Media Updates, page-14493

Source Bell Potter
The a2 Milk Company
Jonathan Snape

Reviewing ahead of August

We review our forecasts approaching reporting season with key points being:

China trade flows: Total imports of IMF demonstrated the first YOY gain since Apr’23.
With a +18% YOY. Imports from traditional SM1 ports have averaged ~14% through FY24
and exited at that rate through 4Q24. Exports to China and Hong Kong from traditional SM1
ports in a dollar sense ended the year up +17% YOY at NZ$988m.

Australian trade flows: Volumes traditionally from SM1 to A2M in Australia have exited
CHC and AUK, but recent SM1 calls have highlighted that Auckland has been inactive for
periods through FY24e. Volumes into Australia from these two ports is up +27% YOY and in
aggregate total imports from NZ into Australia is down -11% YOY. Volumes exiting
Australia to China YTD (May’24) are down -59% YOY.

Export Values: We tend to view the flow of product from NZ to Australia as a COG
indicator and noted a +10% YOY uplift in the average value per ton in FY24. We tend to
view flows from NZ to China and Hong Kong as an indicator of NZD unit values and noted a
+8% YOY uplift China flows and a -6% YOY fall in Hong Kong flows.
We have updated our forecasts to reflect movements in volumes, values of product, FX and
yield curve movements. In addition, we lift the impairment for the SM1 stake below the line
(NZ$28m). The net effect is NPAT changes of +1% in FY24e, +4% in FY25e and -2% in
FY26e.

Our target price is lifted to A$7.05ps (prev. A$5.70ps) largely reflecting a reduction
in the discount rate and modestly reflecting roll forward.

Investment view: Hold unchanged
Our Hold rating is unchanged. The multiple re-rating (from ~10x FY24e EBITDA in Jan’24
to ~20x FY24e EBITDA today) on a modest alteration in EBITDA expectations (+5% over
the same time frame) has been large. At 20x FY24e and 17x FY25e we do not see compelling
value in the stock today and would suggest it is inferring a more material delivery against
longer-term targets, particularly in light of peer group comps of 8x FY25e EBITDA in IMF
and 14x FY25e EBITDA in Functional FMCG