At the start of the pandemic, A2 Milk was profitable as sales surged following a wave of panic buying. In response, A2 Milk improved its annual profit forecast in April 2020 by 32%. Shortly after, in June 2020, the stock price traded at its all-time high of c $ 20.05.
Since that point, a drastic reversal of fortunes has occurred.
In its biannual February update, A2 Milk downgraded its annual forecast in response to the fallout from lower sales of daigou. A2 Milks products were purchased in New Zealand and Australia and then shipped to China for sale to customers. The closure of international borders paralyzed this chain, which represented 60 to 70% of the region’s income.
After escalating political tensions between China and Australia, A2 Milk again cut its sales and profit forecast in May and depreciated $ 90 million of near-obsolete stocks, pushing the share price down at c $ 5.02, nearly 75% below its 2020 high.
Last week, the battered share price rose briefly above $ 7.00 following reports that A2 Milk became a buyout target for Nestle. A takeover by the Swiss giant would reinvigorate A2 Milk infant formula in China and leverage the Nestles distribution network in the country. A2 Milk declined to comment on the buyout speculation, leaving the market to think about the possibilities of a buyout.
In its last update in May, A2 Milk said it expects annual sales to be between NZ $ 1.2 billion and NZ $ 1.25 billion and a margin EBITDA from 11% to 12%. The latter implies an EBITDA of just NZ $ 132 million to NZ $ 150 million. This compares to FY20 revenue of NZ $ 1.73 billion and EBITDA of NZ $ 549.7 million, a reduction from 73% to 76% on a year-over-year basis. annual.
After dropping from $ 20.05 to $ 5.02 in just 12 months, some stability has recently returned to the price of A2 milk. Nonetheless, there are no obvious technical or fundamental reasons to buy A2 milk other than why a corrective rebound is possible after such a sharp sell-off. For those who think that last week’s takeover rumor might, over time, prove to be correct, then consider buying A2 Milk at $ 6.57 with a stop loss placed below $ 5.75. .
Source Tradingview. The figures indicated the zones as of August 23, 2021. Past performance is not a reliable indicator of future performance. This report does not and should not be taken as containing advice or recommendations of financial products.