A2 Milk Company Ltd (ASX: A2M) shares were on form on Monday and charged higher.
The infant formula company's shares ended the day over 3% higher at $8.23.
This followed the release of its full year results for FY 2025.
Is it too late to invest? Let's see what Bell Potter is saying about the company and its result.
Image source: Getty Images
What is the broker saying?
Bell Potter notes that A2 Milk delivered a profit result "modestly" below its forecasts. It explains:
Revenue of NZ$1,902m was up +14% YOY (vs. BPe NZ$1,874m). EBITDA of NZ$274m was up +17% YOY (vs BPe of NZ$276m and VA of $272m). EBITDA ex-MVM was NZ$289m (vs. BPe of NZ$288m). Underlying NPAT of NZ$203m was up +21% YOY (vs. BPe of NZ$206m and VA of NZ$202m).
But the bigger news was the announcement of an acquisition and asset disposal to boost its supply chain. It adds:
A2M has announced the acquisition of Yashili NZ (YNZ) for NZ$282m and the disposal of MVM for NZ$100m for its 75% holding (vs. initial NZ$269m investment + NZ$80m in cumulative EBITDA losses). A2M plans to invest ~NZ$100m in capability and ~NZ$120m in working capital, bringing net investment to ~NZ$400m. YNZ is expected to generate an FY26e EBITDA loss of $30-35m, approximately EBITDA break even in FY27e after consolidating 10-15kt of EL volumes, with a 10% WACC target by FY29e (which would require utilising a further 10-15kt of capacity).
Should you buy A2 Milk shares?
According to the note, the broker thinks that A2 Milk shares are fully valued at current levels and that investors should wait for a better entry point.
This morning, its analysts have retained their hold rating and $7.85 price target on its shares. This implies potential downside of 4.6% for investors from current levels.
Commenting on its valuation, the broker said:
NPAT changes are -9% in FY26e and -1% in FY27e following the result and supply chain transformation. Our target price is unchanged at A$7.85ps, with lower ROIC mitigated by model roll forward and a reduced WACC.
Our Hold rating is unchanged. The upfront dilution from acquiring Yashili NZ is not inconsistent with what we have previously indicated and delivering a return on the investment will require new product launches to materially fill idle capacity.
All in all, it could be worth holding tightly to your A2 Milk shares if you own them, but it may be worth waiting for a pullback if you want to buy some.
