The A2 Milk Company Ltd (ASX: A2M) share price was among the best performers on the ASX 200 on Monday.
Investors were bidding the infant formula company’s shares higher following the release of its half year results.
What happened during the first half?
For the six months ended 31 December, A2 Milk reported a 2.5% decline in revenue over the prior corresponding period to NZ$661 million. Though, this figure is a bit misleading as it includes the Mataura Valley Milk (MVM) business, which was acquired in late FY 2021 and thus was not part of the prior period’s numbers.
A better reflection on its performance comes from its Infant Nutrition and Liquid Milk businesses, which reported a 10.5% decline in revenue to NZ$471 million and a 0.2% lift in revenue to NZ$125 million, respectively.
And, as was widely expected, on the bottom line A2 Milk’s net profit after tax more than halved to NZ$56 million.
So why did the A2 Milk share price storm higher?
Investors appeared to be more interested in what management was saying rather than its results.
It commented: “The Company’s outlook for 2H22 revenue has improved. It is still expected to be significantly higher than 2H21, and with growth now expected on 1H22 and for FY22, ahead of initial expectations due mainly to growth in China label and English label IMF.”
This appears to have sparked hopes that the worst could now be behind the former market darling.
Broker remains positive
In response to the result, the team at Bell Potter has retained its buy rating and $7.70 price target on the company’s shares.
Based on the current A2 Milk share price of $5.81, this implies potential upside of 32% for investors over the next 12 months.
Having reviewed the result, Bell Potter believes “the sleeper has awakened.”
It commented: “Our Buy rating remains unchanged. We saw plenty to like in this result: (1) growth in stage 1 market share in the MBS channel from 2.1% to 2.5% (indicative of new customer recruitment); (2) a beat in China direct channels sales in 1H22 and a closer alignment of sell-in and sell-out levels in 2Q22; (3) reinvestment of outperformance into marketing, to support FY23-24e revenue growth; and (4) progress on articulating a margin capture strategy at MVM.”
Time will tell whether this is the right call on the A2 Milk share price.
The post ‘The sleeper has awakened’: Top broker gives its verdict on the A2 Milk (ASX:A2M) share price appeared first on The Motley Fool Australia.
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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has recommended A2 Milk. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.
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