Morningstar maintain a2 valuation at NZD$15.30 being encouraged...

Morningstar maintain a2 valuation at NZD$15.30 being encouraged that Geoff is back and company in safe hands:

A2 Milk Boss's Exit a Surprise, but Doesn't Alter Our Long-Term View for the Narrow-Moat Company

After less than 18 months in the role, narrow-moat a2 Milk's CEO Jayne Hrdlicka announced her immediate resignation on Monday, Dec. 9, 2019. The decision is surprising. The company had rolled out an updated strategy at its investor day in September, and upgraded its near-term EBIT margin outlook in November. Per Hrdlicka, the role has entailed more travel than she originally anticipated, although we acknowledge the exact reason for her departure is unclear and introduces uncertainty.

Nonetheless, we're encouraged that prior CEO Geoff Babidge, who successfully guided the company from 2010 through 2018, will again assume the leadership role on an interim basis while a2 searches for a new permanent CEO, and that the board remains committed to Hrdlicka's recently outlined investment plans. We discussed these plans in our note “A2 Milk's Upgraded Guidance Tracks Our Long-Term Expectations; Shares Remain Undervalued," published on Nov. 18, 2019. We maintain our NZD 15.30 (AUD 14.50) per share fair value estimate.

Outside of the management change, a2's board outlined a new medium-term EBITDA margin goal of above 30%, following a dip to a range of 29% to 30% in fiscal 2020. This outlook tracks our forecast for EBITDA margins to climb to 32% over the next 10 years, stemming from continued strong top-line growth and solid cost control which offset further marketing and product investments.

Per a2's Chairman David Hearn, the search for a new CEO will likely push into late fiscal 2020. This transition will follow the previously announced hire of new CFO Race Strauss who will start in January 2020 after current CFO Craig Louttit opted to step down to a deputy position to spend more time with family, and the upcoming resignation of chief marketing officer Susan Massasso, scheduled for February.

Despite these C suite changes, we maintain our Standard stewardship rating, based on the consistent strategy and Babidge's prior experience in leading the company.