Analysts at Citi have adopted the view the changing regulatory environment for infant formula produce in China is starting to benefit local producers versus international brands. The projection is now that local producers in China will increase market share to 53% by FY22 from 40% in 2015.
For Australian producers this translates into likely slower growth, and possibly to no further increase in market share, as is now cautiously assumed for Bellamy’s (the analysts do concede this is a rather conservative approach).
Earnings estimates have been scaled back for a2 Milk. Citi’s base case assumes the company achieves 4% market share by FY22. If that were to grow to 6% the analysts see 27% upside to their target price, currently at $10.65 (down from $10.80). Neutral.
Sector: Food, Beverage & Tobacco.
Target price is $10.65.Current Price is $10.80. Difference: ($0.15) – (brackets indicate current price is over target). If A2M meets the Citi target it will return approximately -1% (excluding dividends, fees and charges – negative figures indicate an expected loss).