Today A2M appeared in the top market movers for all the wrong reasons with the share price crashing 13.11% into the red today. The share price finished trading at a low of $6.10, a price not seen by investors since 2017. This crash wiped $800 million dollars off the market cap, valuing the company at $5.2 Billion
This flash crash come after the company issued another downgrade in trading update. Today is the fourth downgrade in forecast since September 2020, as COVID’s macroeconomic impact has practically ended the company’s daigou channel, due to the complete reduction of tourism and international travel.
The previous months have seen A2M’s share price fall substantially from their 52-week high of $20.05, down -66.43%.
“Globally there continues to be unprecedented levels of uncertainty and volatility due to COVID-19 which has significantly impacted markets in which the Company trades and consequently the performance of both a2MC and many competitors”
China label infant nutrition sales of $98.0 million were recorded for 3Q21 representing 5% growth on 3Q20 and 18% decline on 2Q21. The reduced rate of growth relative to 3Q20 is reflective of the substantial uplift in the prior period due to COVID-related pantry stocking. The rate of decline relative to 2Q21 was mainly due to increasing distributor inventory to mitigate the risk of the potential of a second wave of COVID-19 in China in 1H21.
The Company is now targeting revenue for FY21 in the order of NZ$1.20 billion to $1.25 billion. This is down from its earlier forecast of NZ$1.40 billion. A2M expects it to take some time to rebalance inventory levels and restore channel health. An immediate recovery is nonexcepted and a further update for FY22 will be provided by A2M in August. The Company is expecting an earnings to sales margin for FY21 in the order of 11% to 12% (excluding MVM transaction costs).
A2M plans to significantly increase advertisement spending with a reported ‘high level of marketing investment’, with a ‘significant’ marketing campaign in China slated for 4Q21. To try and move its current oversupply of stock. The business wrote down $90 million in nearly out-of-date stock
Due to the ongoing impact of coronavirus we don’t see any significant return of revenues until the return of international travel and the easing of Australian-Chinese trade tensions. Although CEO David Bortolussi concluded that the company’s current challenges are simply ‘short-term setbacks.’
Despite the doom and gloom we can’t overlook the simple facts;
- Revenue is still expected to exceed $1 Billion (significantly higher than they were in 2017 at the current market cap, $500 Million)
- The Company is completely debt free and has significant cash on hand ($854 Million)
- In relation to their current PE (14.3) and book value of $1.45 the current share price is quite attractive
We are closely monitoring A2M share price and are considering buying more shares. We did very well in the early days of A2M around the 2017/2018 mark. Our current holdings are down, but we see $6.10 as a hard price to resist price. “The time to buy is when there’s blood in the streets.” This moto has done us very well so far. Be sure to check out our eBook for help with all things investing in Australia.
Please Remember all Articles Published on Prophet Invest are Opinion only
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