A2-Fonterra partnership announced as shares soar to $11.75

Fonterra would be looking to source more a2 milk in New Zealand and Australia. Photo / File

A2 milk has posted an "outstanding" $99million half-year after-tax profit, at the same time announcing a crucial partnership with Fonterra to source, manufacture and distribute a2 milk globally.

Shares in the Dunedin-founded company, already up more than 270 per cent on a year ago, spiked 26.5 per cent to a record $11.75, making it the country's largest listed company by capitalisation at $8.58 billion.

A2 Milk managing director Geoffrey Babidge and Fonterra chief executive Theo Spierings jointly announced the partnership, linking Fonterra's global milk pool, manufacturing, marketing and distribution with a2's brand strength and capabilities.

"The partnership is intended to fast-track market growth and this creates an opportunity for our farmers to create additional value from their milk," Mr Spierings said in a statement.

Fonterra would be looking to source more a2 milk in New Zealand and Australia, to expand a2 Milk products into "new priority markets" across Southeast Asia and the Middle East, plus produce and sell a2 milk across New Zealand.

Craigs Investment partners broker Peter McIntyre said the partnership was a "big U-turn" for Fonterra, while for a2 Milk it was a "clever strategic move" to split a2 milk supply sources.

He said the a2 Platinum infant formula was the fastest growing in New Zealand and Australia, its market share rising from 26 per cent to 30 per cent, while in China that brand retained "very strong momentum".

Forsyth Barr broker Damian Foster said a2 Milk had been expected to deliver an $80million profit, but earnings before interest, tax, depreciations and amortisation margins in China and New Zealand were well ahead of expectations, with after-tax profit up 150 per cent to $99 million for the period.

"It was an outstanding first-half result, with profit up 150 per cent," Mr Foster said.

Revenue growth was up 70 per cent to $434.7 million for the half, with direct sales to China up 204 per cent to $114.4 million and New Zealand-Australia sales up 47 per cent, to $304.3 million.

Mr Foster was upbeat about the partnership deal.

"The strategic arrangement appears logical in providing access for a2 Milk to increase its product range through Fonterra processing expertise, and its global reach through its international distribution channels," he said.