A2 Milk’s Downgraded Outlook Leaves a Sour Taste, but Long-Term Not Spoiled; Shares Look Attractive

Narrow-moat a2 Milk continues to face COVID challenges that have disrupted customers and distributors. Although revenue of NZD 676.5 million in the first half of fiscal 2021 outpaced guidance of NZD 670 million offered in December, this still fell 16% from the pcp given infant-formula pressures in the corporate daigou channel. In addition, these customers restocked less than expected, leading a2 to write off NZD 23 million worth of inventory. Along with negative foreign exchange movements and one-time costs related to the planned Mataura Valley Milk acquisition, EBITDA margins fell to 26.4% from 32.6% a year ago.