A2 Milk Company share price lower after investment update

The A2 Milk Company Ltd (ASX:A2M) share price is trading lower with the market despite make an opportunistic investment…

| More on:
a woman

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 is trading lower on Monday despite the release of an announcement.

In afternoon trade the infant formula and dairy company's shares are down 6% to $15.16.

What did a2 Milk Company announce?

This morning the fast-growing company revealed that it has been putting some of its sizeable cash balance to work in the share market. At the end of first half of FY 2020, a2 Milk Company had a cash balance of NZ$618.4 million.

It has now used some of these funds to increase its shareholding in dairy processor Synlait Milk Ltd (ASX: SM1) from 17.4% to 19.84%.

According to the release, the company has taken advantage of its recent share price weakness to acquire shares through on market trades at a price of NZ$4.95 per share. This was below its average entry price for its interest in Synlait.

It was also a big discount to the Synlait's 52-week high. The selloff has hit its shares so hard that this purchase price is 53% lower than its 52-week high of NZ$10.48.

A2 Milk Company's Chief Executive Officer, Geoffrey Babidge, commented: "Following the recent decline in Synlait's share price, we viewed this as an opportunity to complete our strategic holding. Our shareholding reflects the importance to us of our commercial supply arrangements with Synlait."

What next?

Whilst launching a takeover of Synlait Milk would make a lot of sense and support margin expansion, the company doesn't appear interested in doing so.

The release advises that it "has no plans to increase its shareholding in Synlait beyond 19.9%."

What the company does with its burgeoning cash balance in the future, only time will tell. But I suspect a share buyback or a maiden dividend could be potential uses in the next 12 to 24 months.

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of A2 Milk. 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

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

Top brokers name 3 ASX shares to buy next week

Brokers gave buy ratings to these ASX shares last week. Why are they bullish?

Read more »

A young woman holds her hand to her mouth in surprise as she reads something on her laptop.
Share Market News

These ASX 200 shares could rise 20% to 40%

Let's see which shares analysts are recommending to clients for 2026.

Read more »

A young woman wearing a beanie as the snow falls around her smiles and opens a Christmas present in a box looking excited and smiling to represent the special dividend for Grange Resources shareholders announced today
Share Market News

5 amazing ASX 200 shares I want Santa to bring me for Christmas

I wish I could unwrap these shares on Christmas morning.

Read more »

ETF written in white and in shopping baskets.
ETFs

I plan to invest $1,000s into these 2 ASX ETFs in 2026

These two ETFs are very appealing!

Read more »

santa looks intently at his mobile phone with gloved finger raised and christmas tree in the background.
Share Gainers

Here are the top 10 ASX 200 shares today

The ASX couldn't get into the Christmas spirit on our last trading day of the week.

Read more »

A man holding a cup of coffee puts his thumb up and smiles while at laptop.
Share Market News

NEXTDC receives approval for new S4 Sydney Data Centre

NEXTDC has secured development approval for its S4 Sydney Data Centre, supporting future growth in digital infrastructure.

Read more »

Smiling man working on his laptop.
Broker Notes

Buy, hold, sell: Medibank, PLS, and Woolworths shares

Analysts have given their verdicts on these shares. Are they bullish or bearish?

Read more »

a business man in a suit holds his hand over his eyes as he bows his head in a defeated post suggesting regret and remorse.
Share Fallers

Why Brightstar, EVT, Monash IVF, and Pro Medicus shares are dropping today

These shares aren't spreading the Christmas cheer on Wednesday.

Read more »