The two ASX shares in this article could be quality ideas to consider. Brokers have rated the stocks in this article as buys.

Baby Bunting Group Limited (ASX: BBN)

Baby Bunting is an ASX retail share that’s liked by multiple brokers.

One of the brokers that likes Baby Bunting is Morgans, which rates Baby Bunting as a buy. The price target for the next 12 months is $6.39.

Morgans thinks that Baby Bunting has multiple growth avenues. The expansion into New Zealand will help the growth of the business for longer. 

Despite a higher price/earnings ratio than others in the retail space, the broker thinks that Baby Bunting is worthy of it due to the better growth prospects.

The FY21 half-year result revealed a lot of growth. Total sales of $217.3 million was 16.6% higher than the prior corresponding period. The comparable store sales growth was 15% (or 21.8% excluding Victoria), with total online sales growth of 95.9%.

Baby Bunting’s gross profit margin increased 41 basis points, helping pro forma underlying earnings before interest, tax, depreciation and amortisation (EBITDA) grow by 29.7% to $18.5 million and pro forma net profit after tax (NPAT) rose 43.5% to $10.8 million.

The ASX share may be on track to deliver more growth in the second half of FY21 with comparable store sales growth of 18.5% in the first six weeks.

In New Zealand, the business is looking to open at least 10 stores, with the first to be opened in FY22.  

Bega Cheese Ltd (ASX: BGA)

Bega Cheese is another ASX share that is liked by multiple brokers, including Morgans.

The broker has a 12-month share price target on Morgans of $6.80.

One of the main reasons that Morgans is positive on the business is the acquisition of Lion Dairy and Drinks. This expanded the business into new branded dairy categories such as yoghurt, white milk and flavoured milk and provides exposure to new dairy regions across the country.

Both Bega management and the broker are expecting to unlock significant synergies from the acquisition.

Executive Chair Barry Irvin said:

The acquisition delivers important industry consolidation and value creation with synergies across the entire supply chain. The expanded product range, manufacturing and distribution infrastructure and brand portfolio realises our ambition of creating a truly great Australian food company.

Bega said that the acquisition provides a platform for further growth in international markets and provides a market presence to support innovation.

The ASX share’s FY21 half-year result showed a lot of growth, particularly in the bulk segment, though COVID-19 impacts on the infant formula category were a negative.

Half-year normalised earnings before interest and tax (EBIT) went up 79% to $48 million and normalised profit after tax grew 98% to $29.7 million. Statutory earnings per share (EPS) rose by 141% to 9.6 cents.

According to Morgans, the Bega Cheese share price is valued at 22x FY22’s estimated earnings with an expected FY21 grossed-up dividend yield of 2.2%.

More reading

• Brokers think these 2 top ASX shares are buys in April 2021
• These top 2 ASX shares should be on your watchlist
• 2 ASX shares that may be hit by Australia’s declining birth rate

Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia has recommended Baby Bunting. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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The Candy Club Holdings Ltd (ASX: CLB) share price is falling today after the company raised $20 million via private placement and debt financing. At the time of writing, the Candy Club share price is trading at 23 cents per share.

Candy Club is a confectionary retailer. The business primarily engaged in both business-to-consumer (B2C) and business-to-business (B2B) markets. Candy Club is established in the US market, however, it also has an Australian presence.

Under its B2C business, the company sells subscriptions plans for its Candy Boxes in the USA. Furthermore, the B2B business involves the selling of Candy Club branded confectionery to specialty market resellers in the USA. 

Why is Candy Club raising the capital?

Candy Club’s announcement today is regarding the successful completion of an institutional placement. This comes from the issue of 48.6 million fully paid ordinary shares at 22 cents per share to raise approximately $10.7 million before costs.

Candy Club’s wholly-owned US subsidiary, Candy Club Holdings Inc., has also secured US$7.5 million (A$9.84 million) in debt funding. This comes from Venture Lending & Leasing IX Inc. who is a part of a leading Silicon Valley equity/debt venture firm called Western Technology Investment (WTI). 

Candy Club says the capital raised is “to be invested in considerably scaling the business”. The funds raised under the placement will be used for:

• Acquisition of Inventory – $4.4m
• Customer Acquisition Lead Generation campaigns – $1m
• CAPEX – $500k
• Increased Sales Staff – $500k
• General Working Capital – $3.8m
• Costs of the offer – $500k

What Candy Club management said

Candy Club chair James Baillieu explained the debt and placement combination: 

By bundling the WTI debt deal with the placement, we substantially reduced the amount of shareholder dilution to reach our new capital target, as well as raising from institutions and sophisticated investors a large amount of equity successfully at only a small discount to market price.

