The A2 Milk Company Ltd (ASX: A2M) share price has made some big movements this year, just like plenty of other ASX shares.
In the middle of the year, it dropped to around $4. It's now back to well above $5.
After a significant decline from its peak – in revenue, profit, and share price terms – the infant formula company is now expecting to generate growth in the current financial year.
Remember, the share market is often forward-looking, so an improvement in the outlook for the company can improve investor sentiment. Let's check how things are looking for the FY23 first half and the overall 2023 financial year.
What are FY23 expectations?
China label infant formula sales are expected to be up in FY23 with "significant growth" in sales in the first half of FY23 compared to the first half of FY22. But, at this stage, FY23 second-half sales growth is expected to be impacted by a transition to the company's pending new infant formula registration.
Meantime, English label infant formula sales are expected to be up in FY23, with FY23 first-half sales expected to be broadly in line with the FY22 second half.
Australian liquid milk sales are also expected to remain "broadly in line" with FY22, with reduced in-home consumption. Conversely, USA liquid milk sales are expected to be up, with a "significant" improvement in earnings before interest, tax, depreciation and amortisation (EBITDA) losses.
A2 Milk is expecting to deliver high-single-digit revenue growth in FY23, with first-half revenue up significantly. It's also expecting overall EBITDA growth in FY23.
The company has also launched an on-market share buyback of up to $150 million to return capital to investors. This could help the A2 Milk share price because the value of the business is being spread across fewer shares.
Trading update
A2 Milk gave a small update on 30 September 2022, saying it has made a positive start to the year. It reported FY23 first-quarter sales are expected to be "marginally ahead" of plan, primarily reflecting the benefit of favourable foreign exchange, driven by the lowering of the New Zealand dollar.
Due to the currency impact on the cost of sales and cost of doing business, not forgetting about the benefit to sales, FY23 first quarter EBITDA is expected to be "in line" with the company's plan.
A new competitor?
According to reporting by Australian Financial Review, there is another infant formula business — Care A2 Plus — that is looking to list on the ASX with an initial public offering (IPO). Could another competitor in the space hurt the A2 Milk share price?
This business reportedly uses single-sourced milk from Australian grass-fed a2 cows in Victoria. It has also received approval from the US to supply a large quantity (up to 4.8 million tins) of infant formula to try to alleviate the shortage there. The company applied within 24 hours of news that US import laws would be changing.
More than 250,000 tins are due to ship to the US this month. Conversely, the ASX-listed A2 Milk didn't manage to get approved.
The AFR sources suggested that "Care A2 Plus could have a valuation of $400 million", but the "US win had forced the company to revisit its numbers and what it might mean for any public float".
However, the newspaper also pointed out that this business made "negligible sales" last year. Care A2 Plus management pointed out that the company's capacity is focused on the US, rather than Asia.
Broker rating on the A2 Milk share price
One of the latest ratings comes from Credit Suisse, which rates it as neutral. The price target is $5.25 – implying no capital growth over the next year.
The broker pointed to an increased marketing presence from A2 Milk and thinks that it can grow its market share during FY23.
Credit Suisse thinks that A2 Milk shares are valued at 30 times FY22's estimated earnings.
