Milk and infant formula manufacturer The a2 Milk Company [ASX:A2M] is set to commence an on-market share buyback next month and has provided a 1Q FY23 trading update.
A2M shares were flat on the news — as the information was largely expected and priced in.
A2M shares are down more than 10% over the past 12 months:
Source: Tradingview.com
a2 Milk begins FY23 on a positive note
A2M provided a quick trading update on Friday while announcing an on-market share buyback set to commence on 5 October.
a2 Milk said it had made a ‘positive start’ to FY23.
A2M revealed the expectation of its 1Q FY23 sales to ‘be marginally ahead of plan’ due to the depreciation of the New Zealand dollar.
a2 believes 1Q FY23 EBITDA will match the company’s initial guidance, supported by a positive effect on currency fluctuations and its impact on the cost of sales and cost of doing business.
Having said that, currency fluctuations as an indicating factor can be a volatile one, and David Bortolussi, a2’s CEO, said that despite the first quarter’s earnings still within the plan, there are other factors that could play a part.
‘In addition to trading upside and downside, other business and industry risks include, but are not limited to, COVID-19 impacts on supply chain, SAMR registration process timing, volume impact of price increases, foreign exchange movements, cross border trade, changes in the regulatory environment, and commodity prices. These risks could materially impact expected revenue and earnings outcomes.’
The share buyback
a2 expects to commence an on-market share buyback of up to 37,180,621 ordinary shares on 5 October 2022 and over a maximum period of 12 months.
The company will be continually assessing market conditions and its effect on the share price, as well as any further investment opportunities that may arise that might affect the share price or any other implications that could affect the buying back of its shares over the allotted period.
Based on these factors, the company says it shall then make its decisions on the timing, volume, and pricing of share acquisitions.
It is also worth noting that the milk and infant formula provider has the right to pause, influence, or even end the buyback programme if it feels it is necessary or optimally beneficial to the company to do so.
A2M and the international formula market
Competition in the milk and infant formula market has been heating up this year, especially with Bubs Australia [ASX:BUB] rocketing up in revenue, growth, and share value since making recent market and presence breakthroughs in both the US and China.
Bubs’ FY22 revenue had jumped 123%, and revenue growth had propelled EBITDA to reach $4.8 million.
But things are also steadily progressing for a2 Milk and its New Zealand-based production partner Synlait Milk [ASX:SM1], who received a GB registration renewal from the SAMR for their shared Chinese label.
The companies will be able to work in China until 21 February, after which new GB standards will come into effect, and new strategies will need to be finalised.
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Regards,
Kiryll Prakapenka,
For Money Morning
