A2 Milk Facing Near-Term Challenges, but Shares Offer Margin of Safety; FVE Maintained

A2 Milk’s COVID-19-related disruption has worsened, but shares in the narrow-moat name now screen as undervalued. A slower rebound in both daigou and online channels has led management to reduce near-term guidance to below our expectations. A2 now forecasts fiscal 2021 revenue of NZD 1.4 to NZD 1.55 billion, down from NZD 1.8 to NZD 1.9 billion, with EBITDA margins between 26% and 29%, versus 31%. We’ve reduced our revenue forecast to about NZD 1.5 billion, with EBITDA margins of 27%. This suggests a top-line fall of 14% versus fiscal 2020, and EBITDA declining a sharper 26%.