The Motley Fool Australia » ASX Shares » Is the a2 Milk (ASX:A2M) share price in the buy zone after last week’s 22% decline?
The A2 Milk Company Ltd (ASX: A2M) share price was among the worst performers on the S&P/ASX 200 Index (ASX: XJO) last week.
The infant formula and fresh milk company’s shares sank a sizeable 22.4% lower over the five days.
Why did the a2 Milk Company share price crash lower?
Investors were selling the company’s shares on Friday after it downgraded its guidance for FY 2021.
The former market darling was forced to make the move after experiencing a more significant and protracted disruption in the daigou channel than it was previously expecting.
The company is now expecting to deliver revenue of NZ$670 million in the first half of FY 2021. This is a 7.5% to 13.5% reduction on its previous guidance range of NZ$725 million to NZ$775 million.
For the full year, management now expects revenue to be in the range of NZ$1.4 billion to NZ$1.55 billion. The mid point of this guidance range is down 18% to 22.3% from its previous guidance range of NZ$1.8 billion to NZ$1.9 billion.
It gets worse from here, unfortunately. The company has also reduced its margin expectations and is now forecasting an earnings before interest, tax, depreciation and amortisation (EBITDA) margin of 26% to 29%. This is down from 31% previously.
All in all, based on the mid points of both guidance ranges, this would represent EBITDA of NZ$405.6 million in FY 2021. This would be down a disappointing 26.2% from FY 2020’s EBITDA of $549.7 million.
Should you buy the dip?
While brokers are largely divided on whether a2 Milk shares are now in the buy zone, one broker that remains relatively upbeat is Morgans.
This morning the broker retained its add rating but cut its price target down to $12.20.
While the broker has reduced its earnings forecasts notably over the coming years, it still estimates that its shares are trading at just a little over 25x FY 2022 earnings. It appears to believe this is a fair price to pay, all things considered.
The A2 Milk Company Ltd (ASX: A2M) share price is currently up more than 2% after last week’s selloff.
What is happening?
A2 Milk shares are currently in the green after the savage selloff at the end of last week when the company released a disappointing trading update.
The A2 Milk share price plunged 24% on Friday, so there’s still a long way to go before the company is back to where it was.
The company said that the effects of the disruption in the daigou channel, which represents a significant proportion of infant nutrition sales of A2 Milk’s domestic business, has proved to be more significant and protracted than was previously anticipated.
Whilst the daigou disruption has mostly hurt infant nutrition sales, the sales in other nutritional segments have now also been impacted.
A2 Milk was hoping and expecting a lessening of the disruption to this channel in the FY21 second quarter. There has been an improvement, and the second quarter is expected to be better than the first quarter, but the recovery has been slower than first expected.
The impact of the daigou disruption is also hurting the CBEC (cross border e-commerce channel) sales. The daigou channel plays an important role in stimulating demand across multiple sales channels, including CBEC. The company said that it did well in the competitive 11/11 online sales event, and showed year on year growth, but CBEC sales after that have been below expectations.
There was one piece of good news about Chinese consumer sales – mother and baby store (MBS) revenue is expected to be 40% above the prior corresponding period. Its market share was 2.3% as at the end of October, with increases in both same store sales and the number of new stores in the first half.
The liquid milk businesses in Australia and the USA have also performed well.
FY21 expectations
Group revenue is now expected to be in the order of NZ$670 million and the EBITDA margin (EBITDA explained) is projected to be in the order of 27%.
The full year revenue is expected to be between NZ$1.4 billion to NZ$1.55 billion with the EBITDA margin expected to be between 26% to 29%.
Over the medium term, the company expects the EBITDA margin will be in the order of 30%.
Summary thoughts
The A2 Milk share price and earnings are unpredictable in the short term, just like any business. It turns out that A2 Milk shares were a bit of a trap, for the short term at least. There could be a recovery in 2021 if daigou sales return, particularly if borders start opening up again with the introduction of COVID-19 vaccines.
