A2M 2.89% $6.77 the a2 milk company limited

Media Updates, page-14387

  1. 4,158 Posts.
    lightbulb Created with Sketch. 1808
    Oh right. I don't think that is necessarily priced in. A few facts to consider.

    From the latest HY report this Feb:

    "The overall China IMF market declined 10.7% in volume and 13.6% in value in 1H24."

    and in that market the A2M's 1H24 sales performance was as follows:

    "Revenue of $549.5 million was up 16.5%, with EBITDA of $135.9 million up 21.9%."

    At that time, in late February, the company prefaced its outlook with the following:

    "Market conditionsDespite the CY23 birth rate data published in January which reflects an improvement in the trajectory over the past several years,China IMF market conditions remain challenging with a double-digit decline in market value still expected in FY24"

    So the guidance provided was predicated on the assumption of continued challenging market conditions along similar lines. Nonetheless they did increase FY24 revenue guidance slightly from low single digit growth, to low-to-mid single digit. EBITDA to remain similar at around 13-14% of revenue.

    The immediate market response to that report was to price the company around the $6 mark, before the price collapsed due to concerns about Synlait. The Synlait concerns still exist but the outlook assumptions apparently have changed.

    My rough calculations from here.

    FY23 Total Revenue = $1592.9M
    FY23 China Revenue = $1002.2M
    FY23 Revenue excluding China sales = $590.7M

    FY24 Revenue Forecast = $1,640M to $1,700M (3% growth to 7% growth, or "low" to "mid-single digit") << This forecast and associated impacts on earnings is what the market appeared to value around $6 a share at the time it was given.

    So where would revenue actually be likely to actually hit if they maintained their current level of China growth?

    FY24 China Revenue baseline estimate = (1H24 China revenue of $549.5M) + (2H23 China sales of $530.4 x 1H23 growth rate of 16.5% ) = $549.5M + $617.9M = $1,167.4M

    If sales for all other areas of the business were completely flat year-on-year (i.e. $590.7M FY23 revenue excluding China sales) then the total FY24 revenue would be $1,758.1M. This would actually be a 10.3% increase in revenue (rather than the low to mid single digit revenue growth forecast). It makes that Feb guidance seem conservative but remember what they also said about market conditions. They possibly felt that the outlier growth performance could only last for so long before being dragged down by the broader market.

    But this doesn't appear to be the case at least in terms of the broader market conditions which could allow the existing growth rate to coast along for a bit longer, or even increase.

    The other thing to consider is that some of the commentary suggesting improved English label sales, which would be more favorable to A2M's margins.

    Without running all these changed assumptions through to PE analysis etc I think there is further for the SP to run based on the China sales, but this may not happen until earnings season. It may also interact with the Synlait developments for better or worse.



    Last edited by werdplaya58: 30/05/24
 
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