZX50 benchmark index.
A2, which markets milk with a protein variant said to have health benefits, raised $40 million in a discounted share placement in October to help drive growth of infant formula sales in China, Australia and New Zealand. The company aims to grow by widening its offering from fresh milk into a range of products such as infant formula, whole milk powder and icecream, and spread its geographic reach into global markets.
"The brand had gained a lot of following and recognition in the fresh milk space, however it's only over the last 18 months to two years that they have pushed into infant formula," said Michael De Cesare, an analyst at Nikko Asset Management New Zealand, which holds the stock among its $400 million of New Zealand equities. "The market has been maybe somewhat conservative in giving them the credit in terms of where the infant formula share might get to and the earnings they might derive from those achievements."
Nikko bought the stock to help fund the company's growth as part of the recent equity raising and De Cesare said the next hurdle for the company was to prove it could gain traction in markets outside the Asia-Pacific region.
The market has been maybe somewhat conservative in giving them the credit in terms of where the infant formula share might get to and the earnings they might derive from those achievements.
Although the company cited demand for its infant formula in Australia as the reason for the earnings upgrade, some of that product was also being sold into China by a third-party supplier, De Cesare said.
"The jury was out as to whether it could be leveraged to other markets and maybe now we are seeing the signs that actually China, probably the largest infant formula market in the world, is keen on the product and it has got strength into that market so we are very pleased in that regard.
"The next actual step change could be the US and the UK. If that was to occur then the future continues to look bright for these guys."
A2 managing director Geoffrey Babidge said the company has recently increased the supply of a2 Platinum infant formula to its customers, however, it continues to experience a level of shelf stock running out.
"The strong trading performance advised today provides further evidence of the increasing appeal of the a2 Platinum brand in Australia and China and the growth potential in additional markets in the future."
