A2 Milk Company continues to deliver increasing sales and margin expansion. Higher margin infant formula is helping to drive margin expansion from 20 to 30%.
Analysts are forecasting revenue to grow from NZ$550m in FY17 to $900m in FY18 and EBIT to increase from $140m to $250m. By 2020 EBIT is expected to increase to $440m.
You're not a member! Trial today
These are big growth numbers and when we look at what it means for dividends, we’re a little less excited. If we assume these growth metrics are achieved, it places A2 on a 2020 PE of 21x earnings and a 1.5% yield.
The conclusion is, significant earnings growth is required to support a modest yield and high PE in 2 – 3 years time.
We last had an Algo Engine buy signal in A2 back in September 2016 when the stock was trading at $1.80
