Why the A2 Milk FPO NZ share price could soar like Bellamy’s Australia Ltd

Credit: kilmousk

The A2 MILK FPO NZ (ASX: A2M) share price soared 24% in early morning trade today.

The Kiwi milk products manufacturer has enjoyed a great run-up in price since listing on the ASX earlier this year.

In an announcement to the ASX, the a2 Milk Company said its 2016 financial year operating performance will significantly exceed previous forecasts of earnings before interest, taxes, depreciation and amortisation (EBITDA) of $22 million.

The company previously announced its push into infant formula with the release of its a2 Platinum infant formula products, saying the market’s demand was very strong.

However, today the company upgraded its forecasts for the Platinum infant formula products and the group as a whole.

“We now expect sales of a2 Platinum® to be approximately $68 million for the six months to 31 December 2015,” the company said. “Based on the current trading trends, the Company has determined it appropriate to further revise its full year outlook upwards.”

Up from its previous forecasts of $22 million in EBITDA and $285 million in revenue at the group level, the a2 Milk Company now expects revenue between $300 million and $315 million and EBITDA between $33 million and $37 million for FY16.

However, the company said the strong markets of Australia and China made forecasting “challenging” and it would update the market during its first-half results in February.

The a2 Milk Company CEO and Managing director, Geoffrey Babidge, said the Australian infant formula market 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.”

Mr Babidge added: “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”.

Foolish takeaway

The A2 Milk Company’s share price is up 130% since the beginning of April and could be following in the footsteps of the Bellamy’s Australia Ltd (ASX: BAL) share price, which is up 375% in that time.

However, while the future undoubtedly appears very promising, long-term investors shouldn’t get carried away and pay any price for shares of either company. Further, investors considering making any investment must always conduct significant due diligence on an investment before purchasing shares. After all, patience won’t lose you money!

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Motley Fool writer/analyst Owen Raszkiewicz owns shares of Bellamy's Australia.

Owen welcomes your feedback on Google plus (see below), LinkedIn or you can follow him on Twitter @ASXinvest.

Unless otherwise noted, the author does not have a position in any stocks mentioned by the author in the comments below. The Motley Fool Australia owns shares of Bellamy's Australia. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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