The annual general meeting (AGM) could prove to be good news for the A2 Milk Company Ltd (ASX: A2M) share price and FY21 profit.
What happened at the AGM?
The AGM followed the usual course of events with a review of the previous year’s result and it also also did the important administrative tasks.
As a reminder, in FY20 it grew revenue by 32.8% to NZ$1.73 billion, EBITDA (EBITDA explained) went up by 32.9% to NZ$549.7 million. Operating cashflow came in at NZ$427.4 million.
Total infant nutrition revenue rose by 34% to NZ$1.42 billion and Chinese label infant nutrition revenue rose by over 90%.
A focus on China and the US
For A2 Milk, China and the US are key markets for growth.
It’s focused on maximising growth from infant and toddler consumption in China, developing a broader nutritional milk portfolio in China, building meaningful scale in the USA and continuing to investigate new growth opportunities.
A2 Milk explained that there are many different types of Chinese consumers. The company said that some have a preference for offline ‘high involvement channels’, such as mother and baby stores, whilst others prefer internationally-sourced products accessed from cross-border e-commerce platforms or the daigou channel. There are many consumers active across more than one sales channel.
The company is focused on each of its channels as part of its integrated strategy.
A2 Milk also said that its Chinese and English label products don’t compete with each other, but actually work together to grow its overall brand proposition.
Excitingly, A2 Milk reminded investors that the US is an important market for both liquid milk and as a platform for further product expansion over time. I think expansion of its infant formula into the US could be a huge move in the future.
Why the AGM may be good for the A2 Milk share price
A2 Milk reaffirmed its guidance of FY21 first half revenue of between NZ$725 million to NZ$775 million, with FY21 total revenue guidance of between NZ$1.8 billion to NZ$1.9 billion. The EBITDA margin is expected to be “in the order of 31%.”
The fact that it stuck to its guidance is a positive sign. Sometimes companies go through downgrade cycles, so it was good to see today’s meeting didn’t include a downgrade.
With the recent positive news relating to two promising COVID-19 vaccines, I think the A2 Milk share price could be on track for a recovery in 2021 even if it takes a little longer for the earnings to show it.
I’d be happy to buy some A2 Milk shares for my portfolio today, though it must be noted that COVID-19 is still affecting things and the Chinese relationship with Australia (and New Zealand) could hurt sentiment and/or earnings.