a2 shares spike as daigou returns

Shares in a2 Milk jumped 12% after a competitor reported massive improvement to its sales through the daigou channel, sparking hope that a2 could report the same thing.

Wednesday, October 13th 2021, 6:35PM

by BusinessDesk

The S&P/NZX 50 Index rose 29 points, or 0.2%, to 13,025.18. Turnover was $202 million.

Former market darling A2 Milk has had a difficult time during the pandemic as its main export channel – the daigou – dried up when Australia closed its borders

Daigou roughly translates as ‘buying on behalf of’ or ‘surrogate shopping’ and is a type of consumer-to-consumer export where an individual buys local goods for clients back in China.

Some products are posted back but often the products are carried home in personal luggage when the daigou trader returns to China – this type of export was completely shut down in 2020 decimating a2’s sales.

The infant formula company’s market value has more than halved in the past year, with the latest drop coming after a class action against it for not disclosing the disruption soon enough.

Today investors were rushing to buy the stock after a similar company gave a surprise market update which said it had seen a significant increase in sales via its daigou channel.

Bubs Australia – a much smaller exporter – said its revenue had doubled in the three months ended September, helped by a 150% increase in sales through its daigou channel.

This news sent a2 Milk shooting up 12.4% to $6.90 as investors speculated it could report similar improvement.

Sam Dickie, a portfolio manager at Fisher Funds which is invested in a2, said Bubs’ update was “a small positive” but didn’t automatically translate to the NZ company.

The two companies have different end markets and Bubs has done a better job of coping with the fallout, he said.

“More important will be the a2 strategy day at the end of this month,” Dickie said.

Nikko Asset Management has also said previously it was increasing its allocation – albeit from very low levels – ahead of the strategy day which could act as a catalyst for share price recovery.

A2’s key supplier Synlait Milk shared the spotlight and rallied 5% to $3.82 on the news.

Shares in Fisher & Paykel Healthcare declined 0.1% to $30.07 after it set a date to release its half year results: Nov 25.

Investors will be looking closely at its financial results for the six months ended Sept 30 as they debate what the company’s earnings will look like after the pandemic.

Equity analysts at Forsyth Barr have built a model based on export data, disclosures and manufacturing assumptions to predict revenue in the absence of earnings guidance.

“We, and the market, are expecting a decline in near-term revenue for F&P Healthcare as elevated covid-19 demand slows, however, the extent of this is one area of debate, not helped by a fluid backdrop and highly volatile monthly trends,” they said.

The newly built ‘revenue proxy’ model implies the healthcare exporter will report a revenue decline of approximately 9% to $830m, which is modestly below consensus.

Vital Healthcare was put in a trading halt to complete a $140m capital raise intended to fund the acquisition of a cancer centre in Adelaide for A$92.8 million.

The NZ dollar was trading at 69.34 US cents at 3pm in Wellington, up from 69.27 cents yesterday.

Tags: Market Close