A2 Milk share price: what do 3 of Australia’s top brokers think?

A number of Australia’s top brokers remain mixed on a2 Milk following the release of strong 2019 full-year results last week.

A2 Milk’s share price has continued to tumble, falling some 16% following the release of its FY19 results on August 21.

In response to a2 Milk Co Ltd’s 2019 results, a number of Australia’s top brokers have taken a mixed view on the stock, with ratings ranging from neutral to buy.

A2 Milk share price: what sparked this sell-off?

As we previously reported, it looks to be a combination of an earnings miss and an elevated valuation that led to bearish activity around the A$9.7bn milk company following its FY19 results release.

For one, a2 Milk missed analyst earnings guidance by a small margin, with the company reporting earnings (EBITDA) figures 2.7% below the average analyst consensus, according to Bloomberg Data.

Moreover, though a2 Milk has seen its valuation contract somewhat following the release of its full-year results – the company continues to trade ahead of the broader market – commanding a price-to-earnings ratio (PE) of 35.8, when compared to the ASX 200’s PE ratio of 19.05.

What are analysts saying?

Mind you, though a2 Milk’s share price has suffered in the wake of these results, the analyst outlook, generally remains positive, if somewhat mixed.

According to the Wall Street Journal, of the 12 analysts covering the company six rate it a buy, three rate it a hold and three rate it a sell.

Below we take a look at what some top brokers currently think of a2 Milk (ASX: A2M).

Citibank remains neutral

Citibank has slapped a neutral rating and a 12-month price target on a2 Milk following the release of its full-year results.

Though a2 Milk reported earnings (EBITDA) below average analyst estimates, the company also flagged an increased marketing spend in FY20, as it races to grow market share in the US and China.

While Citibank views this increased investment as making ‘strategic sense’, the bank has also flagged that a2 Milk’s current 6.4% market share of China may represent the maximum potential for the company in its current formation.

New products or acquisitions may be required for a2 Milk to grow its market share further, says Citibank.

At least, as the investment bank points out: a2 Milk has significant capital to pursue such agendas, with A$465m cash on hand.

Morgans puts a ‘hold’ rating on a2 Milk

Though a2 Milk’s results were in-line with management’s previous guidance, the company’s earnings (NPAT) undershot Morgans own estimates by a sizable 4.9%.

Moreover, while the company boasts a strong brand, a solid balance sheet and is operating in a fast-growing market, Morgans sees near-term risk as it relates to a2 Milk’s ability to grow its revenue at a reasonable cost in the future.

Finally, with a2 Milk’s above-market FY20 price-to-earnings ratio of 33.2, Morgans has maintained a hold rating and placed a 12-month price target of A$13.73 on the stock.

UBS sees growth: ‘buy’

By comparison to Citibank and Morgans, UBS remains bullish on a2 Milk Co Ltd; though the broker pointed out that FY20 margin guidance was materially weaker than expected.

Ultimately, the bank appreciates the ‘future proofing’ endeavours currently being led by CEO Jayne Hrdlicka. Investments in US and China expansion, a focus on building a strong workforce and an emphasis on growing brand visibility – all rank as key positives.

Even when considering a2 Milk’s slight FY19 earnings miss, UBS believes its core investment thesis remains in-tact. Consequently, the bank has reiterated its buy rating, but put a slightly revised NZ$17.10 price target on the stock (down from NZ$17.50).

Year-to-date, a2 Milk (ASX: A2M) has now seen its share price rise some 27%.

IGA, may distribute information/research produced by its respective foreign affiliates within the IG Group of companies pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the research is distributed in Singapore to a person who is not an Accredited Investor, Expert Investor or an Institutional Investor, IGA accepts legal responsibility for the contents of the report to such persons only to the extent required by law. Singapore recipients should contact IGA at 6390 5118 for matters arising from, or in connection with the information distributed.

The information/research herein is prepared by IG Asia Pte Ltd (IGA) and its foreign affiliated companies (collectively known as the IG Group) and is intended for general circulation only. It does not take into account the specific investment objectives, financial situation, or particular needs of any particular person. You should take into account your specific investment objectives, financial situation, and particular needs before making a commitment to trade, including seeking advice from an independent financial adviser regarding the suitability of the investment, under a separate engagement, as you deem fit.

Please see important Research Disclaimer.

Seize a share opportunity today

Go long or short on thousands of international stocks.

  • Increase your market exposure with leverage
  • Get spreads from just 0.1% on major global shares
  • Trade CFDs straight into order books with direct market access

Live prices on most popular markets

  • Forex
  • Shares
  • Indices
liveprices.javascriptrequired
liveprices.javascriptrequired

Prices above are subject to our website terms and agreements. Prices are indicative only. All shares prices are delayed by at least 15 mins.

liveprices.javascriptrequired

Prices above are subject to our website terms and agreements. Prices are indicative only. All shares prices are delayed by at least 20 mins.

The Momentum Report

Get the week’s momentum report sent directly to your inbox every Monday for FREE. The Week Ahead gives you a full calendar of upcoming key events to monitor in the coming week, as well as commentary and insight from our expert analysts on the major indices to watch.

For more info on how we might use your data, see our privacy notice and access policy and privacy webpage.

You might be interested in…

Find out what charges your trades could incur with our transparent fee structure.

Discover why so many clients choose us, and what makes us a world-leading provider of CFDs.

Stay on top of upcoming market-moving events with our customisable economic calendar.