Is the A2 Milk Company Ltd (ASX: A2M) share price a buy in 2020 for its international growth plans?
A2 Milk has been one of the best growth businesses on the ASX over the past five years as it significantly increased its revenue and profit. The company has impressively built a strong market brand with basic products like milk and infant formula. When it comes to babies and children, parents want the best.
Despite years of strong growth A2 Milk is predicting another strong result in the first half of FY20. Total revenue is expected to be in the range of $780 million to $800 million.
Looking at the individual breakdown for HY20, China label infant nutrition sales are forecast to grow by 84% to around $135 million. Cross border e-commerce sales are expected to increase by around 54% to $155 million. ANZ English label infant nutrition sales are forecast to be approximately $350 million with growth of 9%. US sales are forecast to grow by 110% to $27 million and Australian fresh milk sales are forecast to grow by 12% to $75 million.
Those numbers aren't the signs of a business slowing down any time soon, even its core products in the domestic market are growing by around 10%.
One of the main things that have been in contention recently is that the company was forecasting a lower earnings before interest, tax, depreciation and amortisation (EBITDA) margin because of an increase in marketing spending. It may have cost the CEO their job, the company has decided to phase the spending a bit more to the second half.
The full year EBITDA margin is expected to be stronger and in the range of 29% to 30% for the full year.
Foolish takeaway
A2 Milk is trading at 27x FY21's estimated earnings. I think this looks good value for the long growth runway and the numbers it's achieving in China and the US. I'd be happy to buy shares today after the 17.5% fall of the share price since the end of July 2019.
