The A2 Milk (ASX:A2M) share price is up 4% today. Here’s why.

The A2 Milk (ASX: A2M) share price surged higher today amid a broader market rise in the ASX. Let’s take a closer look.
The post The A2 Milk (ASX:A2M) share price is up 4% today. Here’s why. appeared first on Motley Fool Australia. –

woman with milk moustache holding glass of milk and giving thumbs up representing A2 Milk share price

The A2 Milk Company Ltd (ASX: A2M) share price has surged up 4.30% to $14.30 today amid a broader market rise in the ASX. Let’s take a look at how the company has evolved in the last two years, and why the A2 Milk share price keeps coming back up.

Evolution of the A2 Milk share price

A2 Milk has experienced a bit of a roller coaster period in the last two years. At the beginning of 2019, the A2 Milk share price was trading around $10, and by the end of that year, had increased by 40% to $14. This momentum continued until March 2020 when it was trading as high as $16.60.

But then, global markets encountered a major shock as the coronavirus pandemic gripped the whole world – dragging A2 Milk’s share price back down to the $14 levels. The market eventually settled down, and by August the company’s share price has surged back to a YTD high of $20.05.  

In late September, however, the company announced a negative outlook for FY21. A2 Milk noted that sales to retail ‘daigous’ in Australia and New Zealand (ANZ) would be curtailed due to the pervailing pandemic restrictions and reduction of tourists and students from China. Note that tourists and students from China make up a big portion of A2 Milk’s export channel, as these so-called daigous fulfil orders from Chinese customers overseas.

Since that announcement, the company’s share price dropped as low as $13.24 before bouncing back in the last few days of trading to the current price of $14.32.

A2 Milk’s business model

A2 Milk differentiates itself from other brands by marketing its unique A2 protein content as a healthier and safer choice. A2 beta-casein is a type of protein found in milk. Some studies have found that it is a healthier option than the more common A1 type found in regular milk. Other companies have tried to produce A2 milk and imitate its business model, but their lack of success has only stamped A2 Milk’s superior position within the industry. 

The company has a strong demand in China for its infant milk formula product. To get around the daigou export problem, A2 Milk says that it is rapidly building its Chinese-based business by increasing its e-commerce presence, as well as expanding its physical distribution to more mother and baby (MAB) stores across mainland China. 

However, China is not the only export channel for A2 Milk. According to the company, its US liquid milk business is growing quickly, and Canada shapes up to be the next market frontier for A2 Milk. 

A2 Milk by the numbers

A2 Milk’s balance sheet is strong with debt comprising only around 22% of its capital structure. The company is also very liquid with its current assets representing 78% of total assets. Current assets are those assets that can converted into cash within one year. 

A2 Milk expects its total FY21 revenue to be around $1.9 billion, which would be a growth of close to 10%. 

On the earnings side, its revenue has doubled in just two years, while maintaining net profit margin at a healthy 22%. The rocket-like rise in its earnings per share (EPS) from 24 cents to 49 cents came from a low base in 2015, when it was a struggling company.

At the current price of $14.32, the A2 Milk commands a market cap of $10.2 billion.

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Motley Fool contributor Eddy Sunarto has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended A2 Milk. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

The post The A2 Milk (ASX:A2M) share price is up 4% today. Here’s why. appeared first on Motley Fool Australia.

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