One of the best performers on the market in morning trade has been the A2 Milk Company Ltd (ASX: A2M) share price.
At the time of writing the infant formula and dairy company’s shares are up 9% to $9.84.
Why are a2 Milk Company’s shares rocketing higher today?
Later today the company is taking part in Citi’s 10th Annual Australian and New Zealand Investment Conference in Sydney. Ahead of the event, a2 Milk Company has released its presentation which includes a trading update for the first quarter.
According to the release, revenue for the first quarter of FY 2019 has been consistent with expectations. Management advised that this reflects continued strong growth in infant formula and milk products.
Management estimates that its infant formula consumption share by value in China has increased from 5.1% at the end of June to 5.6% at the end of September. This is likely to have been driven partly by its increased footprint in the country. The company’s mother and baby retail store distribution increased from ~10,000 stores to ~12,000 stores during the quarter.
In addition to this, the company notes that cross border e-commerce momentum has been building ahead of key online sales events such as Singles day on November 11.
Another positive is that its distribution footprint in the United States has also increased during the quarter. The company now has distribution through ~8,000 stores, up from ~6,000 stores at the end of the last quarter. These include some Costco and Walmart stores.
Back home in ANZ, a2 Milk branded fresh milk has grown its market value share to over 10% for the first time and its a2 Platinum infant formula has maintained its value share at 32%.
In light of this, management has held firm with its guidance for FY 2019. It continues to “anticipate further growth in revenue particularly in respect of nutritional products in ANZ and China, and liquid milk in the US.”
The reaffirming of its guidance certainly has gone down well with the market. I suspect it had been expecting its performance to have weakened since the release of its full year results following a daigou crackdown and increasing competition.
Should you invest?
I think this update will have settled the nerves of a lot of investors, so I can’t say I’m surprised to see its shares launch higher today. Especially after such a sharp drop over the last couple of months.
I continue to see both a2 Milk Company and rival Bellamy’s Australia Ltd (ASX: BAL) as great long-term investments even after today’s strong gains.
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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 Scott Phillips.