While the FY18 results have been strong with revenue, earnings and cash generation on the rise, the group seems to have fired on all catalysts already. Group’s revenue from ordinary activities of $925.05 million, was up 68.06% over prior corresponding period. Diluted EPS was 26.3 cents compared to 12.29 cents last year. EBITDA has been up 101% while NPAT surged about 116%. On the margin front, EBITDA margin and NPAT margin expanded by 497 bps and 472 bps to 30.7% and 21.2%, respectively in FY18 against the previous year. It reflects strong growth across all region along with lower effective tax rate during the year. Despite the healthy result, the group did not declare any dividends.
 
Its growth strategy that entails launch of three new products, a2 Platinum Stage 4 milk powder, a2 Platinum pregnancy formula and a2 Milk powder blended with Manuka honey; and penetration in markets like South East Asia, has been encouraging. Further, strategic relationship with Fonterra Cooperative Group along with an exclusive distribution agreement with Yuhan for the South Korea market has been well appreciated by the market.
 
While the group may witness revenue growth from nutritional products in ANZ and China, and other growth initiatives; marketing expenditure as a percentage of sales has been indicated to be higher in FY19 with higher investment, re-phasing of 2H18 activities in China, and expansion in US market.This may also impact the adjusted EPS growth which might drop from a three-digit growth to two-digit growth.
 
A2M stock has moved up 135% in last one year, as at August 22, 2018, and is trading at a PE level which is close to 42.8x. This looks high in comparison to the peers.
 
We maintain an “Expensive” recommendation at the current market price of $ 10.820 and look for additional key catalysts that could mitigate challenges from the expense scenario.

 
 
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