NZX falls on A2's weak margins

A2 Milk led the New Zealand sharemarket lower as investors sold shares after a disappointing investor day revealed the infant formula exporter would likely have low profit margins for the foreseeable future.

Wednesday, October 27th 2021, 6:26PM

by BusinessDesk

The S&P/NZX 50 Index fell 55.15 points, or 0.4%, to 13,075.4. Turnover was $195 million.

Shares in A2 Milk plunged 11.4% to $6.33, down almost 18% from a six-month high of $7.68 just three days ago.

Some investors had expected the infant formula exporter to give a positive update after a smaller competitor reported impressive recovery to its daigou channel sales.

Chief executive David Bortolussi told investors they were starting to see some signs of improvement, but daigou trade had shrunk to be just 10% of its business.

More concerning for investors were comments made about profit margins, said Harbour Asset Management senior research analyst Oyvinn Rimer.

A2 Milk said its target margins are possibly in the “low-to-mid 20s” in the medium to long term but achieving them was subject to “higher than expected market recovery", English label channel growth and share gains.

Analysts’ consensus, however, is to have it over 20% in just 2 years from now, Rimer said.

“So that’s probably the biggest hit to market expectations. Some analysts had much higher numbers, almost at 30% profit margin.”

Key supplier Synlait Milk shares fell in sympathy, dropping 3% to $3.59, while Fonterra Shareholders’ Fund units climbed 0.3% to $3.97.

My Food Bag dropped to another record low, down 2.5% to $1.18 with 400,000 shares traded.

Earlier this month, Craigs Investment Partners trimmed their target price on the stock by 9% – downgrading it to $1.68 – citing slow delivery growth and inflationary pressure.

Fleet management software company Eroad fell 1.3% to $5.30 today, after another Craigs analyst slashed their valuation by 18% due to weak growth in the US market and a significant increase in bond yields.

An upgrade to its profit forecast sent shares in Skellerup Holdings up 2.6% to $6. The exporter said first-half profit would be more than 10% higher than in the same period last year.

Move Logistics Group was unchanged at $1.62 after announcing plans to raise $40m of capital in a renounceable rights offer.

The new cash will make room on the balance sheet to fund a business restructure, investments in technology systems, modernising the fleet and taking up maritime leases.

The kiwi dollar was trading at 71.61 US cents today, little changed from 71.68 cents yesterday but up from 69.34 cents ten days ago.

Tags: Market Close