Where next for the A2 Milk share price?

The A2 Milk Company Ltd (ASX: A2M) share price has been struggling again in 2022.

Since the start of the year, the infant formula company's shares have fallen 17% to $4.62.

This means the A2 Milk share price is now down 38% from its 52-week high.

Where next for the A2 Milk share price?

According to a note out of Bell Potter, its analysts feel the A2 Milk share price is about fair value at the current level.

This morning the broker retained its neutral rating and $4.75 price target on the company's shares, which is just a touch higher than where it currently trades.

What did the broker say?

Bell Potter has been looking at industry data and notes that it paints a mixed picture.

For example, it highlights that exports from Australia to China were up 25% year on year in April. This data is seen as a proxy for daigou trade, which bodes well for demand from that channel.

However, conversely, its analysts note that Christchurch exports (sea + air) to China were down 23% year on year in April. This is disappointing given how there has been a high correlation between the value NZ exports to China and A2 Milk's reported Chinese revenues.

Another potential headwind that the broker highlights is the cost of ingredients. Bell Potter estimates that its index of ingredients was up 46% year on year in May, averaging out to be a 31% increase year to date. And as there is a lag between when ingredient costs lift and then materialise in its financials, the broker is expecting the majority of its cost of goods inflation to emerge in FY 2023.

As a result, Bell Potter continues to forecast relatively modest profit growth through to FY 2024. At which point, its net profit estimate of NZ$136.2 million will still be less than half of its pre-COVID FY 2019 profit of NZ$287.7 million.

In light of this, the broker believes the A2 Milk share price is trading at a fair level and sticks with its hold rating.