The sales disruption has been stronger than expected, with A2 Milk confirming its guidance to the market just a month ago at the AGM. There’s a chance things could get even worse. But I do think A2 Milk has a strong brand that could see a return to growth if it can win back demand. A2 Milk could be worth a high-risk investment if you think that it will recover volume demand over the next 12 to 18 months.
But at this stage there are potentially better ASX growth shares to consider like Pushpay Holdings Ltd (ASX: PPH) where there aren’t the same level of difficulties, but with growing profit margins.
Synlait Milk says net profit will halve in 2021
Synlait Milk expects it full year profit to halve due to A2 Milk’s problems with the Daigou trading channel. Photo ./ NZ Herald
Synlait Milk’s share price fell sharply after the company said the problems of its biggest customer, a2 Milk, would mean that its net profit in the 2021 financial year will be about half that of the previous year.
The stock fell at one point fell as low as $4.50 on the news before staging a big comeback, ending steady at $4.85.
Likewise a2 Milk recovered to be just six cents down at $10.94 after hitting $10.46 earlier in the session.
A2 Milk, a strategic customer and cornerstone shareholder of Synlait, with just under 20 per cent, said last week its sales would be affected by Covid-19 disruption of the important daigou trading channel in Australia.
Synlait now expects total consumer-packaged infant formula volumes to be about 35 per cent lower than in 2020.
“As a result of this change, initial estimates, on currently available information, indicate that the overall FY21 NPAT result will be approximately half that of the 2020 net profit after tax,” Synlait said.
Infant formula maker Synlait Milk said in September that its annual net profit dropped by 9 per cent to $75.2 million, reflecting the impact of new acquisitions made over the past two years.
The Canterbury-based company last year bought Dairyworks for $112m, in line with its move into “everyday dairy” products and complementing its acquisition of cheese-maker Talbot Forest.
The company said today it would update the market on is performance at its 2021 half-year result on March 29 or as material information becomes available.
Synlait has in recent years been actively trying to diversify itself away from a2 Milk.
“Synlait’s board and management continue to actively pursue opportunities to mitigate the impact of this development that include focusing on the execution of its diversification strategy, asset optimisation and prudently managing costs,” the company said.
There has been no disruption to manufacturing or demand for Synlait’s ingredient, lactoferrin, or consumer-goods businesses, and Synlait remains confident that it can deliver on its medium- to long-term objectives.
“This updated guidance announcement reflects the impact that Covid-19 has had on Synlait’s strategic customer,” Synlait said.
“It also remains subject to the ongoing effects of Covid-19, with consumer behaviour, channel dynamics and supply chain disruptions all subject to change,” the company said.
A2 Milk said last week that it expects its first-half revenue to be in the order of $670m and group earnings before interest, tax, depreciation and amortisation (ebitda) margin to be around 27 per cent.
It now expects full-year 2021 revenue to come to $1.4 billion to $1.55b and group ebitda margin of between 26 per cent and 29 per cent.
At the end of September, a2 Milk had forecast revenue for the first half of $725m to $775m.
Revenue for the year then was forecast at $1.8b to $1.9b, with an ebitda margin of 31 per cent.
A2 said in a statement the effect of the disruption in the daigou channel, which represents a significant proportion of its infant nutrition sales in the company’s Australia and New Zealand businesses, had proved to be more significant and protracted than previously thought.
A2 Milk’s market cap dropped by more than $2b on the back of the announcement. Synlait was also weak before it went into an NZX-sanctioned trading halt.
FAQs
What is the prediction for A2 milk company share price? ›
Over the last 12 months, its price rose by 32.84 percent. Looking ahead, we forecast a2 Milk Company Ltd to be priced at 5.24 by the end of this quarter and at 4.96 in one year, according to Trading Economics global macro models projections and analysts expectations.
Why has A2 Milk share price dropped today? ›Why did the A2 Milk share price tumble in February? Investors were selling down A2 Milk shares last month following the release of the company's half-year results.
