Spread bets and CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75% of retail investor accounts lose money when trading spread bets and CFDs with this provider. You should consider whether you understand how spread bets and CFDs work, and whether you can afford to take the high risk of losing your money. Spread bets and CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage.

A2 Milk share price: what’s the outlook as a new competitor emerges?

Citibank has maintained their bearish outlook for a2 Milk – as competition for the A2 throne in China looks to be heating up.

When Bellamys received a $1.5bn takeover bid from Chinese dairy giant Mengniu – questions of increased and condensed competition in China invariably came up for the likes of a2 Milk.

Such competitive concerns have also been apparent in the bearish price action of a2 Milk’s (ASX: A2M) share price in recent times. Specifically, since reporting its FY19 results – which saw EBITDA figures come in below analyst expectations and the revelation of an aggressive top-line growth plan – the A2M share price has fallen significantly.

At its July peak, a2 Milk traded hands at just above $17 per share.

Comparatively, a2 Milk’s share price currently trades at $11.31 per share dropping 4.07% today alonelikely off the back of news that a Chinese-based infant formula producer – Junlebao – is set to enter the A2 infant formula space in China.

Such news is relevant to a2 Milk, given that a key aspect of the company’s unique sales proposition comes from the fact that its milk products do not contain the A1 protein. Forming part of the company’s competitive advantage and according to a2 Milk’s own website:

‘Many consumers and healthcare professionals report that certain people who experience challenges drinking conventional cows’ milk may experience benefits when they switch to a2 Milk.’

It should be noted that the scientific research backing up such claims appears scarce. Yet with a2 Milk’s revenue recently hitting NZ$1.3bn, it would seem that consumers care little for the lack of codified scientific evidence.

It certainly doesn't seem to be influencing their decisions, as A2M's growing revenues would suggest.

A2 Milk share price: the outlook

Enter Junlebao – a potential competitor to a2 Milk’s A2 Chinese throne. In a research report recently published by Citibank, the investment bank noted that Junlebao is set to launch an A2-based infant formula of its very own.

In saying that, as it stands Junlebao’s infant formula is only available for pre-order through online outlets.

Even so, Citibank further notes that to their knowledge, Junlebao is the only competing A2 formula in China that has the all-important SAMR approval. Vitally, it is this regulatory gold-stamp that allows company’s involved in the infant formula business to sell their products directly in China’s retail stores. This regulatory approval for example has proven elusive to the likes of Australian-based Bellamys.

Off the back of this news investors may potentially have begun to question: could Junlebao’s A2-based product disrupt a2 Milk’s significant growth plans?

A2 Milk’s more-than 4% share price decline today could suggest that investors are concerned by such a possibility, at the very least.

With all this in mind, Citibank maintained their sell recommendation on a2 Milk (ASX: A2M) and a share price target of A$12.20 – citing increased competition as a key driver for this bearish outlook.

Practise trading Australian stocks like a2 Milk with an IG demo account now

This information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer and quarterly summary.

Act on share opportunities today

Go long or short on thousands of international stocks with spread bets and CFDs.

  • Get full exposure for a comparatively small deposit
  • Trade on spreads from just 0.1%
  • Get greater order book visibility with direct market access

See opportunity on a stock?

Try a risk-free trade in your demo account, and see whether you’re on to something.

  • Log in to your demo
  • Take your position
  • See whether your hunch pays off

See opportunity on a stock?

Don’t miss your chance – upgrade to a live account to take advantage.

  • Trade a huge range of popular stocks
  • Analyse and deal seamlessly on fast, intuitive charts
  • See and react to breaking news in-platform

See opportunity on a stock?

Don’t miss your chance. Log in to take advantage while conditions prevail.

Live prices on most popular markets

  • Forex
  • Shares
  • Indices

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

Plan your trading week

Get the week’s market-moving news sent directly to your inbox every Sunday. The Week Ahead gives you a full calendar of upcoming economic events, as well as commentary from our expert analysts on the key markets 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 spread betting and CFDs.

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