COMPANY NEWS & UPDATES
The a2 Milk Company Limited ( A2M )
Accumulate Valuation $ 15.20
Earnings Forecast
Yr to June |
2020A |
2021F |
2022F |
|
Sales Revenue
($ M )
|
1,602.5 1,389.0 |
1,920.2 |
|
Reported
Profit ($ M )
|
357.3 |
260.7 |
385.3 |
EPS ( c ) |
48.3 |
35.1 |
51.8 |
Div ( c ) |
-- |
-- |
-- |
P / E ( x ) |
31.5 |
33.1 |
22.4 |
Yield (%) |
-- |
-- |
-- |
Franking (%) |
-- |
-- |
-- |
|
EPS Growth
(%)
|
48.3 |
35.1 |
51.8 |
* Profit & EPS adjusted for options , goodwill , notional earnings and nonrecurring items .
Mataura Acquisition
A2 Milk has agreed on terms to acquire 75 % of Mataura Valley Milk for NZD 279 million on May 31 , 2021 , pending regulatory approval . We view this as strategically sound as it will enable a2 to :
1 . complement existing supply relationships with Synlait Milk and Fonterra , and
2 . capture manufacturing margin for nutritional products through the new facility .
However , the company expects Mataura to continue to operate at approximately EBITDA breakeven as a manufacturer of commodity powders until FY24 , as the facility still requires a blending and canning facility and an A1 protein free milk pool to produce its desired consumer packaged nutritional products .
The overall effect is broadly neutral , and we maintain our NZD 16.30 ( AUD 15.20 ) valuation . A2 shares screen as undervalued , currently trading at an approximate 25 % discount to our valuation . In addition to factoring in the purchase price , we forecast a further NZD 120 million in capital expenditure for infrastructure required to transition the Mataura facility . Although we expect some EBITDA margin dilution short-term , we anticipate group EBITDA margins to expand by a further 100 basis points longer-term versus our prior forecast , reaching 33.4 % by FY30 from 31.9 % in FY20 .
The remaining 25 % interest in Mataura will be retained by China Animal Husbandry Group , or CAHG , a sister company of a2 ' s strategic logistics and distribution partner , China State Farm . We view this strengthening of relationships in China as a key positive given the ongoing geopolitical issues , and the potential to gain assistance in developing additional infant nutrition products . This may also assist a2 as it aims to hold back e-commerce volume and rebuild the daigou channel in China following greater than expected online product discounting amid the pandemic . A2 remains in a strong financial position and we continue to forecast the company to hold net cash over the forecast period .
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