What is going on with A2 Milk? ›A2 Milk response
In response to this announcement, A2 Milk has revealed that it has lowered its total forecast production volume needs for English label consumer-packaged infant milk formula by ~1,650 metric tonnes for the period March through to June.
According to the research report, the global A2 milk market size & share was valued at USD 1.87 billion in 2021 and is expected to cross USD 4.83 Billion by 2030, growing at a CAGR of 11.30% during the forecast period. What is A2 Milk.
Is a2 milk a takeover target? ›Investors have been bidding the A2 Milk share price following speculation that it could be a takeover target. Though, it is worth noting that the company regularly gets touted as a takeover target.
Will Milk prices go down? ›USDA is forecasting the Class III to average $18.85 for the year, down $3.09 from $21.94 for 2022 and Class IV to average $19.25, down $5.25 from $24.47 for 2022. Much can change as we move through the year but it now appears 2023 milk prices will be much lower than 2022 prices.
What is the disadvantage of A2 milk? ›Risks. A2 milk still contains lactose and milk protein, so it is not appropriate for people with lactose intolerance, galactosemia, or a milk allergy. Furthermore, some people choose not to consume dairy and to follow a vegan diet, the Paleo diet, or to try to reduce acne and other conditions by eliminating dairy.
Why has the price of milk dropped? ›Strong demand has not been able to deplete inventory. World prices have been declining, posting substantial losses over the past few months. The Global Dairy Trade auction average price reflects weakening world prices with the latest auction average price down 33% from the peak price reached in March 2022.
How much debt does A2 milk have? ›Financial Health
a2 Milk has a total shareholder equity of NZ$1.2B and total debt of NZ$106.2M, which brings its debt-to-equity ratio to 8.8%. Its total assets and total liabilities are NZ$1.7B and NZ$494.4M respectively. a2 Milk's EBIT is NZ$186.9M making its interest coverage ratio -14.5.
The market is projected to grow from USD 2.03 billion in 2022 to USD 4.27 billion by 2029, exhibiting a CAGR of 11.0% during the forecast period.
Has Costco stopped selling A2 milk? ›
a2 Milk® is now available at more than 29,000 retailers in the U.S. This includes big box stores like Walmart and Costco as well as your local grocery stores.
What is the shelf life of A2 milk? ›Thanks to UHT, a2 Milk® stays fresh for 30 to 90 days. After opening the carton, please consume ultra-pasteurized milk for the freshest flavor within 7 to 10 days.
Who are competitors for A2 milk? ›A2 Milk's competitors include Zero Cow Factory, One Good, AgainDrinks, Nutrimoo. A2 Milk ranks 38th among 38 active competitors.
Who are the major shareholders of A2 milk? ›The a2 Milk Company Limited's (NZSE:ATM) largest shareholders are individual investors with 52% ownership, institutions own 47% - Simply Wall St News.
What are the top 3 milk company? ›- Amul.
- Mother Dairy.
- Parag Milk Foods Ltd.
- The Kerala Cooperative Milk Marketing Federation Ltd (Milma)
- Schreiber Dynamix Dairies Ltd.
- Mehsana District Cooperative Milk Producers Union Ltd (Dudhsagar Dairy)
- Karnataka Cooperative Milk Producers Federation Ltd (Nandini)
The a2 Milk Company is the successor of A2 Corporation Limited, a New Zealand company founded in 2000 by Dr Corran McLachlan, who was researching health effects of A1 beta-casein, and Howard Paterson, who was one of New Zealand's richest men, a significant dairy farmer, and a stakeholder in Fonterra, a dairy ...
Will a2m recover? ›They say: “A2 Milk should experience a meaningful recovery over the next 3 years resulting in a 122% rise in EPS (earnings per share) on FY22 levels by FY24, after incorporating losses from Matura Valley Milk. They note that investors are cautious, the share price only factoring in limited recovery.”
