Are A2 Milk shares a buy, hold or sell following results?
Investors reacted quickly to the full-year results from A2 Milk Co Ltd (ASX: A2M) on Monday.
The fresh milk and infant formula company saw its share price fall over 3% during Monday's session, as investors exited their positions in the consumer staples stock.
What did A2 Milk report?
As reported by The Motley Fool yesterday, the company reported a 12.4% rise in revenue to NZ$1.97 billion and the declaration of both ordinary and special dividends.
Other results included:
- EBITDA fell 2.5% to NZ$284.4 million, while underlying EBITDA rose 5.4% to NZ$307.6 million.
- Net profit after tax (NPAT) dropped 5.8% to NZ$207.5 million; underlying NPAT increased 7% to NZ$235.8 million.
- Ordinary dividends totalled 21 NZ cents per share, up 1cps; special dividend of 41.36cps also paid.
- Net cash closed at NZ$784.5 million, down 26.1% year on year.
It seems investors were left wanting more, as its share price fell on the results.
This takes A2 Milk shares' year-to-date losses to almost 29%.
Looking ahead
According to the release, A2 Milk's revenue and EBITDA are expected to grow in FY27, supported by increased contribution from product innovation and new markets, continued momentum in Other Nutritionals and Liquid Milk.
Whilst a range of outcomes is possible depending on the rate of recovery in IMF, the Company currently expects the following in FY27 compared to FY26 (on a continuing operations basis):
- Revenue growth of mid single digit percent, with 1H27 revenue broadly in line with 1H26
- EBITDA margin percent to be approximately 15%, with 1H27 to be materially down on 1H26
- Depreciation and amortisation to be approximately $20 million
- Cash conversion to be approximately 70-80%
- Capital expenditure to be approximately $70 million.
Bell Potter not convinced
Despite being heavily sold off, the team at Bell Potter are not convinced that A2 Milk shares can bounce back.
The broker released an updated outlook on the company following the results.
Bell Potter viewed the FY26 result as broadly in line with expectations.
The key disappointment was weaker cash generation, with lease-adjusted operating cash flow falling to NZ$127.5m from NZ$195.7m.
Bell Potter said FY27 guidance is relatively soft, with revenue expected to grow at a mid-single-digit rate, 1H27 revenue broadly flat year-on-year, and EBITDA margins around 15%, below consensus expectations.
Bell Potter has therefore reduced its FY27 and FY28 NPAT forecasts by 2% and 1%, respectively, mainly due to lower expected EBITDA.
Limited upside
Based on this guidance, Bell Potter retained its buy recommendation on A2 Milk shares, and slightly increased its price target to $7.00.
From yesterday's closing price, this indicates an upside potential of 7%.
FY26 was in line with downwardly revised guidance, and opening FY27e guidance will likely see continued consensus downgrades, which are likely to reach ~18% over the past 3 months.
The post Are A2 Milk shares a buy, hold or sell following results? appeared first on The Motley Fool Australia.
Motley Fool contributor Aaron Bell 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 no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.
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