A newspaper report of a rumour that a Canadian dairy giant might consider purchasing a2 Milk added 6% to the NZX share price.
Contradictory speculations about a2 Milk Company (ATM) have caused more sharp movements in its share price a month ahead of its interim results presentation in late February for the 2022 financial year.
An Australian newspaper report of a rumour that Canadian dairy giant Saputo might consider purchasing a2 Milk added 6% or 34c to the NZX share price.
But that movement only recovered a 5% loss on news of a falling birth rate in China, and presumed decline in need for infant formula, published a few days earlier.
Dairy industry analysts in Australia could think of no good reasons why Saputo, which already owns Murray Goulburn, would want to spend $4 billion or more on a2 Milk.
All share price movements of recent weeks and months come into the category of bumping along the bottom since last May after the repeated disclosures of a2 Milk’s market problems.
In August 2020, the ATM share price peaked at $21.50 before the first of the company’s four earnings downgrades caused by covid-19 disruption to its principal daigou distribution channel into China.
Daigou means NZ-made canned infant formula bought off the shelves here and in Australia and couriered to China to fulfil private internet ordering.
Not only did covid reduce the numbers of expatriate traders, but courier costs rose and price margins shrank, while Chinese authorities introduced import regulations aimed at boosting sales of local alternatives.
As highlighted in the blizzard of statistics ATM releases on reporting days, analysts and investors will expect some improvements in sales revenue and gross margins, but nothing like the heady days of runaway growth pre-covid.
Its sales revenue dropped from $1.7b to $1.2b last financial year and the company says it will take five years to rebuild to $2b.
It is ironic that ATM’s figures would be considered good for any other listed primary sector company, but not for the market darling in hard times.
Which is why ATM hovers in the $5 range and hasn’t fallen into the $3-range like a2 base formula supplier and part subsidiary Synlait.
Synlait has announced the effective appointments of founder John Penno moving from chief executive to chair of the board and of new chief executive Grant Watson, formerly of Miraka and Fonterra.
Both began their new roles on January 24 and Synlait will report interim results in late March.
When every other Australasian dairy company is cresting the wave of high world commodity prices, a2 Milk and Synlait are going to be late to the party.