Is A2 milk worth it? ›High blood pressure is often caused by elevated triglyceride and cholesterol levels. By consuming more omega-3 fatty acids like the ones in A2 milk, you can potentially lower your cholesterol levels. The potassium present in A2 milk benefits your blood pressure, as well.
What will milk prices be in 2023? ›The all-milk price forecast for 2023 has been raised to $20.65 per cwt, $0.20 higher than last month's forecast. Download chart data in Excel format.
What is the prediction of milk prices? ›Currently, the projected 2023 all-milk price sits at $20.50 per cwt., down 15 cents from last month. Looking ahead toward 2024, the Class III price forecast stands at $17.50 per cwt. while Class IV prices are predicted to be at $17.35 per cwt.
Is the milk industry in trouble? ›
According to the United States Department of Agriculture (USDA) data, per capita fluid milk consumption has plummeted 40 percent since 1975. That year, Americans drank 247 pounds of milk per person. In 2018, that number dropped to 146. As milk consumption has declined, dairy farms are shutting down.
Why is A2 milk so expensive? ›Why is A2 Milk Expensive? Farmers have to breed the A2 cows in open fields and should not tie in the goshalas. Farmers have to check up on their cows for the exact genetic makeup for about 5 years. Then only they can have A2 milk tags.
Is A2 milk inflammatory? ›The evidence around a2 milk and its relation to inflammation is limited, but emerging. Some research has shown a1 milk to cause more inflammation than a2 milk (12). One recent review of the literature found that a1 milk (ie – “regular” cows milk) was linked to upset stomach and inflammation while a2 milk was not.
Is A2 milk healthier than regular milk? ›A2 milk is produced and marketed by the A2 Milk Company and contains no A1 beta-casein. A1 and A2 milk contain different types of beta-casein protein. Some studies indicate that A2 milk may be the healthier of the two.
How much was a gallon of milk in 1950? ›1950: 83¢ per gallon.
Why is milk so expensive 2023? ›For 2023, milk production was forecasted higher due to a larger cow inventory. Currently, this year's milk production forecast stands at 228.5 billion lb., up 200 million from last month and 0.08% from 2022's final production.
Is milk losing popularity? ›U.S. per capita fluid milk consumption has been trending downward for more than 70 years and fell at a faster rate during the 2010s than in each of the previous six decades. From 2003 to 2018, U.S. consumers of all ages drank less milk as a beverage, the primary way in which fluid milk is consumed.
Why did A2 milk get sued? ›It is alleged that The a2 Milk Company Ltd made misleading disclosures and failed to comply with its continuous disclosure obligations, resulting in loss to group members in connection with the share price of The a2 Milk Company.
Why should I buy A2 milk? ›They showed that A2 milk causes considerably fewer gastrointestinal symptoms and pain (27). Another study also examined lactose intolerance symptoms after participants consume A1/A2 milk and only A2 milk. The study is resulted by that the group which consumes A2 milk presents fewer intolerance symptoms.
Is A2 milk profitable? ›Speciality milk company a2 Milk says it has delivered a strong first half in a challenging market, with continued improvement on its growth expectations. Key numbers for the six months ended December compared with a year ago: Net profit $73.8m vs $59.6m. Revenue $783.3m vs $660.5m.
Is the a2 milk company growing? ›
Management revealed that it is expecting low double digit revenue growth in FY 2023, supported by growth in China label infant formula, ANZ liquid milk, and USA liquid milk sales.
Has A2M ever paid a dividend? ›There is no dividend history for The A2 Milk Company Limited.
Who are the major shareholders of a2 milk? ›The a2 Milk Company Limited's (NZSE:ATM) largest shareholders are individual investors with 52% ownership, institutions own 47% - Simply Wall St News.
Does a2 milk have any debt? ›Total debt on the balance sheet as of June 2022 : $77.41 M
According to The a2 Milk Company 's latest financial reports the company's total debt is $77.41 M.