On Tuesday, the a2 Milk Company (A2M:AU) (OTC: ACOPF) saw its stock rating shift from 'Underperform' to 'Hold' by CLSA, with a revised price target set at AUD5.60, down from the previous AUD5.90.
The adjustment follows the company's full-year 2024 performance, which aligned with market expectations regarding revenue and Ebitda, but fell short on net profit after tax (Npat) due to temporarily increased depreciation and amortization expenses.
The company's forecast for the fiscal year 2025 has been set below analyst consensus, anticipating mid-single-digit revenue growth compared to the expected 8%, and an Ebitda margin similar to that of FY24, contrasting with predictions of a 125 basis point expansion. The a2 Milk brand has been performing well, particularly in the challenging Chinese market, where it has been gaining market share.
Despite the positive brand performance, CLSA notes that without a significant surprise in Chinese birth rates or US earnings, the stock is now considered to be trading near its fair value.
The firm's revised forecasts align with the company's guidance for FY25 and targets for FY27. The downgrade in the price target to AUD5.60 is based on a discounted cash flow analysis.
The current total shareholder return (TSR) stands at -2%, leading to the decision by CLSA to upgrade the stock to a 'Hold' status. This suggests that the firm sees limited upside or downside potential in the near term, warranting a neutral position on the shares of the a2 Milk Company.
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