The A2 Milk Company share price jumped 23% higher in November

James Mickleboro|December 2, 2019 8:10am|More on:A2M

Source: Company presentation

TheA2 Milk Company Ltd(ASX: A2M)share price returned to form in November.

The infant formula and fresh milk company’s shares climbed a massive 23% last month.

This made it one of the best performers on the ASX 200 index along withBravura Solutions Ltd(ASX: BVS)andCaltex Australia Limited(ASX: CTX).

Why did the a2 Milk share price rocket higher in November?

Investors were scrambling to buy its shares following the release of a trading update at its annual general meeting.

According to the update, a2 Milk Company has started FY 2020 very strongly. As a result, it expects to deliver revenue in the range of NZ$780 million to NZ$800 million during the first half.

This compares to NZ$613.1 million in the prior corresponding period, implying growth of 27.2% to 30.5%.

The growing demand for its infant formula products in China is largely behind this strong first half guidance.

China label infant nutrition sales are forecast to grow ~84% on the prior corresponding period to NZ$135 million. And CBEC infant nutrition sales are expected to grow ~54% to NZ$155 million.

Supporting this will be a ~9% increase in ANZ English label infant nutrition sales to NZ$350 million and growth in its Fresh Milk sales.

Pleasingly, management has achieved this on a lower than planned marketing budget. As a result, a2 Milk’s EBITDA margins are expected to be in the range of 31% to 32% in the first half. This was far better than the market was forecasting.

And while its full year EBITDA margin is expected to soften to between 29% to 30%, this is still a better result than many in the market were expecting.

Is it too late to invest?

Although a2 Milk Company may not be the bargain buy it was at the start of November, I still see a lot of value in its shares at this level.

In light of this, I would class its shares as a buy for investors that are willing to make a long-term patient investment.