A2 Milk's value lifts by three-quarters of a billion dollars after record result

A2 Milk's market capitalisation shot up by more than three quarters of a billion dollars in the first hour of trade following the company's record first-half result.

The stock rallied by $1.07 to $13.94 after it reported a 55 per cent lift in its net profit to a record $152.7 million in the six months to December, taking the company's market value to $10.24 billion.

A2 Milk said its profit leap was driven by continued strong sales growth in all key product segments - infant formula, liquid milk and milk powders.

Sales of infant formula totalled $495.5m for the half - an increase of 45.3 per cent on the prior year - driven by share gains in China and Australia.

The company, which markets A1 beta-free infant formula and dairy products, also saw growth in its liquid milk business of 20.2 per cent to $83.4m, particularly in its key markets of Australia and the United States.

Sales of other nutritional products grew 40.4 per cent to $34.3m, driven predominantly by milk powders and supported by new products launched towards the end of last year.

A2 Milk's EBITDA came to $218.4m – up 52.7 per cent on the previous corresponding period, and compared with market expectations of $200m.

In its outlook statement for the full year, a2 Milk said the company had invested strongly in its capability to better understand its Chinese consumers, "channel dynamics" and ways of improving brand awareness.

"Following a very strong first-half performance, and encouraged by growing market share in China, the company is now in a position to reinvest the benefits of scale into increased marketing activities in the second half," it said, adding increased brand and marketing investment is expected to continue into 2020.

"The company expects group revenue growth rate in the second half to continue broadly in line with the first half," it said.

The increased investment in brand building in the second half of 2019 is expected to support revenue growth in 2020 and beyond.

"Second half EBITDA margins will consequently be lower than in the first half, second half EBITDA margins will consequently be lower than in the first half, with full-year FY19 EBITDA as a percentage of sales expected to be approximately 31-32 per cent," it said.

Group infant formula revenue of $495.5m – up 45.3 per cent on the previous corresponding period.

In infant formula, a2 Milk's market share in China grew to 5.7 per cent from just over 5 per cent.

In the United States, where the company has made a big marketing push, the company experienced revenue growth of 114 per cent.

The company's increased investment in brand, market development and organisational capability fuelled continued strong sales growth in all key product segments - infant formula, liquid milk and milk powders.

The group's investment in marketing in the first half increased by 75 per cent to $45.5m, primarily as a result of increases in brand-building activities in China and the US.

"The rate of investment in marketing will increase further in the second half as we increase in market brand building activities," the company said.

China segment revenue rose to $171.7m, up 50.1 per cent.

"It's an extremely strong result," Chris Bainbridge, senior investment analyst at Pie Funds, said.

"New growth just accelerated in final two months of the year," he said.

Bainbridge said the lift in a2 Milk's gross profit margin to 56 per cent from 51 per cent was a surprise.

He added the company's projected revenue and margin growth projections for the second half were potentially conservative.

The a2 Milk brand under licence to Fonterra was launched in New Zealand early August, with national advertising and distribution from late September, and is performing to plan.