A2 Milk Company Ltd (ASX: A2M) has released an investor presentation today. Are A2 Milk shares too good to miss?
A2 Milk’s presentation
A2 Milk is presenting at the CLSA Investor Forum.
The infant formula business reminded investors of its strong performance in FY20. Total revenue grew by 32.8% to NZ$1.73 billion. EBITDA (click here to learn what EBITDA means) grew by 32.9% to NZ$549.7 million and net profit after tax (NPAT) increased by 34.1% to NZ$385.8 million.
It was its overseas growth that was particularly impressive. China label infant nutrition sales more than doubled to NZ$337.7 million with distribution increasing to 19,100 stores. In the US revenue increased 91.2% and distribution rose to 20,300 stores.
A2 Milk said that it estimates that COVID-19 had a modest positive impact in FY20 on both revenue and EBITDA. During FY20 in China there was a home-delivery service launched, though there was a softening of retail daigou due to reduced tourism from China and international student numbers.
The company is expecting an unwinding of pantry stocking in the early part of FY21. The corporate daigou and reseller channel has been disrupted due to stage 4 lockdowns in Victoria.
However, A2 Milk remains focused on its one brand, two labels strategy. Its China label range delivers its ‘super premium’ positioning, particularly in higher tier cities and mother and baby stores. The English label product has premium pricing within the reseller and online channels, it’s more accessible for some consumers.
China based channels now account for 48% of total infant nutrition sales. A2 Milk said in this presentation that it’s executing on its strategy with a 2% market share in mother and baby stores. Management believe it has a “significant opportunity for further growth.”
Outlook
A2 Milk reminded investors it generated NZ$427.4 million of operating cash flow in FY20 and it had a closing cash balance of NZ$854.2 million.
The company is undertaking a number of growth initiatives including investing in manufacturing. This will mitigate risk with supplier and geographic diversification. The newly commissioned plant can produce the highest quality products.
It’s planning to launch new products into existing markets and expand its current product range into new markets.
A2 Milk also said it’s assessing complementary acquisitions to drive its growth in its core markets.
It’s planning to maintain a conservative balance sheet, however, excess cashflow will be used for shareholder returns. That’s an encouraging signal for investors.
The company is still expecting strong revenue growth. But it noted that COVID-19 uncertainties and COVID-19 impacts could hurt demand and hurt the supply chain.
Summary
I think A2 Milk is one of the best ASX growth shares, it would be one of the first ASX 200 shares I’d buy today.
I reckon the infant formula industry still has a lot of growth potential, which is why I also like Bubs Australia Ltd (ASX: BUB). But tech shares also have strong growth potential – I wrote about Redbubble Ltd (ASX: RBL) and Pushpay Holdings Ltd (ASX: PPH) in this article.
