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6 MINUTES AGO | 3.17PMA2 Milk too rich: UBS

UBS has downgraded its rating on A2 Milk to ‘neutral’ from ‘buy’, saying the company “continues to fire” but is due for a breather.


Trying to make cream off the top of A2 Milk, has the market whisked it up a little too much?
Shares in the dairy and baby formula company have jumped 2.8 per cent today to $3.30 but had dropped as much as 13.4 per cent between last Thursday’s high and yesterday’s low.

“A2 Milk appears to be having stock shortages in the Australian retail channel for the first time since late 2015,” UBS analyst Jordan Rogers said.

“We have increased confidence in infant formula growth continuing in fiscal 2018, but following strong share price performance, we downgrade our A2M rating to neutral on valuation grounds.”

UBS notes A2 Milk is increasing its pricing in the Chinese market and growing its brand awareness, which the analysts say is supportive of the trading performance, but valuation concerns are pressing.

The Chinese and Asian markets have grown to account for 15 per cent of A2 Milk’s sales, so focus is firmly on that as an area for growth, but meanwhile Australia and New Zealand account for 79 per cent of revenue, according to UBS.

UBS has cut its 12-month price target to $2.94, down from $3.45, and its new ‘neutral’ rating brings it in line with Bell Potter’s view. Goldman Sachs retains a ‘buy’ rating on the stock.

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