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A2 Milk Company Upgrades FY16 Forecast

A2 Milk Company Upgrades FY16 Forecast
Dec 18, 2015 By Imran Valibhoy Tags: A2M

A2 protein milk provider, The a2 Milk Company (ASX:A2M) has upgraded its FY16 revenue and EBITDA forecasts due to better than expected sales of infant formula.

Initially, A2M provided forecasts for FY16 group revenue of $285 million, along with group operating EBITDA of $22 million. A2M attributed this to favourable trading performance for its ‘A2 Platinum’ infant formula products during the first four months.

A2M reported that they experienced a significant expansion in the sales of their infant formula, exceeding the sales projections at the time of the previous forecast. A2M expects this growth to continue in the month of December, to result in total sales of their A2 Platinum product of approximately $68 million for the 6 months ending 31st December 2015.

Based on current trading trends, A2M is now forecasting group revenue to be in the region of $300-$315 million, along with group operating EBITDA to be in the range of $33-$37 million for FY16.

However, A2M emphasised that due to the changing and volatile nature of the infant formula markets in both Australia and China, forecasting is much more challenging. They will continue to further monitor performance, and consistently update investors, with the release of 1H trading results in February being one of the first.

A2M CEO and Managing Director Mr Geoffrey Babidge commented rather positively on the forecast: “The infant formula market in Australia is rapidly evolving and experiencing significant growth. The company has recently increased the supply of A2 Platinum infant formula to our customers, however we continue to experience a level of out of stocks on shelf. The strong trading performance advised today provides further evidence of the increasing appeal of the A2 Platinum brand in Australia and China and the growth potential in additional markets in the future”.

Investors have reacted very sharply upon A2M’s announcement, with A2M shares climbing as high as $1.43 shortly after open. At midday A2M shares eased slightly to be last quoted at $1.32, up ~27%. Investors have been able to garner significant returns from A2M, which surged over 149% year-to-date. 

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Imran Valibhoy Author: Imran Valibhoy Dec 18, 2015

Since Joining the firm in 2006, Imran has worked on a range of M&A and Capital Market transactions in the natural resources, mining as well as projects in the renewable energy sector. Prior to joining Wise-owl, Imran worked at Euroz Securities in Perth, aiding in the advisory and valuation of companies in the mining and industrial sectors in Australia. Imran has a Masters in Banking & Finance from City University's Class Business School in London and a Bacheloor degree in Commerce from UWA.

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