A2 Milk share price: where next as top broker raises target price?

As the ASX 200 struggles, a2 Milk has helped bolster Australia’s consumer staples index today.

ASX 200: a red affair

A2 Milk (ASX: A2M) has today helped boost the ASX’s consumer staples sector – with the XSJ index rising 1.04% by the afternoon session – reaching the 13,245 point mark. The blue-chip benchmark fared less well overall – with the ASX 200 falling 0.19% – to 7,066 points.

All up, a2 Milk has today seen its share price rise 1.02% – to $14.81 per share – likely after news circulated the market that one of A2’s more bearish critics, had moderated their view on the milk stock, somewhat.

Specifically, as The Australian today wrote:

‘The stock was upgraded by Citi after analysis of distribution channels, with Australian retail stores and daigou channels showing many of its products were out of stock. Analyst Sam Teeger notes that daigou feedback indicates that a2 remains the most popular brand even after recent price increases.’

Here, Sam Teeger has raised Citi’s price target on a2 Milk (ASX: A2M) from $12.30 to $14.85 per share – and upgraded the rating on the stock from sell to neutral.

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A2 Milk share price: the changing narrative

Previous research from Citi, compiled post A2-AGM, noted that while the company’s momentum remained strong, margin issues over the medium-term remained and that increased investment spending was still likely required. That research also noted that A2 was expected to face increased competition – though the full implications of such competition may take some time to fully play-out.

'While further marketing delays could see short-term EBITDA margins beating expectations, over the medium-term we expect margins to decline from i) investment required to drive sales in an increasingly-competitive China IMF market, and ii) the shift to direct channels,’ noted Citi in November.

Ultimately, though A2’s share price outperformed the market today – it has been a decisively volatile stock in the last six months – both operationally and from a share price perspective.

First, the company undershot analyst earnings (EBITDA) estimates, while also providing a weaker than expected margin outlook during its FY19 earnings results. The stock was battered by investors in response: dropping 14% off the back of those results.

The stock continued to drop after that: bottoming-out at $11.31 per share in November.

In saying that, when A2 noted that it expected FY20 (EIBTDA) margins to come in better than previously expected, during the company’s November AGM – its share price steadily ticked up.

If fundamentals were worrying investors for a time – a drastic shakeup of the C-suite seemed less concerning through all this commotion. Specifically, A2 has lost its CMO, CEO and most recently CTO, over the last six months.

A2M is expected to report its first-half results on February 27.


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