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:

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.

a woman

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

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

Why this ASX 200 share could be heading 40%+ higher

Looking for big returns? Bell Potter thinks this stock could be a buy.

Read more »

A male investor wearing a white shirt and blue suit jacket sits at his desk looking at his laptop with his hands to his chin, waiting in anticipation.
Share Market News

5 things to watch on the ASX 200 on Thursday

Here's to expect on the Australian share market today.

Read more »

Two lab workers fist pump each other.
Mergers & Acquisitions

Why are Mesoblast shares jumping 8% today?

The biotech star has announced an exciting acquisition on Wednesday.

Read more »

a man in a business suite throws his arms open wide above his head and raises his face with his mouth open in celebration in front of a background of an illuminated board tracking stock market movements.
Broker Notes

Top brokers name 3 ASX shares to buy today

Here's what brokers are recommending as buys this week.

Read more »

A man looking at his laptop and thinking.
Broker Notes

What is Morgans saying about A2 Milk and these ASX shares?

Let's see what the broker is saying about these names.

Read more »

A man sits in despair at his computer with his hands either side of his head, staring into the screen with a pained and anguished look on his face, in a home office setting.
Share Fallers

Why Boss Energy, Telix, Woodside, and Yancoal shares are falling today

These shares are having a tough time on hump day. What's going on?

Read more »

A woman with bright yellow hair wearing a brightly patterned blouse reacts to big news that she's reading on her phone.
Broker Notes

What does this broker have to say about Cleanaway Waste Management and Capstone Copper shares?

These shares have 20% to 30% upside.

Read more »

Overjoyed man celebrating success with yes gesture after getting some good news on mobile.
Share Gainers

Why Evolution Mining, Mesoblast, Nufarm, and Virgin Australia shares are storming higher today

These shares are having a good session on hump day. But why?

Read more »