a2 Milk Company Ltd (A2M) – Milking it

The a2 Milk Company Limited sells A2 protein type branded milk and related products such as infant formula in Australia, New Zealand, China, rest of Asia, and the United States. The company also engages in the manufacturing and sale of nutritional and commodity products. It offers its products under the a2 Milk and a2 Platinum brands. The a2 Milk Company was incorporated in 2000 and is based in Auckland, New Zealand.

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A2 Milk Co (A2M) released a surprisingly strong September-quarter trading update at its annual meeting, as the infant milk formula producer upgraded its full-year FY25 revenue guidance to growth of “mid to high single-digit revenue growth in FY25 versus FY24”, up from the “mid single-digit growth” forecast at the time of the FY24 results. The company cited better-than-expected sales from its Mataura Valley Milk (MVM) business and increased global prices for dairy products for the strong quarter.

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What would have pleased shareholders attending the annual meeting even more, however, was the announcement that the company is planning to pay a maiden dividend at its first-half FY25 result.

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The new dividend policy targets a payout ratio range of between 60–80% of net profit after tax excluding non-recurring and other items (normalised NPAT), and the upcoming interim dividend is expected to be in line with the bottom of that range.

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Ord Minnett expects the plan to pay a dividend to be applauded by investors, who will no doubt be pleased by the new focus on shareholder returns and the now much-reduced likelihood of a risky acquisition and a capital raising to fund it.

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Post the quarterly report and model update, we cut our target price to $5.90 from $6.50, although we raise our recommendation to Accumulate from Hold given valuation support and the strong start to FY25.

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