A2 Milk shares climb to record high of $17.25

The a2 Milk Co Ltd share price has continued to rise in recent months, with impeccable fundamentals and institutional interest likely contributing to the recent upward price action.

Shares in the infant formula maker reached all-time highs of A$17.25 per share during today's trading session, up 64% since January.

What’s behind a2 Milk’s meteoric rise?

The bullishness surrounding a2 Milk Co Ltd (ASX: A2M) is hardly surprising when you consider the company’s impressive fundamentals and the significant growth opportunities it's pursuing.

A2 Milk’s 1H2019 revenue increased 41% to A$613 million, its earnings per share (EPS) increased 53% to A$0.20 per share, and its market capitalisation now tops A$12 billion.

In saying that, the company’s revenue breakdown continues to be skewed heavily towards a2 Milk’s Australian operations.

As of 1H2019, the company’s revenue breakdown read as follows: Australia & New Zealand contributed 68.2%, China and other Asian countries contributed 28.1% and the UK and USA contributed just 3.7%.

While Australia is a2 Milk’s most mature market, bringing in A$418 million in revenue for the first-half of 2019, investors are likely most interested in the explosive growth the company has reported in its more underdeveloped markets.

Revenue from the company’s China label, for example, rose 83% in 1H2019. China remains the world’s largest infant formula market.

Ultimately, these stable and growing financial results underscore the fact that demand for a2 Milk’s products remain robust across the company’s varied geographic segments.

A global growth strategy in focus

Though earnings remain solid, the company has placed a particular focus on growing its market share in China, the UK and the US.

Indeed, as we previously reported: UBS is of the opinion that a2 Milk has the potential to gain as much as a 10% market share in China’s $25 billion infant formula market by 2025.

UBS’s prediction does not seem unreasonable when considering that a2 Milk currently commands 5.7% of China’s infant formula market, according to Kantar Infant Formula market tracking.

This, among other reasons, was likely a deciding factor behind UBS’s decision to build a 5% stake in the infant formula maker.

Looking forward

A2 Milk shows little signs of slowing down its expansion plans anytime soon.

In its lastest investor presentation, the company stressed that it is aggressively investing in China and the US in an attempt to boost brand awareness.

While the company flagged that this increased marketing spend would eat into margins, investors are unlikely to be overly concerned by this, given the potential long-term benefits of gaining deeper market penetration.

a2 Milk Co Ltd will announce its full-year results on August 21.