The A2 Milk Company Ltd (ASX: A2M) share price could be great value.
That's the view of analysts at Bell Potter, which remain very bullish on the infant formula company.
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What is the broker saying about the A2 Milk share price?
Bell Potter has been busy looking at the infant formula market and believes current trading conditions are supportive of its positive view on the A2 Milk share price. The broker commented:
Total landed IMF volumes (traditional + bonded volumes) into China were up +22% YOY in Aug'22 and are up +14% YOY on a R3M basis. China landed volumes found a floor in Apr'22 and have been improving since.
It also notes that input costs for infant formula companies are not getting out of control despite inflation. It explained:
Our AUD index of commodity input costs has firmed in recent weeks, with implied NZD ingredient costs in 1H23e modestly higher than 2H22 averages.
Buy rating retained
In light of the above, the broker has retained its buy rating and $6.60 price target on the company's shares. Based on the latest A2 Milk share price of $5.49, this implies potential upside of 20% for investors over the next 12 months.
Bell Potter summarised:
Our Buy rating is unchanged. If A2M can execute on its strategy to achieve ~NZ$2Bn in FY26e revenues and EBITDA margins in the teens, then it would imply compound double digit EPS growth through to FY26e. With an increased focus on direct channels to market (73% of 2H22 IMF sales) we see the offline expansion program as key to achieving these targets. In the near term directionally favourable YOY trends look to have returned to shipment indicators of IMF to China and the NZD weakness is creating a tailwind, given the majority of sales occur in AUD, USD and CNY.
