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A2 Milk Company - F21 Outlook Statement Update Today

Tim Montague-Jones

Tim Montague-Jones has over 20 year investment management experience working in the financial markets. Previous experience includes a ten year stint at Morningstar as a Senior Equity Analyst/Portfolio Manager, founding the Morningstar Growth Portfolio and a founding member of their Investment Committee. Tim was also a Senior Equity Analyst for Macquarie Group and a member of the winning team to obtain the 2016 LONSEC Fund Manager of the Year award.

The a2 Milk Company (ASX: A2M) has announced an update to its FY21 outlook statement to the market today. COVID-19 has greatly impacted operations of the business, predominantly to the supply chain. A large component of A2M’s business is dependent on diagous. The literal translation for diagou is “surrogate shopping” and is a term describing cross-border exporting in which an individual or a syndicated group of exporters outside of China purchases commodities for customers in China. A2M relies on international students and Chinese tourists for some of its sales, which has been dampened due to travel restrictions and international students leaving the country. This slowdown was further exacerbated by the extended lock downs in Victoria.




The business notes this trend in reduced diagou channels may be ongoing for the first half of FY21. This will lead to a substantial reduction in sales from Australia and New Zealand – below their expectations. However, the company also mentions it believes this is a short-term supply chain issue which will normalize after the coronavirus. Other segments of the business have remained fully operational including liquid milk in Australia and the USA. Furthermore, the local China business is also performing strongly – particularly Mother & Baby Stores (MBS).

Based on the uncertainty and volatility caused by COVID-19, A2M has provided a new FY21 guidance:

  • Group revenue 1H21: $725-$775m
  • Group revenue FY21: $1.8-$1.9b
  • Group EBITDA margin FY21: 31%

The A2M stock is trading down 10% at time of writing to reflect the above changes to consensus expectations. Analysts were expecting A2M to make $2.08b of revenue and $643m in EBITDA. However, these expectations now need to be brought down to match the company guidance.



This article has been prepared by the Australian Stock Report Pty Ltd (AFSL: 301 682. ABN: 94 106 863 978)
(“ASR”). ASR is part of Amalgamated Australian Investment Group Limited (AAIG) (ABN: 81 140 208 288 Level 13, 130 Pitt Street, Sydney NSW 2000).
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ASR has no position in any of the stocks mentioned.

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