The a2 Milk Co Ltd (ASX: A2M) share price shot almost 7% higher yesterday as the company enjoyed strong earnings season momentum.
It is in the business of producing, marketing and selling branded dairy and infant milk formula (IMF) products in Australia, New Zealand, China, US and UK. A2M branded milk contains only A2 Protein rather than both A1 and A2 proteins which are found in regular cows' milk.
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What did A2 Milk report yesterday?
The company released 1H26 Results which included revenue up 18.8% on the prior corresponding period.
Underlying EBITDA also grew strongly, up 25.9% to NZ$164.8 million, while underlying net profit after tax increased 19.6%.
A2 Milk also upgraded its guidance for FY2026.
According to the release, management now expects revenue growth in the mid double-digit percentage range, up from low double-digits.
Finally, it declared an interim dividend of 11.5 NZ cents per share, up 35.3% year-on-year.
Investors gobbled up A2 Milk shares following the results, as its share price closed 6.8% higher on Monday.
It is now up approximately 27% over the last year, despite facing significant volatility.
What is Bell Potter's outlook?
Following the results, the team at Bell Potter released updated guidance on A2 Milk shares.
The broker said Bell Potter said A2 Milk's 1H26 result was ahead of expectations, with revenue, EBITDA and underlying NPAT all beating forecasts.
It also highlighted that Infant milk formula (IMF) revenue rose 14%, supported by strong English label growth, while operating cashflow improved and the balance sheet remains solid despite lower net cash following asset transactions.
Additionally, performance at the Pokeno facility was better than expected, with smaller EBITDA losses and improved FY26 loss guidance.
Management upgraded top-line growth and margin guidance, though operating cash conversion was slightly downgraded and capex increased.
NPAT changes are +8% in FY26e, +5% in FY27e and +6% in FY28e. Changes reflect the performance in 1H26, downward movements in birth rates and changes in FX, interest and a tax rates.
Modest upside
Based on this guidance, Bell Potter retained its hold recommendation on A2 Milk shares.
It also slightly lowered its price target to $9.55 (previously $9.70).
From yesterday's closing price of $9.10, this indicates an upside of approximately 4.95%.
A2M is likely to benefit from a flight to safety in the near term. Despite the headwinds of lower birth rates, A2M should be capable of delivering reasonable growth to FY28e executing on backward integration, which should be lower risk.
