The a2 Milk Company Ltd [ASX:A2M] has sent a fresh 52-week low today on the release of their first-half results for the current financial year.
Despite A2M’s fundamentals remaining strong, the A2M share price collapsed further today shedding $1.63 or 15.60%, trading at $8.82 per share.
It has been a pretty bad run for the A2M share price of late.
With the pandemic and Australia’s shaky relationship with China smashing the dairy producer’s profits.
But with the company slashing its full-year guidance again and investors demanding answers, is this the right time to snag a bargain?
Fundamentals holding up but still ropey
A2M posted a 35% fall in net profit after tax for the first half after suffering a 16% decline in sales, with its key daigou (personal shopper) channel remaining shaky in the wake of COVID-19 restrictions.
Although, despite the difficult operating conditions there are signs that A2M could quickly reverse losses once things improve.
China label infant nutrition posted revenue growth of 45.2% and an increase in market value share to 2.4%.
Performance in liquid milk in Australia improved.
Revenue grew by 16.3%, driven by higher levels of in-home consumption setting a record value share of 11.7%.
A shake up in A2M’s US market approach resulted in revenue growth of 22.3%, with higher-than-average velocities in key stores and distribution increasing to 22,300 stores.
Which all lead A2M to meeting its lowered guidance for revenue of about NZD$670 million (AU$626 million) in the half year.
However, that’s where the good news ends.
With earnings taking a 26.4% (or 27% excluding Mataura Valley Milk acquisition costs), spurred on by lower sales and a NZD$23.3 million stock provision, investors were demanding answers.
Bank of America Merrill Lynch analyst David Errington slammed the company over its stock issues, pointing to the provision and increased inventory position by $52 million.
A point A2M struggled to clarify.
Is it time to swoop in?
In my books, A2M shares are worth keeping an eye on but don’t expect a miracle turn around anytime soon.
The company is highly reliant on the Chinese market — and things with China don’t seem to be going too great.
A2M’s profit of $120 million was about 8% below some analysts estimates, which appears to be driven by a weaker-than-expected performance from China.
And that’s in spite of a nearly 50% sales increase in its China label during the half.
Which could all mean that the outlook is still shaky for A2M.
Particularly with several of the company’s key sales channels still restricted by the pandemic.
But a2 Milk isn’t the only Aussie company taking a beating. The pandemic and subsequent lockdowns have hit many of Australia’s largest institutions hard, with some unlikely to fully recover. Economist Vern Gowdie reveals the five Aussie blue chip stocks you should sell immediately in his latest report. Get your free copy here.
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