Where to next for the A2 Milk (ASX:A2M) share price?

Is there any value left in the A2 Milk Company Ltd (ASX: A2M0 share price after it has been freefalling for the last 9 months? Here’s what one broker thinks.
The post Where to next for the A2 Milk (ASX:A2M) share price? appeared first on The Motley Fool Australia. –

pouring glass of milk from glass milk bottle

It seems like the A2 Milk Company Ltd (ASX: A2M) share price has been left out to spoil. The last 9 months have been devastating for the company, as pantry destocking and weak China-related sales have seen its growth turn backwards. The A2 Milk share price has followed suit, falling close to 50% across the same period.

Here’s a look at A2’s recent half-year results, and what broker Bell Potter thinks could be in store for the company’s share price.

A2 Milk’s recent performance

A2 Milk’s half-year results weren’t pretty. The company’s growth metrics across the board went backwards in an alarming double-digit fashion. Revenue, operating earnings before interest, taxes, depreciation, and amortisation (EBITDA) and operating net profit after tax were all down a respective 16%, 33%, and 36%. 

The company’s lease-adjusted operating cash outflow came in at NZ$10.8 million, compared to the $159.9 million inflow in 1H20. This marks the company’s first negative operating cash flow since 1H16. 

There were some small positives throughout the half-year results. This included strong growth within its liquid milk segment, growing 16.3% to $86.9 million with a record Australian market share of 11.7%. Liquid milk now represents 18% of the company’s earnings, compared to 13% in the half ending June 2020. 

Elsewhere, the company lifted its Mother & Baby Store distribution points in China to 22,000 from 19,100 at FY20. Its rising footprint in China has translated to $213.1 million in sales, up 45.2%. 

The US remains a focal point for A2, with distribution points expanded to 22,200 points from 20,300 at FY20. 

Despite the small wins, the company’s infant nutrition channels drive a majority of its earnings growth, which slumped from $765.7 million in 2H20 to $526.1 million in 1H21.

Looking ahead, FY21 revenue was forecast to be approximately NZ$1.4 billion with an EBITDA margin of 24–26%, implying EBITDA of NZ$336 million to $364 million. This guidance was also heavily caveated as relying on a material recovery in the last quarter of FY21. 

Bell Potter’s A2 Milk share price target 

Bell Potter updated its A2 Milk share price target on 25 February to $8.65, which represents a downside of 3% to its share price at the time of writing.

Into this share price target, the broker incorporated A2’s holding of Synlait Milk Ltd (ASX: SM1), a value for the expected upside in China based on projected stockists and sell-through rates, and a value for the US opportunity.

The broker commented that “A2 Milk is by no means cheap, neither is the sector and to a degree the material under performance of A2 Milk reflects this.” 

Where to invest $1,000 right now

When investing expert Scott Phillips has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for more than eight years has provided thousands of paying members with stock picks that have doubled, tripled or even more.*

Scott just revealed what he believes are the five best ASX stocks for investors to buy right now. These stocks are trading at dirt-cheap prices and Scott thinks they are great buys right now.

See The 5 Stocks

*Returns as of February 15th 2021

More reading

Motley Fool contributor Kerry Sun has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and 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.

The post Where to next for the A2 Milk (ASX:A2M) share price? appeared first on The Motley Fool Australia.

Trade The World Anywhere & Anytime!

Mobile app platform with over 50,000 global listed securities across 12 markets (over 70% global market capitalisation), right from your Android or iOS device.

Integrated with exclusive trading idea and investment analysis tools to help you find actionable insight on virtually every financial instrument across our 12 global markets, to help you optimise your trading strategies.

Refer Your Friends

Tell your friends about Monex and gift them FREE access to our trading tools.

We respect your privacy and will only send this one email notification to your friends. 

Share With Your Friends

Share on facebook
Share on twitter
Share on linkedin

Monex Trading Tools Access and Usage Terms

The Monex Trading Tools (referred to as ‘tools’ hereafter) are available to you inside your client portal;

To activate access to the tools, you must have a verified and approved trading account and have made a deposit of at least AUD $1000.

An active and funded account with a positive trading balance is required to continue to have access to the tools;

Although the tools are available to you indefinitely, Monex Securities may at it’s discretion disable access to the tools in the future;

Monex securities reserves the right to change these terms and conditions from time to time, as it sees fit, without notice.

Important Notice
iOS & Android App - 12 International Markets & Over 70% Global Market Cap. $0 Brokerage On US Trades. Click Here!