Is A2 Milk (ASX: A2M) the best ASX growth share at this share price? The infant formula company gave an update today.
What is A2 Milk?
is one of Australia and New Zealand’s largest infant formula producers and the leader in a2-only protein based dairy products. It has operations in New Zealand, Australia, USA and China thanks to key supply and distribution agreements.
What did A2 Milk say?
The company updated the market this morning about its latest trading.
Revenue
It said that its revenue for the March 2020 was above expectations with increased customer purchasing, particularly online and through reseller channels. However, it’s hard to say when pantry stocking may unwind.
Another benefit was that its China segment revenue, which is transacted in US dollars, was favourably benefited by a depreciation of the New Zealand dollar compared to the US dollar.
Revenue is now expected to be in the range of NZ$1.7 billion to NZ$1.75 billion. In FY19 it generated revenue of NZ$1.3 billion. Management are expecting growth of at least 30.75% it seems.
Expenses
The expense side of the business was lower than expected because of travel expectations and delayed planned recruitment, particularly in China.
EBITDA Margin
A2 Milk is now expecting the FY20 EBITDA margin to be in the range of 31% to 32%, higher than previously guided. This assumes planned marketing of $200 million will be fully expended before 30 June 2020.
The A2 management doesn’t think the beneficial factors will last forever, so the company is still targeting an EBITDA margin of around 30% for the medium term. It’s going to keep a balance between growth and investment.
Is A2 Milk the best?
There are few growth shares better than A2 Milk in my opinion. It has a great brand, strong margins, a global addressable market, it’s defensive and it has a long term growth runway. I’d love to have it in my portfolio, but it isn’t cheap after the strong performance this year. These tech shares with higher margins could be better buys:
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Disclosure: at the time of publishing, Jaz does not have a financial interest in any of the companies mentioned.
