Growth Focus: A2 Milk Company Ltd (A2M)

by Patrick Taylor



Date of Data Capture: 30/1/2017

Name: A2 MILK COMPANY LTD (A2M)

Classification: Food/Dairy Processing

Current Price: $2.11

Market Capitalisation: $1.51 B

Forecast EBITDA Growth: 75.82%

Gross Yield: 0%

Consensus Price Target: $2.42

# Covering Analysts: 4

Discount at Current Price: 14.68%

Price Target Trend: Increasing

Signal Time Frame: Monthly-Weekly-Daily

Trend Bias: Up-Flat Long-Medium

Indicators:
Short-term: Positive Neutral
Medium-term: Positive
Long-term: Positive

Recommendation: Buy

Focus: Capital Growth

Set up Notes:
• A2M looks to be coming out of a long-term sideways consolidation around $2.00 structural resistance over the last 12 months.
• Medium-term signalling has been well-correlated and is turning positive just as they test support at $2.00, established in the break of Nov 2016.
• Fundamental growth forecasts and price targets are strong and their sector has stayed in the spotlight with plenty of attention remaining.
• We are looking to follow early short-term buy signals here with a view to seeing these link-up with positive momentum in the medium and long-term timeframes.


Growth Focus: A2 Milk Company Ltd (A2M)

Our primary focus here is capital gain, we will select our stocks from the ASX top 500 All Ordinaries Index.

Sometimes it is okay to smile about spilled milk. Such a time was just 2 months ago when a competitor’s curdled results knocked the froth off the dairy sector, dropping a fifth of the share price of the A2 Milk Company Ltd (A2M) into the pale. Since those sour events we have seen them rally from the lows and look to be targeting old highs with potentially more cream on top.

A2 Milk is a vertically integrated dairy goods producer of fresh milk and infant formula with a unique nutritional process and profile based solely on the ‘a2’ milk (beta-casein) protein purported to impart superior health qualities with some early-stage research and good anecdotal evidence to back it up. While these findings are still somewhat contested, their performance needs little in-depth study to understand and since listing early in 2015 at 50c their share price has gained an udderly impressive 500% within two years to peak just shy of $2.50 by late 2016.

Within that period, at the end of 2015 we saw A2 Milk’s share price stampede ahead, running up capital gains of over 300% in 6 weeks after which the share price has been effectively been put out to pasture as the stock works its way through a longer-term consolidation to bed down that extra weight. That has seen the price wedging sideways under resistance set around $2.00 throughout 2016, with A2M breaking through this barrier cleanly in November. After reaching a new all-time high of $2.48 they returned to successfully test support at $2.00 and now with momentum indicators turning positive in good correlation with price action they look ready to lead the field again.

Separating A2M from the herd, and key driver of the price gains, is strong domestic growth throughout Australia and New Zealand as well as good progress being made into huge markets like China, US and the UK. While this offers great and as yet untapped potential, concerns about China were still sloshing through the industry, yet A2 Milk’s management has shrugged off concerns of Chinese regulation changes and so too has the price. With a robust financial standing and very strong growth forecast in sales, earnings, profits and margins we could see the A2M grow into a much larger cash cow.

With good fundamentals and a strong technical outlook we are looking for things to firm and set up from here. This behoves us to believe that A2 Milk are not about to lose their whey but are ready to kick higher. A2M is managing to steer themselves forward with a formula for success and a bullish outlook that investors should find easy to swallow.

Disclaimer

This report was produced by Taylor Securities Pty Ltd, which is a Corporate Authorised Representative (Number 414063) of RM Capital Pty Ltd (Licence no. 221938). Taylor Securities and Patrick Taylor (Representative number 414064) have made every effort to ensure that the information and material contained in this report is accurate and correct and has been obtained from reliable sources. However, no representation is made about the accuracy or completeness of the information and material and it should not be relied upon as a substitute for the exercise of independent judgment. Except to the extent required by law, Taylor Securities and Patrick Taylor does not accept any liability, including negligence, for any loss or damage arising from the use of, or reliance on, the material contained in this report. This report is for information purposes only and is not intended as an offer or solicitation with respect to the sale or purchase of any securities or financial products. The securities or financial products recommended by Taylor Securities and Patrick Taylor carry no guarantee with respect to return of capital or the market value of those securities or financial products. There are general risks associated with any investment in securities or financial products. Investors should be aware that these risks might result in loss of income and capital invested. Neither Taylor Securities and Patrick Taylor nor any of its associates guarantees the repayment of capital. WARNING: This report is intended to provide general financial product advice only. It has been prepared without having regarded to or taking into account any particular investor’s objectives, financial situation and/or needs. Accordingly, no recipients should rely on any recommendation (whether express or implied) contained in this document without obtaining specific advice from their advisers. All investors should therefore consider the appropriateness of the advice, in light of their own objectives, financial situation and/or needs, before acting on the advice. Where applicable, investors should obtain a copy of and consider the product disclosure statement for that product (if any) before making any decision.