a2 Milk Company Ltd (Australia) shares storm higher on AGM trading update

The a2 Milk Company Ltd (Australia) (ASX:A2M) share price has climbed higher following the release of a positive trading update at its annual general meeting…

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The a2 Milk Company Ltd (Australia) (ASX: A2M) share price has stormed higher today following the release of the dairy company’s annual general presentation and accompanying trading update.

In morning trade its shares are up 5% to $7.42.

What happened?

As I mentioned yesterday, a number of leading brokers had forecast annual earnings growth of between 49% and 65% for a2 Milk in FY 2018.

Goldman Sachs was particularly bullish and had forecast a lift in its gross margin to 48.9% and EBITDA of NZ$228 million this year.

Well this morning’s trading update appears to show that the company is well on its way to outperforming these estimates.

For the first four months of FY 2018 a2 Milk has achieved EBITDA of NZ$78.4 million on revenues of NZ$262.2 million. This represents growth of 120.8% and 68.9%, respectively, on the prior corresponding period.

According to the release, the impressive performance is the result of continued strong growth in nutritional products in Australia/New Zealand and China, alongside positive momentum in the United States and UK markets.

The company’s EBITDA result did however receive a little boost from the timing of its marketing spend. Costs relating to marketing will be approximately NZ$30 million greater in the second half due to activities in China and the United States.

Should you invest?

Due to the significant amount of growth built into its share price I was hesitant to recommend an investment in the company until it provided this trading update.

But any concerns that I had regarding its ability to deliver on the high expectations of the market have been thoroughly allayed with this update.

In light of this, I think a2 Milk would be a great buy and hold investment option.

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of A2 Milk. 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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