A2 Milk shares rise to new record on upgraded sales guidance

A2 Milk Co shares touched a record high after the milk marketer raised its annual revenue guidance following better-than-expected sales in the third quarter.

The shares rose as high as $3.44 and were recently up 5.9 percent to $3.39, adding to a 50 percent gain so far this year. The Auckland-based, Sydney-headquartered company forecast revenue of $525 million in the year ending June 30, up from $352.8 million a year earlier, it said in a statement. A2 generated sales of $388 million in the nine months ended March 31, with third-quarter infant formula sales exceeding expectations.

"Demand has been particularly strong in Australia, but also through the cross-border e-commerce channel into China," managing director Geoff Babidge said. "On the assumption of continuing strong demand for a2 Platinum infant formula and production deliveries achieved consistent with the revised production schedule, the company is now expecting infant formula sales for the second half FY17 to exceed sales achieved in first half FY17."

In February, a2 scaled back its expected growth for infant formula sales as Chinese regulators looked to tighten regulations for sales through online grey market channels. While that weighed on rivals such as ASX-listed Bellamy's, a2 has managed to navigate the changes with little impact on sales so far.

Hamilton Hindin Greene director Grant Hamilton said a2 hasn't been held back by changes to Chinese regulations, with consumers in the world's second-biggest economy embracing its infant formula product.

"Their product is getting very well accepted in China," Williamson said. "The Chinese do go that extra bit for their children."

Williamson said a2 will probably be able to self-fund its expansion into other markets while being able to reward shareholders with dividends, "which shows how far they've come in a very short period of time".

A2 migrated to the NZX's main board in late 2012 from the NZAX, where Williamson said it had been a "penny dreadful for many years", and is now the 16th biggest company on the exchange with a market value of $2.33 billion.

"It is an amazing turnaround in that stock and you have to credit the baby formula," Williamson said.

A2 today said it's working with infant formula manufacturing partner Synlait Milk to increase supply for the rest of the financial year to meet strong demand.

Last month, a2 bought an 8.2 percent stake in Synlait, deepening the relationship between the companies. They signed a supply agreement in 2012 and last year inked a new deal allowing for an increase in production if demand warranted.

The stock is rated an average 'buy' based on five analyst recommendations compiled by Reuters with a median price target of $2.90.

(BusinessDesk)