A2M share price in focus
Founded in New Zealand in 2000, The a2 Milk Company specialises in dairy products that contain the naturally occurring A2 protein type, sold under the a2 brand.
The company does not produce its products directly but partners with over 25 certified dairy farms across Australia, where suppliers handle the production. Additionally, its instant formula products are manufactured by its supply partner, Synlait Milk, in New Zealand.
A key selling point of a2 Milk is its claimed health benefits, particularly its easier digestibility compared to regular milk. This makes it a suitable option for people who typically experience digestive issues with standard milk.
WES shares
Wesfarmers is a diversified Australian conglomerate headquartered in Perth. It’s essentially a listed investment company with outright ownership or significant stakes in companies across retail, chemical, fertiliser, industrial and safety brands and products.
Wesfarmers has a long history of buying businesses, re-investing in them to grow cash flow and assets, then selling them off for a higher price. A good example of this is Coles Group, which it bought in 2007 and spun out in 2018. However, most of the company’s operating profit (over 50%) comes from Bunnings Warehouse, the #1 hardware and home improvement business in Australia (and the country’s most trusted brand in 2023 & 2024). Wesfarmers originally bought into Bunnings in 1987, buying the final 52% in 1994 for $594 million.
Other household names owned by Wesfarmers include Blackwoods, Kmart, Target, Officeworks, and Priceline Pharmacy. Wesfarmers has been a leading blue chip stock on the ASX for decades and is known for paying a consistent dividend.
A2M & WES share price valuation
As a growth company, some of the trends we might investigate from A2M include revenue growth, profit growth, and return on equity (ROE). These measures can indicate the growth rates and prospects of the company, as well as their ability to generate returns from their assets.
Since 2021, A2M has grown revenue at a rate of 11.6% per year to reach $1,673m in FY24. Over the same stretch of time, net profit has increased from $81m to $168m. As for ROE, A2M last reported a ROE of 12.8%.
Since WES is more of a ‘mature’ or ‘blue-chip’ business, some of the metrics that could be considered important include the debt/equity ratio, average yield, and return on equity, or ROE. These are useful as they give us an idea of debt levels and the company’s ability to generate a return on assets and pay out profits (which is what we want from a blue chip). In FY24, Wesfarmers Ltd reported a debt/equity ratio of 131.4%, meaning the company is leveraged (it has more debt than equity). Higher debt levels come with increased risk so it’s important that a leveraged company has stable returns and the capacity to pay interest on its debts.
As for dividends, since 2020 WES has paid an average dividend yield of 3.4% per year.
Finally, in FY24, WES reported an ROE of 30.3%. For a mature business you’re generally looking for an ROE of more than 10%, so WES clears this hurdle.
Keep in mind that these are only a small selection of metrics. We don’t have enough information to value the business or make an investment decision. To learn more about valuation, check out one of our free online investing courses.
