Australian ASX200 earnings preview A2M
Tony Sycamore August 23, 2021 2:07 AM
The A2 Milk Company Limited (A2M) is a dual-listed NZX and ASX 50 public listed company that commercialises intellectual property relating to A1 protein-free milk that is sold under the a2 and a2 Milk brands as well as the milk and related products such as infant formula. Its products are sold in Australia, New Zealand, U.S, China, Korea, and the United Kingdom. It reports its full-year numbers on Thursday, the 26th of August.
At the start of the pandemic, A2 Milk was a beneficiary as sales surged on a wave of panic buying. In response, A2 Milk upgraded its full-year earnings guidance in April 2020 by 32%. Shortly afterwards, in June 2020, the share price traded to its all-time high of $20.05c.
Since that point, a drastic reversal of fortune has occurred.
In its half year update in February, A2 Milk downgraded its full-year guidance in response to the fallout from a decline in daigou sales. A2 Milks products were purchased in NZ and Australia and then shipped into China to sell to customers there. The closure of international borders bought this channel to a halt that accounted for 60-70% of the region's revenue.
After an escalation in the political tensions between China and Australia, A2 Milk in May slashed its sales and earnings forecasts again and wrote down $90 million in nearly out-of-date stock, sending the share price to a low of $5.02c, almost 75% below its 2020 high.
Last week, the beaten-down share price rallied briefly above $7.00 on reports that A2 Milk has become a takeover target for Nestle. A takeover by the Swiss giant would reinvigorate A2 Milk's infant formula in China and leverage Nestles in-country distribution network. A2 Milk has declined to comment on the takeover speculation leaving the market to ponder the possibilities of a takeover.
In its last update in May, A2 Milk said that it expects full-year sales to be in the range of $NZ1.2 billion to $NZ1.25 billion and an EBITDA margin of 11 percent to 12 percent. The latter implies an EBITDA of just NZ$132 million to NZ$150 million. This compares to FY 2020's revenue of NZ$1.73 billion and EBITDA of NZ$549.7 million, a reduction of 73% to 76% year on year.
After falling from $20.05 to a low of $5.02 in just 12 months, some stability has returned to the A2 Milk price recently. Nonetheless, there aren't any obvious technical or fundamental reasons to buy A2 Milk other than for the reason a corrective bounce is possible after such a sharp sell-off. For those that think that last week's takeover rumour might, in time, prove correct, then consider buying A2 Milk at $6.57 with a stop loss placed below $5.75.
Source Tradingview. The figures stated areas of the 23rd of August 2021. Past performance is not a reliable indicator of future performance. This report does not contain and is not to be taken as containing any financial product advice or financial product recommendation
Disclaimer: The information on this web site is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement. The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency or CFD contract. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. Any references to historical price movements or levels is informational based on our analysis and we do not represent or warranty that any such movements or levels are likely to reoccur in the future. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.
Futures, Options on Futures, Foreign Exchange and other leveraged products involves significant risk of loss and is not suitable for all investors. Losses can exceed your deposits. Increasing leverage increases risk. Spot Gold and Silver contracts are not subject to regulation under the U.S. Commodity Exchange Act. Contracts for Difference (CFDs) are not available for US residents. Before deciding to trade forex and commodity futures, you should carefully consider your financial objectives, level of experience and risk appetite. Any opinions, news, research, analyses, prices or other information contained herein is intended as general information about the subject matter covered and is provided with the understanding that we do not provide any investment, legal, or tax advice. You should consult with appropriate counsel or other advisors on all investment, legal, or tax matters. References to Forex.com or GAIN Capital refer to GAIN Capital Holdings Inc. and its subsidiaries. Please read Characteristics and Risks of Standardized Options.