Shareholders of the New Zealand dairy producer have suffered a great deal for a year now. But is there light at the end of the tunnel?
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After making shareholders tear out their hair for a year, A2 Milk Company Ltd (ASX: A2M) shares have had a mini-revival the past month.
The dairy producer’s stocks have ascended almost 15% in the past month. But, even after that, investors have lost more than 64% since this time last year.
So, is this turnaround the start of a sustained comeback, or just false hope?
Shaw and Partners senior investment advisor Adam Dawes is a shareholder himself and has clients who bought in at higher than current prices.
Unsurprisingly, he dearly hopes the recent uptick is the start of something special.
“It certainly has bottomed and now is starting to move up again, which I think is a positive,” he told Switzer TV Investing.
Dawes’ hope is not just blind faith. He presented 3 structural reasons why the A2 Milk share price could be significantly higher in the coming year or so.
More babies in China
A major business for A2 Milk is the sale of infant formula to the massive Chinese market.
And Dawes pointed out China recently scrapped its infamous One Child Policy.
“From 2025 and ongoing, there are going to be more children born in China,” he said.
“A2 Milk is going to fit nicely into that section, where you need powdered milk to feed your children.”
A2 Milk daigou channel is already rejuvenated
A lucrative sales channel for A2 Milk into China has been via the so-called daigou, who are private expatriate merchants who import into the Asian nation.
But with travel restrictions coming in last year to counter the COVID-19 pandemic, that channel was absolutely devastated.
It’s one of the big reasons A2 Milk’s stock price had tumbled so much.
But as coronavirus vaccines roll out around the globe, Dawes provided a very positive insight.
“Daigou proxy is actually up for the 4th month in a row,” he said.
“In other words, moving towards increasing the number of exports of powdered milk to China.”
Australian dollar vs Chinese Yuan
Currency differences are also starting to work in A2 Milk’s favour, according to Dawes.
“We have started to see the Aussie dollar starting to fall [versus] the Chinese yuan,” he said.
“I think that’s really positive for A2 Milk as well.”
Of course, if the Australian dollar is weaker, then A2 Milk products become more affordable for Chinese consumers.
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Motley Fool contributor Tony Yoo owns shares of A2 Milk. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has recommended A2 Milk. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.