The A2 Milk Company Ltd (ASX: A2M) share price was one of the worst performers on the ASX 200 on Monday.
Its shares ended the day almost 4% lower at $13.97 following the surprise exit of its CEO, Jayne Hrdlicka.
Is this a buying opportunity?
I think that this could arguably be a positive for the company and represents a buying opportunity for investors.
Ms Hrdlicka is being replaced with former CEO Geoff Babidge on an interim basis. He knows the business very well and it should be in safe hands with him.
The company also appears to be stepping back slightly from Hrdlicka's plan to sacrifice margins to grow its market share.
The a2 Milk board advised that it "considers it is appropriate for the Company to target an EBITDA margin of at least 30% in the medium term" and that this "can be achieved without detriment to the opportunity to capture our desired long term market position in China and USA."
I suspect that the market will be happier with margins at this level.
UBS remains bullish.
One broker that believes this is a buying opportunity is UBS.
According to a note out of the investment bank, it has retained its buy rating and NZ$17.00 (A$16.31) price target on its shares.
Whilst it was surprised by the exit of Jayne Hrdlicka, it was comforted by the appointment of Geoff Babidge and the prospect of higher margins. It also notes that a2 Milk Company has guided to first half EBITDA margins of 31% to 32% and 29% to 30% for the full year.
I think UBS is spot on and would choose a2 Milk Company ahead of infant formula rivals Bubs Australia Ltd (ASX: BUB) and Nuchev Limited (ASX: NUC).
