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The a2 Milk Company (ASX: A2M) share price has jumped almost 30% higher in the last six weeks after reporting a solid FY22 result with revenue and earnings approximately 5% ahead of consensus expectations.
Leading fund manager Perpetual Equity Investment Company (ASX: PIC) continues to see "material upside" to the current a2M share price.
In the listed investment company's August update, it said the most pleasing aspect of the a2M result was the strong growth of the China Label infant formula business. The listed investment company (LIC) noted this is a highly competitive channel and despite the industry headwinds from a significantly lower birth rate in China, a2M's infant formula business in China grew its revenue by 40%.
According to the update:
A2M is one of the only international brands to deliver growth during this period. The fact that A2M sales responded so strongly to in-country marketing demonstrates the strength of the brand which is a core pillar of the Manager's investment thesis.
The fund manager believes the current management team is doing an excellent job "transforming A2M into a sustainable business for the long term by increasing marketing and shifting volumes away from the volatile Daigou distribution channel".
It notes the strong balance sheet with no debt and over $NZ800m of net cash, enabling a2 Milk to launch a $NZ150m share buyback program.
The fund manager does note the company is currently in the process of renewing its China Label product registration, saying it has reflected this risk in the size of the position within the portfolio. As at 31 August 2022, A2M comprised 3.1% of the PIC portfolio.
This aside, PIC said it continues to see material upside to a2M's current share price.
In early Wednesday trading, a2 Milk shares are tracking the ASX 200 lower, down 14 cents to $5.55 each. The a2 Milk share price trades on a trailing price-to-earnings (P/E) ratio of 34 times earnings.
