A2 Analyst Valuations, page-19

Paul Rickard, co-founder of the Switzer Report thinks a2 is a buy. This was two weeks ago so today’s price must now be a screaming buy! Thanks @kobbie for supplying a link to NABTrade article dated 22 Oct:

“A share price around $12 is a lot more attractive than the $17.30 the stock was trading at in late July.

Technicians might argue that it is too early to buy, with the 60-day moving average (currently $13.59) recently slipping below the 200-day moving average ($13.94). They’d say to wait until the 60-day average had climbed back over the 200 day average, and that the technicals suggest that there might be more price weakness to come.

But this stock is definitely on my radar and I am looking to buy. A2 Milk holds its AGM on 17 November, where the company is expected to provide a trading update for the first four months.

I like the look of A2 Milk. I can’t think of too many companies with these sort of growth rates, credible management team (led by Jayne Hrdlicka) and cashed up, strong balance sheet, trading on multiples under 30.”

What do the brokers say

The brokers are positive on the stock but worried about margin pressure as the company pursues growth in China and the USA. They don’t seem to doubt the market opportunity or that it can build share but rather the price of building brand and scaling distribution. Earnings per share growth is expected to fall from 45.4% in FY19 to 18.0% in FY20 (NZ 46.3c), before accelerating in FY21 to 24.7% (NZ 57.8c).

According to FN Arena, there are two buy recommendations, two neutral recommendations and two sell recommendations. The consensus target price of the major brokers is $13.89, approximately 13.6% higher than Friday’s close of $12.23. Individual recommendations are set out in the table below.

On a multiple basis, the brokers have A2 Milk trading at 28.2 times forecast FY20 earnings and 22.7 times forecast FY21 earnings. No dividend is forecast for FY20.

Here’s my view

I like the look of A2 Milk. I can’t think of too many companies with these sort of growth rates, credible management team (led by Jayne Hrdlicka) and cashed up, strong balance sheet, trading on multiples under 30.”