The A2 Milk Company Ltd (ASX: A2M) share price had a day to forget on Monday.
The infant formula company's shares ended the day over 13% lower at a 52-week low of $4.27.
Image source: Getty Images
Why did the A2 Milk share price crash deep into the red?
Investors were hitting the sell button in a panic following the release of the company's FY 2023 results.
Although A2 Milk actually delivered a strong result, its outlook commentary spooked investors and sent them rushing to the exits.
In respect to its result, A2 Milk beat analyst expectations on both revenue and earnings for the 12 months ended 30 June. Analysts at Bell Potter said:
Revenue of NZ$1,593m was up +10% YOY (vs. BPe NZ$1,587m). EBITDA of NZ$219.3m was up +12% YOY (vs BPe of NZ$215.4m). EBITDA ex-MVM was NZ$245.8m (vs. BPe of NZ$234.3m). Underlying NPAT of NZ$155.6m was up +27% YOY (vs. BPe of $147.5m).
However, all that was overshadowed by the aforementioned outlook commentary. Not only did its guidance for FY 2024 fall short of expectations, but management has also walked away from medium-term margin improvement goals. The broker commented:
A2M expects: (1) low single digit revenue growth in FY24e with EBITDA margins broadly consistent with FY24e levels with higher levels of cash conversion; and (2) A2M has retained its medium term target EBITDA of "teens", while stating it is unlikely they can reach the "low-to-mid 20's" in the foreseeable future. Following the result we have downgraded our NPAT forecasts by -6% in FY24e and FY25e.
Is this a buying opportunity?
Despite the A2 Milk share price hitting a 52-week low, Bell Potter continues to sit on the fence with its recommendation.
The broker has retained its hold rating and cut its price target by 15% to $4.85. It concludes:
We expect 1H24 to be challenging given the China label transition and likely disruption as brands exit the market (~35% are yet to receive SAMR approval). However, A2M has grown share in all key measures in a declining market and is well positioned to benefit from China market brand consolidation, stabilising birth rates, and the return of overseas travellers and students to Australia.
