Investor love for infant formula maker a2 Milk cools off

16 May, 2018, 16:08 | Author: Regina Silva
  • NZ dairy industry is feeling the pressure following Fonterra’s low milk price forecast

Harbour Asset Management senior research analyst Oyvinn Rimer said several other high-growth stocks - particularly ones like a2 Milk that trade on high price earnings multiples - had seen their share prices drop over the last six months after issuing guidances that failed to match optimistic market expectations.

Shares in The A2 Milk Company have plummeted after the New Zealand-based dairy firm said full-year sales revenue would be lower than analysts had forecast.

a2's revenues more than tripled in the three years to June 2017 as its infant formula was embraced by Chinese parents, driving its shares up more than 600 percent since the start of 2016.

A spokesman for a2 Milk said the company had become aware of some overly bullish revenue forecasts and had moved to clarify what its view was.

"It also includes the impact of seasonal sales from key China selling events weighted towards 1H18", the company said.

Before today, A2 Milk sported a market capitalisation of nearly $9 billion.

"But what we have seen here is that they are already doing 70 per cent better than [this] time previous year, so that is a massive growth number", he said.

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The company, in an announcement to the NZX, said it was anticipating revenue in a range of $900 million to $920m for the 12 months ended June 30.

Could drinking a2 milk help lactose intolerant people digest dairy long-term?

Marketing investment spending in the year is expected to be in a range of $82 million-to-$87 million, reflecting increased spending in the USA and China.

In an worldwide investor presentation released on Wednesday, a2's managing director Geoffrey Babidge said the company's growth reflected "increasing consumer acceptance of our brand and the benefits of dairy-based products free from the A1 beta casein protein type".

Spooking the market is that despite the sharply increased marketing spend, revenue growth has slowed, with second half revenue forecast to be ahead of the first half by just 9 per cent.

Even after today's fall, a2 Milk has had a spectacular run; the stock traded this time past year at just $3.56.

In February the company more than doubled its first-half profit to $NZ98.47 million on the back of strong growth in A2's infant formula business and higher liquid milk sales in core markets.

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