A2 Milk, after notching up another record profit, is faced with a problem that most companies would like to have; what to do with a mountain of cash.
The alternative dairy company earlier reported a record net profit of $385.8 million in the June year, driven by a 34 per cent lift in infant formula sales, with China once again playing a big part.
The result was broadly in line with market expectations but slightly lower than market consensus at the revenue level, which prompted a fall in a2 Milk's share price.
The company - New Zealand's second biggest by market capitalisation - said its operating ebitda shot up by 32.9 per cent to $549.7m.
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Total revenue came to $1.73 billion, up 32.8 per cent, and compared with a previously advised range of $1.70b to $1.75b.
A2 Milk's very strong earnings growth over the years means the company now sits on a $854.2m cash balance.
The company is regarded as a "growth" stock rather than a dividend payer, yet brokers Forsyth Barr have pencilled in a dividend in 2022.
In slides accompanying the result, a2 Milk discussed its capital position.
Chief executive Geoff Babidge acknowledged that a2 Milk's cash position was very high.
He told the Herald the company - which has ambitions in the manufacturing space - continues to monitor and consider its capital framework.
"Clearly the focus for us is to assess our opportunities to participate in manufacturing, which means you could assume that would come before we returned funds to shareholders," he said.
A2 Milk needed to find opportunities to effectively deploy that cash on growth or strategic opportunities.
"At that stage, if those things were not there or able to be pursued, then of course we would give some consideration to some mechanism for the return of funds to shareholders," he said.
"But you can assume that is not likely to occur in full year 2021," he said.
"It is fair to say that we are prioritising out growth opportunities ahead of returning capital to shareholders."
Fisher Funds senior portfolio manager Sam Dickie said the keywords for investors in a2 Milk's result were that it anticipated "continued strong revenue growth" in 2021.
If that proves the case, he says, a2 Milk will soon be sitting on a $1 billion in cash.
"At some stage, some of that will find is way back into shareholders' hands," he said.
In slides accompanying the result, a2 Milk talked about capital management - the need first to expand into new products in existing markets, expand geographically, and to assess mergers and acquisitions to drive further growth.
"They have certainly opened the door for some return of capital to shareholders," Dickie said.
"That's not because they don't have enough growth options - they have mammoth growth ahead of them - it's just that they are an incredibly profitable business," Dickie said.
Harbour Asset Management senior research analyst Oyvinn Rimer said the result may have fallen fractionally short of expectations but it was "massively ahead" on cash generation.
"Their cash balance is significantly higher than the market had expected," he said.
Rimer added he did not think a dividend was imminent.
"But a couple of years down the track - if they don't spend a large amount on capital investment, then it's going to translate into a cash balance way north of $1 billion, and they are almost there already," he said.
"I think its a natural question to start asking."