The A2 Milk Company Ltd (ASX: A2M) share price is sinking on Monday afternoon.
At the time of writing, the struggling infant formula company’s shares are down 5% to a multi-year low of $3.99.
This means the A2 Milk share price is now down almost 30% in 2022.
Why is the A2 Milk share price sinking?
While the market is dropping on Monday, the A2 Milk share price is falling more than most after being the subject of a bearish broker note.
According to a note out of Bell Potter, its analysts have downgraded the company’s shares to hold rating and slashed the price target on them by 33.5% from $7.15 to $4.75.
While this still implies reasonable upside from where its shares trade today, it isn’t enough for a more positive rating from the broker. Particularly given recent industry trends, which Bell Potter believes warrant a more cautious view on the company.
What did the broker say?
Bell Potter revealed that its industry checks paint a worrying picture for A2 Milk, based on historical patterns.
The broker explained:
In recent months there has been an emerging dislocation between volumes entering Australia from NZ and volumes exiting Australia to China in shipment data we monitor. While this dislocation may prove transitory in nature (i.e. lockdown linked), historically this pattern has not been supportive of strong volume growth. The data dislocation warrants a more cautious view on the stock and with our revised FY22-24e NPAT forecasts sitting below consensus, we downgrade our rating from Buy to Hold.
Bell Potter is now expecting profits of NZ$108.6 million in FY 2022, NZ$118.5 million in FY 2023, and NZ$136.2 million in FY 2024.
While heading in the right direction, this is still materially lower than both FY 2019’s profit of NZ$287.7 million and FY 2020’s profit of NZ$388.1 million.