This report is an updated version of the report published on 18 January 2023 at 4:07 PM AEDT.
A2 Milk Company Ltd (ASX: A2M)
A2 Milk Company Ltd (ASX: A2M) is involved in the distribution and sale of milk and dairy products. It operates through the following segments: Australia and New Zealand, China and Other Asia, and USA.
A2M expects to release its H1 FY24 results (for the year ended 31 December 2023) on 19 February 2024.
Recommendation Rationale – SELL at AUD 4.215
- Commercial Dispute: On 22 December 2024, A2M updated it has cancelled the exclusive manufacturing and supply rights held by Synlait Milk Ltd.
- Overvalued Multiples: On a forward 12-month basis, key trading multiples (EV/Sales, EV/EBITDA, Price/Earnings, Price/Cash Flow, and Price/Book) are higher than the median of the Food & Tobacco industry.
- Technical Indicator: The momentum oscillator 14-Day RSI (~56.933) is moving towards the overbought zone; and thus, prices can face correction in the short term.
- Cash Decline: FY23 end cash and term deposits showed a 9.6% year-on-year decline.
A2M Daily Chart
Daily Technical Chart; Source: REFINITIV
Given its current trading levels, recent rally in the share price, and risks associated, it is prudent to book profit at the current levels. Hence, a ‘Sell’ recommendation is given on the stock at the current market price of AUD 4.215, at 10:45 AM AEDT, as of 18 January 2024.
Markets are trading in a highly volatile zone currently due to certain macro-economic and geopolitical tensions prevailing. Therefore, it is prudent to follow a cautious approach while investing.
Note 1: Past performance is neither an indicator nor a guarantee of future performance.
Note 2: The reference date for all price data, currency, technical indicators, support, and resistance levels is 18 January 2024. The reference data in this report has been partly sourced from REFINITIV.
Note 3: Investment decisions should be made depending on an individual's appetite for upside potential, risks, holding duration, and any previous holdings. An 'Exit' from the stock can be considered if the Target Price mentioned as per the Valuation and or the technical levels provided has been achieved and is subject to the factors discussed above.
Technical Indicators Defined: -
Support: A level at which the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.
Resistance: A level at which the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.
Stop-loss: In general, it is a level to protect further losses in case of any unfavourable movement in the stock prices.