Revision sends A2 shares tumbling

Shares in a2 Milk Company fell more than 12 per cent yesterday morning after the company revised its earnings outlook.

The stock, one of the NZX’s most resilient performers in the pandemic, sank to $16.20 after revealing that its first half revenue would be materially hit by lower demand from Chinese resellers or ‘‘daigous’’ in Australia.

Analysts said the forecast for first half revenue was 11 per cent lower than expectations, even though the full year outlook was still better than last year’s result.

Mark Lister, head of research at Craig Investment Partners, said the revised outlook was not terrible ‘‘because the company’s obviously growing strongly’’.

‘‘But it’s definitely a weak trading update and it adds some uncertainty into the mix, in terms of whether they can make that full recovery and play catch up in the second half of the year.’’

A2’s chief executive Geoff Babidge said the company was being buffeted by Covid-related blips, including a reduction in the daigou business, which had tailed off during the Melbourne lockdown and the tourism downturn in Australia.

‘‘This disruption in the daigou channel is impacting our September sales and it is currently anticipated that this will continue for the remainder of the first half of the 2021 financial year.’’

While the ‘‘daigous’’ represent a significant proportion of a2’s infant formula sales in Australia and New Zealand, the company stressed that the overall business was still going well.

Demand was still strong for its

This disruption in the daigou channel is impacting our September sales. Geoff Babidge, above

brand in China and there were good sales of liquid milk in Australia and the United States.

The company expected a significant improvement in group performance in the second half of the year.

Another drag on the first half was the effect of pantry ‘‘destocking’’, which was expected after strong pandemic sales earlier this year.

Babidge said the company warned during its recent annual results that continuing Covidrelated uncertainty and the potential for economic ‘‘moderation’’ could have an effect, particularly on supply chains.

The company’s revenue, which jumped 33 per cent jump this year to $1.73 billion, is now expected to be $1.8b to $1.9b in the full year, and $725 million to $775m for the first half. Group earnings before interest, tax, depreciation and amortisation (Ebitda) were expected to have a margin of around 31 per cent.

Lister said a2 had had a very strong run and even after falling 25 per cent from its peak in July, the stock was 7 to 8 per cent stronger this year. ‘‘It’s still been a good performer.’’

The company has recently announced plans to take a controlling stake in Mataura Valley Milk, potentially reducing its reliance on listed dairy company Synlait, in which it holds a stake.

Synlait, which announced its full year result yesterday, was also off nearly 6 per cent to $5.69.

Synlait said its net profit had fallen 9 per cent due to the ongoing cost of new dairy factories and acquisitions, rather than a fall off in demand. The company is also facing ongoing legal wrangles over its new Po¯keno factory.