Broker retains $20 price target on A2 Milk (ASX:A2M) share price

Could the A2 Milk Company Ltd (ASX: A2M) share price make an epic comeback after slumping more than 30% this year? Broker UBS thinks so.

| More on:
asx share price rise signified by baby with wide eyes and mouth signifying surprise

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The A2 Milk Company Ltd (ASX: A2M) share price has been uncharacteristic of its usual market leading performance of late. The flow-on effect of pantry destocking and disruption to its reseller channels has seen A2 Milk shares slump more than 30% from their record all-time highs in August. Following the company's annual meeting on Wednesday this week, two big brokers retained their A2 Milk share price targets, which represent significant upside compared to its current price. 

Annual meeting rundown 

A2 Milk provided FY21 commentary for its operational regions. 

It was a challenging first half for its ANZ segment as daigou/reseller channels were impacted by COVID-related issues. A2 Milk expects the current impact to moderate over the course of the year. 

The company's China label range and Mother and Baby Store (MBS) has delivered a strong performance year to date. For the most recent 11/11 online sales event, which was highly competitive, it achieved a 24% English label volume growth as well as strong brand and product rankings.  

From an earnings perspective, China-based channels accounted for 48% of A2 Milk's total infant nutrition sales in FY20. Its MBS currently holds a 2.2% market share in China, which remains a significant opportunity for further growth. 

Fresh milk in Australia continued to perform strongly with current 12-month market share of 11.6% in October, up from 11.3% at June year end. In FY20, liquid milk contributed to 12.8% of the group's earnings. 

A2 Milk's North American operations continue to scale, achieving broad distribution across the entirety of the United States. A2 Milk products can now be found in more than 20,300 stores in the US.  The impact of COVID on the US has made consumers more value conscious. A2 Milk has shifted its short-term investment from broadcast advertising to a greater emphasis on in-store activation, account specific pricing and promotional activity. The company expects net revenue to be broadly consistent with FY20 and also predicts an improved earnings before interest, taxes, depreciation and amortisation (EBITDA) result in FY21. 

The US continues to be a strategically important market for A2 Milk, given its position as the largest global milk market and growing premium segment. 

A2 reaffirmed its guidance, as advised in September, which included FY21 group revenue of $1.80 billion to $1.90 billion (4% to 9.8% growth on FY20 revenue). 

Brokers retain A2 Milk share price target 

Macquarie Group Ltd (ASX: MQG) retained its A2 Milk share price target of NZD$17.95 (as per New Zealand Stock Exchange listing) and outperform rating. There was no change to rating or target after reviewing the company's reaffirmed profit guidance. Macquarie notes early signs of a recovery in daigou sales channels. 

UBS Group (NYSE: UBS) retained its A2 Milk share price target of $20.50 with a buy rating. It was pleased with the company's reaffirmed profit guidance and signs of improvement in daigou channels. 

Motley Fool contributor Lina Lim has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended A2 Milk and Macquarie Group Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

More on Share Market News

A smiling businessman in the city looks at his phone and punches the air in celebration of good news.
Broker Notes

These ASX 200 shares could rise 50% to 60%

Brokers believe these shares could deliver big returns for investors.

Read more »

A girl is handed an oversized ice cream cone with lots of different flavours.
Best Shares

8 ASX All Ords shares that tripled in value in FY25

Just 8 out of the 500 companies making up the ASX All Ords achieved share price growth of 200% or…

Read more »

Broker written in white with a man drawing a yellow underline.
Broker Notes

Brokers name 3 ASX shares to buy today

Here's why brokers are feeling bullish about these three shares this week.

Read more »

Woman with a scared look has hands on her face.
Broker Notes

Bapcor shares fell more than 30% yesterday. Should investors buy in the dip?

Is this a value opportunity?

Read more »

A man sits thoughtfully on the couch with a laptop on his lap.
Broker Notes

Broker raises price targets on 2 ASX 200 shares to buy

Ord Minnett has just upped its 12-month share price targets on 2 buy-rated ASX 200 stocks.

Read more »

Man with rocket wings which have flames coming out of them.
Share Gainers

Guess which ASX All Ords stock just rocketed 34% on strong earnings growth

Investors just sent this ASX All Ords stock surging 34%. Here’s what’s happening.

Read more »

A male investor wearing a blue shirt looks off to the side with a miffed look on his face as the share price declines.
Share Fallers

Why DroneShield, Gentrack, Metals X, and Northern Star shares are tumbling today

These shares are ending the week in the red. But why?

Read more »

A businessman looking at his digital tablet or strategy planning in hotel conference lobby. He is happy at achieving financial goals.
Share Gainers

Why Dimerix, Newmont, Regal Partners, and Titomic shares are storming higher

These shares are having a good finish to the week. Let's see why.

Read more »