It seems like the A2 Milk Company Ltd (ASX: A2M) share price has been left out to spoil. The last 9 months have been devastating for the company, as pantry destocking and weak China-related sales have seen its growth turn backwards. The A2 Milk share price has followed suit, falling close to 50% across the same period.
Here's a look at A2's recent half-year results, and what broker Bell Potter thinks could be in store for the company's share price.
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A2 Milk's recent performance
A2 Milk's half-year results weren't pretty. The company's growth metrics across the board went backwards in an alarming double-digit fashion. Revenue, operating earnings before interest, taxes, depreciation, and amortisation (EBITDA) and operating net profit after tax were all down a respective 16%, 33%, and 36%.
The company's lease-adjusted operating cash outflow came in at NZ$10.8 million, compared to the $159.9 million inflow in 1H20. This marks the company's first negative operating cash flow since 1H16.
There were some small positives throughout the half-year results. This included strong growth within its liquid milk segment, growing 16.3% to $86.9 million with a record Australian market share of 11.7%. Liquid milk now represents 18% of the company's earnings, compared to 13% in the half ending June 2020.
Elsewhere, the company lifted its Mother & Baby Store distribution points in China to 22,000 from 19,100 at FY20. Its rising footprint in China has translated to $213.1 million in sales, up 45.2%.
The US remains a focal point for A2, with distribution points expanded to 22,200 points from 20,300 at FY20.
Despite the small wins, the company's infant nutrition channels drive a majority of its earnings growth, which slumped from $765.7 million in 2H20 to $526.1 million in 1H21.
Looking ahead, FY21 revenue was forecast to be approximately NZ$1.4 billion with an EBITDA margin of 24–26%, implying EBITDA of NZ$336 million to $364 million. This guidance was also heavily caveated as relying on a material recovery in the last quarter of FY21.
Bell Potter's A2 Milk share price target
Bell Potter updated its A2 Milk share price target on 25 February to $8.65, which represents a downside of 3% to its share price at the time of writing.
Into this share price target, the broker incorporated A2's holding of Synlait Milk Ltd (ASX: SM1), a value for the expected upside in China based on projected stockists and sell-through rates, and a value for the US opportunity.
The broker commented that "A2 Milk is by no means cheap, neither is the sector and to a degree the material under performance of A2 Milk reflects this."
