The A2 Milk Company Ltd (ASX: A2M) share price has risen by 11% since the start of August 2021.
But it's still down heavily over the last six months and the past year. In the past half-year A2 Milk shares have fallen by 38% and over the last 12 months it has dropped 65%.
Why has it fallen so much?
A2 Milk has seen demand for its products fall significantly.
In the third quarter of FY21, infant nutrition sales in the ANZ segment were $99.5 million and in the cross-border e-commerce channel was $22.1 million, compared to the third quarter of FY20 this was a decline of 56% and 77% respectively.
Management pointed out that these declines compared to the third quarter of FY20 reflected the "extraordinary uplift" in sales last year as the initial effects of the pandemic were beginning to be felt. Sales were down compared to the second quarter of FY21 in the CBEC channel due to actions taken to reduce distributor levels as planned, and ANZ segment sales were down reflecting lower daigou offtake.
In the interest of the long-term health of the A2 brand and the medium-term outlook of the business, management are/were taking more aggressive actions to address its excess inventory which will benefit consumers and the company's customers, distributors and partners.
The daigou margin support program will cease and it will work with its customers and distributors to improve the dating of inventory. It will improve the freshness of product available in store and online and should improve the competitiveness to consumers, particularly new users.
Rebalancing inventory continued for the fourth quarter of FY21. A2 Milk also warned this may continue into the first quarter of FY22. It is also spending on marketing to ensure it can shift its products.
What could be driving the A2 Milk share price higher?
A2 Milk hasn't released any market updates recently. And guidance was lowered a few months ago.
It said that it was targeting revenue for FY21 in the range of $1.20 billion to $1.25 billion. Management said an immediate recovery was not expected. The earnings before interest, tax, deprecation and amortisation (EBITDA) margin is expected to be between 11% to 12% (excluding acquisition costs). However, that included a stock provision of between $80 million to $90 million, which was in addition to the $23 million stock provision recognised in the first half of FY21.
But in terms of the A2 Milk share price, there has been media speculation, such as in the Australian Financial Review, which suggests that the food giant Nestle is thinking about launching a takeover bid for A2 Milk.
There hasn't been an official response from A2 Milk yet. But the AFR reported the company said it "does not comment on media speculation or rumours".
Time will tell whether an offer eventuates from Nestle for A2 Milk.
At the current A2 Milk share price, it is valued at 24x FY23's estimated earnings.
