Skip to main content

FY23 Result and changes to forecasts

A2M reported FY23 underlying NPAT ahead of our expectations at NZ$155.6m. Key operating statistics of the result included:

Operating results: Revenue of NZ$1,593m was up +10% YOY (vs. BPe NZ$1,587m). EBITDA of NZ$219.3m was up +12% YOY (vs BPe of NZ$215.4m). EBITDA ex-MVM was NZ$245.8m (vs. BPe of NZ$234.3m). Underlying NPAT of NZ$155.6m was up +27% YOY (vs. BPe of $147.5m).

Infant formula drivers: China distribution points contracted -2% YOY to 25,900, and sequentially were down -3% HOH. China direct IMF sales reached NZ$945.6m (+36% YOY) and represented 90% of total 2H23 IMF sales (67% in FY22 and 80% at 1H23). Marketing expenditure of NZ$260.2m (vs. BPe of NZ$274.9m) was up +14% YOY.

Cashflow and balance sheet: A lease adjusted operating cashflow of NZ$107.7m compares to NZ$199.7m inflow in FY23 (and BPe of NZ$102.5m), and reflects a NZ$103.1m working capital investment ahead of China regulatory changes. Net cash exited the period at NZ$700.7m (BPe NZ$695.2m) and compares to FY22 at NZ$763.0m and reflects the impact of a NZ$149.1m share buyback.

FY24e outlook: A2M expects: (1) low single digit revenue growth in FY24e with EBITDA margins broadly consistent with FY24e levels with higher levels of cash conversion; and (2) A2M has retained its medium term target EBITDA of “teens”, while stating it is unlikely they can reach the “low-to-mid 20’s” in the foreseeable future.

Following the result we have downgraded our NPAT forecasts by -6% in FY24e and FY25e. Our target price is reduced to A$4.85ps (prev. A$5.70ps).

Investment view: Hold rating unchanged

We expect 1H24 to be challenging given the China label transition and likely disruption as brands exit the market (~35% are yet to receive SAMR approval). However, A2M has grown share in all key measures in a declining market and is well positioned to benefit from China market brand consolidation, stabilising birth rates, and the return of overseas travellers and students to Australia.

To read the full report click the button below.

View Detailed Report
Authored by Jonathan Snape – Analyst – at Bell Potter Securities, 21 August 2023
Important Disclaimer—This may affect your legal rights: Because this document has been prepared without consideration of any specific client’s financial situation, particular needs and investment objectives, a Bell Potter Securities Limited investment adviser (or the financial services licensee, or the proper authority of such licensee, who has provided you with this report by arrangement with Bell Potter Securities Limited) should be consulted before any investment decision is made. While this document is based on the information from sources which are considered reliable, Bell Potter Securities Limited, its directors, employees and consultants do not represent, warrant or guarantee, expressly or impliedly, that the information contained in this document is complete or accurate. Nor does Bell Potter Securities Limited accept any responsibility to inform you of any matter that subsequently comes to its notice, which may affect any of the information contained in this document. This document is a private communication to clients and is not intended for public circulation or for the use of any third party, without the prior approval of Bell Potter Securities Limited. In the USA and the UK this research is only for institutional investors. It is not for release, publication or distribution in whole or in part to any persons in the two specified countries. This is general investment advice only and does not constitute advice to any person.
Disclosure of Interest: Bell Potter Securities Limited receives commission from dealing in securities and its authorised representatives, or introducers of business, may directly share in this commission. Bell Potter Securities and its associates may hold shares in the companies recommended.