The a2 Milk Company Ltd (ASX: A2M) share price has risen by 4.7% after updating the market at the 14th Annual Australia and New Zealand Investment Forum with Goldman Sachs.
It delivered a great set of numbers for its half-year result. Revenue increased by 70%, gross profit increased by 82%, earnings before interest, tax, depreciation and amortisation (EBITDA) increased by 123%, earnings before interest and tax (EBIT) increased by 127% and net profit after tax (NPAT) increased by 150%.
Another pleasing development is that a2 has entered into a relationship with FONTERRA UNIT NZX (ASX: FSF) to provide a2 with a highly credentialed second manufacturing partner. The two businesses have entered into a rolling three year term to supply A1 protein-free nutritional products in bulk.
The company is expecting another blockbuster result in six months time. It expects that the marketing spending will exceed the first half by NZ$35 million to NZ$40 million, driven by increased expenditure in China and the USA.
According to a2, inventory levels improved during the first half of the financial year and management are forecasting a further build in the second half of FY18.
Subject to currency movements and realisations of 'throughput efficiencies' the gross profit margin is expected to be broadly consistent in the second half of FY18.
The a2 Board said that it continues to consider the appropriate use of the company's available capital including a review of opportunities to invest directly in blending and canning capability. This would give a2 much more of the bargaining power and will improve margins even further if it did do this.
Foolish takeaway
I am continually impressed by a2's rise and it is nowhere near done yet. If a2 can grow strongly in the USA and China then today's price could yet seem like good value. However, the share price is very frothy at the moment, so investors should be cautious investing today.
