With Reckitt’s having divested of its China infant formula business, Citi evaluates the read-through for a2 Milk.
Were a2 to be priced at the same enterpise value implied by the sales price, it would be worth $12.06 per share. However, the broker believes a2’s earnings are materially different now compared to 2020, given diagou disruption and lack of local China manufacturing.
A recovery in diagou to 50% of FY20 would value a2 at $6.54, but investment appeal is lower, Citi suggests, given no local production, reliance on a single product and lower market share.
Sell and $5.85 target retained.
Sector: Food, Beverage & Tobacco.
Target price is $5.85.Current Price is $5.70. Difference: $0.15 – (brackets indicate current price is over target). If A2M meets the Citi target it will return approximately 3% (excluding dividends, fees and charges – negative figures indicate an expected loss).
