The A2 Milk Company Limited

A2M Details
 
CFO, Craig Louttit Choses to Step Back as Deputy CFO:The A2 Milk Company Limited (ASX: A2M) is involved in the sale of branded products in targeted markets made with milk from cows that produce milk naturally containing only the A2 protein type. The company recently announced that its Chief Financial Officer, Craig Louttit, has chosen to step back from the role of CFO to spend more time with his young family. Mr. Louttit will remain with the company as the Deputy CFO and will continue to play a senior and integral role within the company. Race Strauss will be joining the company as the CFO during the second half of FY20. Mr. Strauss has rich international experience particularly, in China and other Asian regions, across a diverse range of sectors and geographies both organically and via acquisition. In another update, UBS Group AG and its related bodies ceased to be a substantial holder in the company by reducing stake from 5.03% to 4.97%, effective from September 12, 2019.

Key Highlights of FY19 (for the period ended June 30, 2019):Total revenue for the period increased by 41.4% to NZ$1,304.5 Mn. EBITDA for the period increased by 46.1% to NZ$413.6 Mn. Net profit after tax for the period increased by 47% to NZ$287.7 Mn. Company’s Infant nutrition market shares strengthened to 6.4% in China with Group infant formula revenue reported at NZ$1,063.8 Mn, an increase of 46.9% on previous year.


FY19 Key Metrics (Source: Company Reports)

What to Expect: As per the Annual Report 2019, the company expects continued growth in revenue throughout its key regions, supported by increasing brand and marketing investment in China and the US. It added that the full year FY20 EBITDA as a percentage of sales is anticipated to be broadly consistent with 2HFY19 EBITDA margin of 28.2%, which primarily reflects (1) increased full-year marketing investment to around 12% of sales, and (2) continued investment in organisational capability to support future growth. It also added that gross margin percentage is anticipated to be broadly consistent with that of FY19. A2M added that, with a strong balance sheet and cash position, it retains the flexibility to support its growth strategy.

Stock Recommendation:A2M’s share generated positive YTD return of 21.44%. Its gross margin, EBITDA margin and net margin for FY19 stood at 54.7%, 32.3% and 22.1%, better than the industry median of 38.7%, 12.5% and 5.5%, respectively, implying decent fundamentals of the company. Its ROE for FY19 stood at 42.8%, better than the industry median of 12.8%. Its current ratio for FY19 stood at 3.29x, better than the industry median of 1.35x. However, on the valuation front, its Price to Cash Flow multiple (on TTM basis) stands at 33.5x, higher than the industry median of 5.1x. Hence, considering the aforesaid facts along with current trading levels, we have a watch stance on the stock at the current market price of $12.250, down 3.009% on September 24, 2019, and suggest investors to wait for the right entry levels to make any investment decisions.

 
 A2M Daily Technical Chart (Source: Thomson Reuters)
 

 
Bellamy’s Australia Limited

BAL Details

FY19 Net Cash Reported at $112.4 Mn:Bellamy’s Australia Limited (ASX: BAL) offers a range of organic food and formula products for babies and toddlers, which are all Australian-made and certified organic. Recently, UBS Group AG and its related bodies and Credit Suisse Holdings (Australia) Limited, ceased to be substantial holders in the company effective from September 19, 2019. Morgan Stanley and its subsidiaries changed its stake in the company from previous 6.39% to present 5.12%, effective from September 19, 2019. In another update, the company has entered into a scheme implementation deed under which it is proposed that China Mengniu Dairy Company Limited will acquire 100% of the issued share capital of Bellamy’s via a scheme of arrangement. The scheme is intended to provide Bellamy’s shareholders a total of $13.25 cash per share comprising $12.65 cash per share from Mengniu under the Scheme; and $0.60 per share fully franked special dividend paid by Bellamy’s prior to implementation of the scheme.

FY19 Key Highlights for the period ended June 30, 2019:As per the release, FY19 was a challenging year for the company, impacted by regulation, a lower birth rate and increased competition for Chinese demand. FY19 net revenue was reported at $266 Mn and normalised EBITDA for the period was reported at $47 Mn. Net cash at the end of the period was reported at $112.4 Mn.

FY20 Outlook:It is expected that company would post 10-15% group net revenue growth at an EBITDA margin consistent with the last year, and with revenue growth anticipated to accelerate in the second half of FY20 on new product launches.Moreover, investment in marketing and China capability will help the company in delivering sustainable value for its shareholders in the coming times. The company is confident about its growth strategy and expects to meet a medium-term target of $500 Mn revenue but has deferred this target beyond FY21 due to ongoing SAMR registration process.


FY20 Revenue and EBITDA Outlook (Source: Company Reports)

Stock Recommendation:BAL’s share generated whopping YTD return of 69.57%. Its gross margin for FY19 stood at 31.9%, lower than the industry median of 38.7%. Its ROE for FY19 stood at 10%, lower than the industry median of 12.8%. Moreover, on the valuation front, its EV/Sales and EV/EBITDA multiples on TTM basis stand at 4.9x and 27.9x, higher than the industry median of 1.9x and 8.8x, respectively, indicating an overvalued position at the current juncture. Hence, considering the aforesaid facts and current trading levels, we suggest investors to book profit at the current levels and recommend a “Sell” rating on the stock at the current market price of $12.890, up 0.155% on September 24, 2019.

 
 BAL Daily Technical Chart (Source: Thomson Reuters)

Disclaimer
 
The advice given by Kalkine Pty Ltd and provided on this website is general information only and it does not take into account your investment objectives, financial situation or needs. You should therefore consider whether the advice is appropriate to your investment objectives, financial situation and needs before acting upon it. You should seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice. Not all investments are appropriate for all people. Kalkine.com.au and associated pages are published by Kalkine Pty Ltd ABN 34 154 808 312 (Australian Financial Services License Number 425376). The information on this website has been prepared from a wide variety of sources, which Kalkine Pty Ltd, to the best of its knowledge and belief, considers accurate. You should make your own enquiries about any investments and we strongly suggest you seek advice before acting upon any recommendation. Kalkine Pty Ltd has made every effort to ensure the reliability of information contained in its newsletters and websites. All information represents our views at the date of publication and may change without notice. To the extent permitted by law, Kalkine Pty Ltd excludes all liability for any loss or damage arising from the use of this website and any information published (including any indirect or consequential loss, any data loss or data corruption). If the law prohibits this exclusion, Kalkine Pty Ltd hereby limits its liability, to the extent permitted by law to the resupply of services. There may be a product disclosure statement or other offer document for the securities and financial products we write about in Kalkine Reports. You should obtain a copy of the product disclosure statement or offer document before making any decision about whether to acquire the security or product. The link to our Terms & Conditions has been provided please go through them and also have a read of the Financial Services Guide. On the date of publishing this report (mentioned on the website), employees and/or associates of Kalkine Pty Ltd do not hold positions in any of the stocks covered on the website. These stocks can change any time and readers of the reports should not consider these stocks as advice or recommendations.