A2 Milk shares slump as Citi sees 'downside catalyst' after China visit
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The news: Shares in A2 Milk slumped on the ASX as Citi analysts warned they are "incrementally cautious" on the New Zealand dairy producer following a recent trip to China.
The numbers: A2 shares were down 4.4% to $5.05 at 1pm AEDT, extending losses of over 20% in the last month.
Citi remains 'buy' rated on A2 with a 12-month target price of $7.04 per share.
The context: Citi analysts said they opened up a downside catalyst on A2 following the visit to China.
They noted that they are "incrementally cautious" heading into this month's annual general meeting, given weaker-than-expected export data for New Zealand, potentially weaker-than-expected trading conditions in China stores, and China's instant milk formula birth stimulus subsidy plan being below Citi's expectation.
The analysts said a potential supply chain acquisition could mean A2 improves capital management, but they question how it would be received given the relative underperformance in China, a trend "that may continue for some time".
Meanwhile, shares in fellow New Zealand dairy company Fonterra rallied on the ASX after it confirmed plans to divest its global consumer business. Fonterra shares last traded 2.7% higher at $4.58.
The source: Citi research
