A2's revenue downgrade disappoints investors and drives NZX 50 down
Friday, 18 December 2020
The sharemarket reacted strongly to the news that a2 Milk has slashed its revenue forecast for 2021.
The NZX 50 index finished the day at 12,682, down 1.6 per cent.
Thursday’s trading halt on a2 shares lifted at on Friday afternoon after the company announced a downgrade of its revenue forecast for the first half to $670 million, and between $1.40 billion to $1.55b for the full year.
That was well down on 2020’s stellar full year revenue of $1.73b, and its September guidance of $1.8b to $1.9b, with $725m to $775m for the first half.
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The NZX had been trading positively before the news.
Hamilton Hindin Greene investment adviser Mark Hampton said afternoon trading reflected investor disappointment in a2.
Shares in a2 fell to $11, down 22.1 per cent on the share price before the trading halt.
The market had been expecting a profit downgrade, however, what was announced was much worse than expected.Hampton said.
“The fact that the margin is coming down as well is just not great,” Hampton said.
“This is just another thing in a string of bad news for them. The high dollar, Australia and China’s political relationship hurt them and, I would say a lot of this share price fall reflects a little bit of disappointment from shareholders in the company itself.”
The fact that a2 reiterated its profit guidance on November 18 left investors wondering how so much could have changed in a month, particularly as that month included Singles’ Day which was normally a big sales period, Hampton said.
“At best, management were being very optimistic, at worst they were being a little naive regarding any potential bounce back.”
Synlait Milk halted trading on the back of a2’s announcement.
While a2 was the biggest news effecting the market on Friday, other issues had also arisen throughout the day.
A new community Covid-19 cluster in Sydney dragged on travel industry stocks in New Zealand and in Australia.
Shares in Air New Zealand dropped to $1.81, down 2.95 per cent.
Auckland International Airport shares also dipped to $7.84, down 2.73 per cent.
”Part of the reason we have had such good days recently is that it has been all positive news on the Covid-19 front,” Hampton said.
“But the Sydney thing is reminding people that we are not out of the woods until we get that vaccine widely distributed.”
The strength of the New Zealand dollar was also hurting the sharemarket, he said.