Week Ahead, August Wrap | A2 Milk

2 September 2019

Global markets ​were mixed on Friday, as investors were cautious ahead of a holiday weekend in which a fresh round of US tariffs on Chinese imports were levied on $110bn in Chinese imports.              

August was a volatile month with local markets experiencing the first down month for the year, while volatility was amplified across Australia & NZ given companies reported earnings results with mixed market reactions. The Australian market (ASX 200) ended the month losing -3%, while the NZ market (NZX 50) finished August down -1%.​

​Once again, we expect volatility will remain elevated​ given there is no overnight solution to the trade war between the US & China. Escalating geopolitical tensions between Hong Kong & China ​& Brexit ​are also creating​ investor​ nervousness. 

Stock in Focus: A2 Milk (:NZX / A2M:ASX)

​​​​​​​​​​​​​​​​​​​​​​​​​​​A2 Milk shares dropped despite delivering another solid result for the 2019 financial year, where the milk marketing company reported revenue of $1,304.5m and net profit after tax of $287.7m, both up +41% and +47% respectively from last year. 

The strong growth was underpinned by continual brand awareness, expanding product distribution and strengthening in-market execution in their two important (growth) regions of Greater China and the US across all key product segments. In particular infant formula milk (infant nutrition) experienced strong share gain in China and Australia. A2 Milk also announced it will be exiting its UK liquid milk operations as it looks to focus on its core China and US markets for growth. 

​​The market had high expectations and while it was an impressive result, investors weren’t pleased with the weaker operating earnings margins. We are not so concerned by this – as A2 milk continue to invest heavily into marketing and capability to continue to achieve its impressive revenue growth. The recent dip now provides an attractive entry point for medium-term investors in our opinion.

​We currently have a BUY recommendation on A2 Milk.​


Australia & New Zealand Market Movers

​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​The Australian market was ​higher on Friday (ASX 200 Index +​1​.​49​%) with every sector posting gains as earnings season came to a close.​ ​​In stock news, ​Freedom Foods gained ​25% after announcing its operating profit had increased 40​% ​to $21.9 million.​ Harvey Norman shares sunk after reporting its full-year Australian sales had declined 1.8% to $5.66 billion. BlueScope Steel and one of its executives are being taken to court by the competition regulator for allegedly trying to collude with rival companies in regards to the pricing of flat steel products.

The New Zealand market ​rallied on Friday (NZX 50 Index ​+1.​​67​%),​ ​​l​​​ed by Vista Group which recovered some of ​the previous sessions sharp sell-off. Fletcher Building rose as resource consents data supported the construction sector. Stats NZ said new residential building permits remain at 45 year-highs and economists are picking more activity off cheaper finance in the low-interest-rate environment.


3 Things Markets Will be Watching this Week

  1. Trade War related news-flow is likely to ​continue to feature in headlines.
  2. ​The Reserve Bank of Australia maker an interest rate decision on Tuesday.​
  3. Escalating geopolitical tensions between Hong Kong & China ​& Brexit ​are also creating nervousness.


Have a Great Day,


The Australian market (ASX 200) ended the month losing -3%, while the NZ market (NZX 50) finished August down -1%.​

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