'The sleeper has awakened': Top broker gives its verdict on the A2 Milk (ASX:A2M) share price

Is it time to buy A2 Milk shares?

| More on:
A man wakes up happy with a smile on his face and arms outstretched.

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

Key points

  • A2 Milk's shares surged higher yesterday following the release of its half year results
  • One leading broker has been reviewing the result and liked what it saw
  • It believes the 'sleeper has awakened' and has reaffirmed its buy rating

The A2 Milk Company Ltd (ASX: A2M) share price was among the best performers on the ASX 200 on Monday.

Investors were bidding the infant formula company's shares higher following the release of its half year results.

What happened during the first half?

For the six months ended 31 December, A2 Milk reported a 2.5% decline in revenue over the prior corresponding period to NZ$661 million. Though, this figure is a bit misleading as it includes the Mataura Valley Milk (MVM) business, which was acquired in late FY 2021 and thus was not part of the prior period's numbers.

A better reflection on its performance comes from its Infant Nutrition and Liquid Milk businesses, which reported a 10.5% decline in revenue to NZ$471 million and a 0.2% lift in revenue to NZ$125 million, respectively.

And, as was widely expected, on the bottom line A2 Milk's net profit after tax more than halved to NZ$56 million.

So why did the A2 Milk share price storm higher?

Investors appeared to be more interested in what management was saying rather than its results.

It commented: "The Company's outlook for 2H22 revenue has improved. It is still expected to be significantly higher than 2H21, and with growth now expected on 1H22 and for FY22, ahead of initial expectations due mainly to growth in China label and English label IMF."

This appears to have sparked hopes that the worst could now be behind the former market darling.

Broker remains positive

In response to the result, the team at Bell Potter has retained its buy rating and $7.70 price target on the company's shares.

Based on the current A2 Milk share price of $5.81, this implies potential upside of 32% for investors over the next 12 months.

Having reviewed the result, Bell Potter believes "the sleeper has awakened."

It commented: "Our Buy rating remains unchanged. We saw plenty to like in this result: (1) growth in stage 1 market share in the MBS channel from 2.1% to 2.5% (indicative of new customer recruitment); (2) a beat in China direct channels sales in 1H22 and a closer alignment of sell-in and sell-out levels in 2Q22; (3) reinvestment of outperformance into marketing, to support FY23-24e revenue growth; and (4) progress on articulating a margin capture strategy at MVM."

Time will tell whether this is the right call on the A2 Milk share price.

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has recommended A2 Milk. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

More on Broker Notes

Senior man wearing glasses and a leather jacket works on his laptop in a cafe.
Broker Notes

Should I still swap my CSL for CBA shares or has the market corrected?

The two stocks have travelled opposite directions this month.

Read more »

Man with rocket wings which have flames coming out of them.
Resources Shares

Why Macquarie expects this ASX All Ords copper stock could surge 38%

With costs coming in below expectations, this ASX All Ords copper stock could rocket higher over the coming months.

Read more »

woman holding 'hiring' sign in shop
Broker Notes

Can you guess whether Macquarie prefers REA Group, CAR Group or SEEK shares?

Which ASX online classifieds business offers the best investment opportunity today?

Read more »

Female miner smiling in front of a mining vehicle as the Pilbara Minerals share price rises
Broker Notes

Expert says this ASX All Ords small cap mining stock could rocket 38%

Big upside ahead?

Read more »

Two laughing young women hold shopping bags and ride an escalator up to another level in a Scentre Group shopping centre.
Broker Notes

3 ASX consumer sector shares to buy in July: expert

A leading expert has named its top 3 picks.

Read more »

Man drawing an upward line on a bar graph symbolising a rising share price.
Broker Notes

Broker says WiseTech shares can hit $135

Bell Potter has good things to say about this rebounding tech stock.

Read more »

a man holds a firework sparkler in both hands as a shower of sparkly confetti falls from the sky around him as he smiles and closes his eyes in a celebratory scene.
Broker Notes

Stock market outlook: Macquarie 'ready to party like its 1999'

It may not be too late to invest in the share market according to the broker.

Read more »

A woman wearing dark clothing and sporting a few tattoos and piercings holds a phone and a takeaway coffee cup as she strolls under the Sydney Harbour Bridge which looms in the background.
Broker Notes

The smartest Australian stocks to buy with $400 right now

Let's see why these shares are highly rated by brokers.

Read more »