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Date : 08/04/2021

Is it a tough road ahead for the a2 Milk (ASX:A2M) share price?

The a2 Milk Company is a producer of milk containing just the A2 protein by using cows that naturally produce just the said protein. The a2 Milk brand was expanding very quickly across ANZ and parts of SouthEast Asia. Their entry into China proved to be very successful and A2M were growing at over 60% year-on-year.

In order to sell in China, A2M relied heavily on the Daigou channel and given that travel has been non-existent between the two countries and with no resumption not in sight, shares began to plunge in early December as soon as the company downgraded its outlook for the financial year once again. The stock has continued to fall in 2021 as things haven’t really got better for the Daihou channel. A2M shares currently trade at $7.91 a share – down over 30% in 2021 already.

The December downgrade knocked off close to half a billion dollars in revenues. Earlier this year, in the half year earnings update in February, a2 Milk once again downgraded its revenues, with its current guidance sitting at NZ$1.4 billion.

The resumption of travel between ANZ and China is critical for a2 Milk to once again be able to operate in favourable conditions. Investor sentiment is negative with large spikes of selling pressure noticed from the trading volumes.

During this time, there are other challenges that a2 milk will have to work around as well. Competition is known to have increased as the Chinese market now has domestic players providing a2 protein milk. The headwinds are only increasing for a2 Milk and the negative momentum is fairly high as far as the a2 milk share price is concerned.

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