Shares slumped, sales surged in a topsy turvy market for a2 Milk shares yesterday in Australia and NZ in the wake of the release of the company’s 2018-19 results.
In fact, it was an example of a market hissy fit as A2M’s earnings just missed market guidance by around 3% or $10 million. So down plunged the shares by 15% across the Tasman and by the same amount when trading opened in Australia later in the morning.
It was an illogical reaction from investors that seem to have been chasing a2M shares higher for most of the year, only to get cold feet and try and take profits by selling as quickly as possible on the small shortfall.
By the close, the fall had been cut to 13.2% – with the shares ending the day at $14.89 but the actual results and confident outlook were ignored.
The results showed that surging sales; a growing market share in the China infant formula market, not to mention strong results in Australia and New Zealand combined to push a2M to a record full-year net profit of $NZ288 million ($272 million).
Silly investors missed the fact that a2M’s total revenue climbed 41.4% to $NZ1.3 billion which was in line with analyst forecasts.
The profit was up a fat 47% on 2017-18 on the previous year. But the result missed Bloomberg consensus expectations of a $NZ296.75 profit by 3%, which triggered the illogical market reaction.
In Australia, a2M boosted both its revenue and market share of the liquid milk business, with revenue up 10.7% and market share at a new high of 11.2%. The ANZ business revenue was $NZ842.7 million, up 28.3%, and EBITDA of $NZ388.2 million an increase of 48.1%
In China a2M’s revenue jumped by almost 74% to $NZ384 million, which the company attributed to market share gains and increased distribution. a2M said its infant formula market share in China, rose to 6.4 percent market share from 4.8% in 2017-18
“The company delivered record financial and market share results for 2019. This was enabled by strong revenue growth across our key product segments of liquid milk, infant nutrition and other nutritional milk products, and across each of our key regions,” a2M chief executive Jayne Hrdlicka said in yesterday’s statement.
“Pleasingly, our results were underpinned by growing brand awareness, expanding product distribution and strengthening in-market execution in our two most important regions of greater China and the US,” she said.
“We have focused on really getting to know our consumers and sales channels in our core markets of China and the US. The a2 Milk Company’s unique brand proposition intrinsically leverages macro consumer factors, which include growing consumer demand for health and wellness products; a growing focus on food safety, naturalness and provenance; the growing middle class in Asia; and the rapid pace of digitalisation,” Ms. Hrdlicka said.
“While in each of our markets our consumers are quite different, our global brand proposition resonates strongly with our consumers and is unique relative to the competition,” she said.
A2Milk said its closing cash balance was $NZ464.8 million.
On the outlook, the company said it continues to “anticipate continued growth in revenue across our key regions supported by increasing brand and marketing investment in China and the US.”
“Full-year FY20 EBITDA as a percentage of sales is expected to be broadly consistent with 2H19 EBITDA margin (28.2%) reflecting: increased full-year marketing investment to around 12 percent of sales and continued investment in organisational capability to support future growth.”
