The A2 Milk Company (ASX:A2M) has concluded FY18 with a robust performance, surpassing recent guidance and consensus expectations. Notably, underlying NPAT soared by 116% to NZ$195.7 million, while underlying EBITDA witnessed a remarkable 101% increase to NZ$283.0 million. This impressive growth was propelled by a significant surge in revenue (+68%), primarily driven by the stellar performance of infant formula, constituting 79% of group sales.
Strong Market Presence
Australia/New Zealand
The region witnessed a remarkable 69% EBITDA growth, with a2 Platinum commanding a market share of 32% in Australian supermarkets, marking a notable increase from previous periods.
China and Other Asia
Similarly, China and other Asian markets reported robust results, with EBITDA soaring by 148%. Notably, a2 Platinum's market share by value in China witnessed a rapid ascent, reaching 5.1% over the year and 5.4% by 4Q18.
Financial Strength and Outlook
Cashflow Performance
Operating cashflow surged by 131% to NZ$231.1 million, significantly surpassing expectations. This strong cash generation has bolstered A2M's balance sheet, culminating in a net cash position of NZ$340.5 million, or 47 cents per share.
Growth Prospects
While A2M refrained from providing formal FY19 earnings guidance, its outlook commentary remained optimistic. Forecasts anticipate robust NPAT growth of 37.0% in FY19 and 29.4% in FY20, driven by further market share gains, recent price adjustments, and expansion into new products and markets, particularly in China.
Investment Perspective
Strategic Investments
A2M continues to invest in long-term profitability through heightened marketing efforts to enhance brand awareness, expansion into new territories such as the UK and USA, and innovation in product development. While these endeavors may temporarily impact profitability, the company's strong balance sheet augments its ability to drive additional earnings growth over the long term.
Investment Insights
Trading at a PEG ratio of 0.9x in FY19 and FY20, A2M maintains an Add recommendation, reflecting its robust performance and promising growth prospects. Additionally, the share price target has been revised upwards, signaling confidence in the company's trajectory.
In summary, The A2 Milk Company's stellar performance in FY18 underscores its resilience and market leadership. With a solid foundation and strategic initiatives in place, A2M is well-positioned for sustained growth and value creation in the evolving dairy industry landscape.
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