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A2M $10.76

Crestone / UBS take

  1. Neilus

    148 Posts.
    34
    A2 Milk – Earnings downgrade
    • A2M is trading -20% in NZ on what appears to be 4% revenue miss and a 7-10% EBITDA miss
    • FY18 revenue guidance is for NZ$900-$920mn vs consensus at $947mn
    • Gross Margin in-line with 1H18 (~50%).
    • Citing the new packaging plant investment and higher marketing in the US and China for full year spend of NZ$82-87m vs $42m last year
    • The positive is that this is spend that does not earn a return this FY…and the new CEO gets a re-based earnings set to begin life.
    • Valuation the pushback but I would not be factoring in significant FY19 downgrades and view this as a buying opportunity for a very high ROIC/ROE business, with the stock trading on a PEG of ~0.7x
    • As we’ve seen with Lend Lease and Boral, expensive companies carry excessive price risk relative to any earnings impact.
    • Buyer of weakness

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