Should I Buy Shares in A2 Milk Latest Update? (A2M.ASX, ATM.NZX). Shares in ASX 200 listed company A2M have been crushed of recently, so we take a look and answer the question. A2M is dual listed on both the Australian and New-Zealand Stock Exchanges.
With shares down a massive 69% this year its hard to see the upside, but lets take a look and see if there is any light at the end of the tunnel for shareholders. Will A2 milk shares go up?
A2M reached a 52 week high of $20.05 back in August 2020 and seemed to be the king of resisting the COVID19 downturn, however by Early September things started to look more grim as the company announced a slowdown in their Daigoiu Chinese distribution Channel.
Should I Buy Shares in A2 Milk Latest Update? (A2M.ASX, ATM.NZX).
What Happened to the Growth in China?
On the 28th September A2 Milk Company issued an updated FY21 Outlook. A2M state “We have also previously advised of a number of issues being experienced relating to our infant nutrition business as a result of COVID-19. This included the flow-on effect of pantry destocking continuing into FY21 following the strong sales uplift in 3Q20 and lower than anticipated sales to retail daigous in Australia, due to reduced tourism from China and international student numbers.” Since then we saw a drop in A2M share price ASX.
Funny, because A2M blaming the students not being able to ship A2M back the china as a reason for the slowdown. However, its worth noting that stock can be bought online directly through the reseller channel. Seems the demand is slowing for the cult product in China.
“This disruption in the daigou channel is impacting our September sales and it is currently anticipated that this will continue for the remainder of the first half of FY21.”
A2M.ASX Massive War-chest of Cash on Hand
A2 Milk has a very robust balance sheet with a substantial cash balance and high cash conversion. So, should I buy shares in A2 milk?
During FY2020, A2 Milk added a massive 385million to their cash balance. This cash conversion is significant at 22% of group revenues, or over 60% of their EBITDA.
Its worth remembering that minus the massive cash buffer of NZ $854 Million, A2M actually trades on a PE valuation of only 6x, and is growing both revenues and earnings at over 32% YoY as at the FY2020 report.
A2M flagging Aggressive Actions Till 1Q22
In an update given to the market on 10th May 2021, the company (ATM.NZX A2M.ASX) flagged that they would be adopting more aggressive measures to address the excess inventory to be taken which will impact FY2021 revenue and EBITDA, and potentially 1Q22.
This is worrying as A2M are flagging this impact to last until at least FY22, we think there may be some more pain in store for shareholders come their annual report in August. And more drops to come for the A2M share price ASX.
It’s strange however, and this may suggest that the company is confident in a return to massive growth in the future also flagging on the 10th May “In addition, the Board is actively considering capital management initiatives, including a potential share
buy-back and an update will be provided at the full year results in August”.
A2M Wanting to Start Manufacturing Their Own Products?
On the 24th December 2020, A2M announced to the market that they have agreed terms with Mataura Valley Milk to acquire a 75% interest. MVM is a New-Zealand based business.
We believe this a significantly strategic move for A2M, as A key feature of A2M’s proposed investment in MVM is that MVM’s current majority shareholder, China Animal Husbandry Group (CAHG), will retain a 25% interest in MVM alongside a2MC. CAHG is a wholly owned subsidiary of China National Agriculture Development Group Co., Ltd, which is also the parent company of a2MC’s strategic logistics and distribution partner in China, CSFA Holdings Shanghai, Co., Ltd
Should I Buy Shares in A2 Milk Latest Update? (A2M.ASX, ATM.NZX)
Prophet is waiting until after the FY2021 annual report prior to making a move on A2M (ATM.NZX A2M.ASX) shares. They look cheap but there may be some more pain instore before things get better here. For tips on how to buying A2 Milk shares, check out our article here.
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