A2 Milk Shares Jump On Upbeat Outlook
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Shares in A2 Milk jumped on a trading update from yesterday’s annual meeting, but shares in mining services company ALS slumped after that weaker than expected first half result we brought you yesterday.
The A2 Milk annual meeting was told the company had enjoyed a solid start to the 2017-18 financial year with a strong platform from which to expand further into new markets and new nutritional categories, while hinting that there could be a dividend ahead at the interim result next February.
The company said revenue in the four months to October 31 was up nearly 69% at $NZ262.2 million ($A236.7 million), reflecting strong growth in nutritional products in Australia, New Zealand and China, as well as positive momentum in the US and UK.
The dual-listed dairy firm’s net profit for the same period more than doubled to $NZ52.3 million ($A47.2 million).
The shares jumped 5.5% to $7.46.
Directors said a changing product mix and increases in raw material costs had put pressure on some product margins, but this had been more than offset by the weaker New Zealand dollar.
“Based on this strong trajectory, the board continues to believe that there is significant potential for further growth in our priority markets in Australia, China, the United States and the United Kingdom,” a confident chairman in David Hearn has told shareholders on Tuesday.
Mr Hearn said the A2 Milk board continues to monitor the appropriate use of available capital in the best long-term interests of all shareholders and will update the market at the release of the company's half-year results in February 2018.
At the other end of the scale is a 10% drop in ALS shares after the release of interim report after the market had closed on Monday. The midpoint of the company’s full-year guidance was 5% below consensus, and according to some analysts that would be seen as a defacto guidance cut.
They were right, the shares slumped 10% at one stage before ending down 7.3% at $7.45. That was despite a higher dividend and $175 million share buyback over the next year.
The interim dividend was boosted to 8 cents a share from 5.5 cents which is at the top of the company’s 50% to 60% payout range. The buy back will be equal to just over 4% of the company’s current issued capital. The company said it would be financed out of cash balances and free cash flow over the next year.
On top of that the underlying result was at the lower end of the guidance range of $70 million to $75 million provided to the market at the Company’s annual meeting in July, which indicates profit margins remain under some pressure, despite a pick up in business from the recovery in commodity sector activity and prices.
Looking to the rest of the year, directors said they expect group underlying profit after tax for the year to March 2018 to be in the range of $135 million to $145 million, based on current market trends , reflecting the seasonality of the business and subject to no material changes in the operating or economic environment. That would be up from the $112.7 million reported for 2016-17.
“The underlying fundamentals surrounding most ALS business streams continue to improve and it is expected that the Company will have a stronger second half in FY2018 than the corresponding period last year."
Glenn Dyer has been a finance journalist and TV producer for more than 40 years. He has worked at Maxwell Newton Publications, Queensland Newspapers, AAP, The Australian Financial Review, The Nine Network and Crikey.
At the AFR he was a finance writer, Finance Editor, News Editor and Chief of Staff. At the Nine Network he was supervising producer of Business Sunday for more than 16 years. He has also written for other online and analogue print publications here and overseas.