Candy Club share price snapshot

The Candy Club share price losses today are part of a broader trend. Furthermore, the company’s share price has declined by 12% this month.

However, this comes against large gains over the past 12 months. Candy Club’s share price has risen 528% in that timeframe, beating the consumer defensive sector by 525%.

It’s also up 67% in 2021 so far.

More reading

• In honour of the Easter Bunny, we take a look at 3 chocolatey ASX shares

Motley Fool contributor Lucas Radbourne-Pugh has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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The S&P/ASX 200 Index (ASX: XJO) is on form on Wednesday and charging higher. At the time of writing, the benchmark index is up 0.5% to 7,014.2 points.

Four ASX shares that have failed to follow the market higher today are listed below. Here’s why they are dropping:

BWX Ltd (ASX: BWX)

The BWX share price is down 3.5% to $4.94. This is despite there being no news out of the personal care products company today. However, prior to today, the BWX share price was up 23% since the start of the year. This could have led to some investors taking a bit of profit off the table today.

Fortescue Metals Group Limited (ASX: FMG)

The Fortescue share price has fallen over 1% to $20.14. The catalyst for this decline appears to be a broker note out of Goldman Sachs this morning. According to the note, the broker has downgraded the iron ore producer’s shares to a sell rating with a reduced price target of $18.90. Goldman notes that that Fortescue’s shares are changing hands at 1.4x net asset value (NAV). This compares unfavourably to BHP Group Ltd (ASX: BHP) and Rio Tinto Limited (ASX: RIO), which are trading at 0.95x NAV.

Webjet Limited (ASX: WEB)

The Webjet share price is down 2.5% to $5.17. On Tuesday analysts at Morgans put a hold rating and $4.92 price target on the online travel agent’s shares. It was surprised that Webjet has raised capital for a third time since COVID-19 began. And while it notes that the capital raising has reduced its refinancing risk, it doesn’t see enough value in its shares at this level to rate it as a buy.

Zip Co Ltd (ASX: Z1P)

The Zip share price has given back its morning gains and is down 1.5% to $9.59. While most brokers have responded positively to Zip’s strong third quarter update, one broker has held firm with its bearish stance. This morning UBS retained its sell rating and lifted its price target slightly to $6.50. This implies potential downside of 32% over the next 12 months.

More reading

• How does Afterpay’s (ASX:APT) growth rates compare to peers?
• Top brokers name 3 ASX shares to buy today
• Are brokers bullish on the Zip (ASX:Z1P) share price after quarterly results?
• ASX 200 up 0.6%: Zip rises, Resolute rockets, tech shares storm higher
• Fortescue (ASX:FMG) share price tumbles on broker downgrade

James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of ZIPCOLTD FPO. The Motley Fool Australia owns shares of and has recommended BWX Limited and Webjet Ltd. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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Wilson Asset Management (WAM) is well known for its stable of listed investment companies (LICs). Over the past two decades, WAM has gone from offering one flagship LIC — WAM Capital Limited (ASX: WAM), established in 1999 — to seven. Its most recently launched LIC was Wam Alternative Assets Ltd (ASX: WMA). WAM Alternative Assets debuted last year after WAM purchased the embattled Blue Sky Alternative Assets LIC. 

Before that, WAM Launched Wam Global Ltd (ASX: WGB) back in 2018. At the time, WAM Global was the first WAM LIC to have a mandate to invest in companies beyond the ASX.

But today, we have confirmation that an eighth LIC will join the Wilson Asset Management stable.

WAM Strategic Value to launch next month

A report in the Australian Financial Review (AFR) this week unveiled the newest LIC as ‘WAM Strategic Value’. And in an email to investors yesterday, WAM has confirmed the accuracy of the AFR report. 

The new LIC will be headed by WAM founder Geoff Wilson himself as lead portfolio manager. That’s a role that is typically delegated in other WAM LICs. WAM Strategic Value looks set to IPO on the ASX next month or two. A prospectus is to be released in “early May”. 

This LIC will depart from the ASX share value investing strategy of most of WAM’s other LICs. Here’s what WAM described the new LIC’s mandate as:

WAM Strategic Value will focus on identifying and capitalising on share price discounts to underlying asset values of listed companies, primarily listed investment companies (LICs), listed investment trusts (LITs) and other closed-end investment vehicles.

The AFR report argues this could be a fertile hunting ground for WAM. That’s because there are dozens of LICs on the ASX that are currently trading for less than the value of their net tangible assets. It’s also a strategy WAM has incorporated into its largest LIC, WAM Capital.

Over the past year, WAM Capital made moves to purchase both the Concentrated Leaders Fund (ASX: CLF) and the Contango Income Generator (ASX: CIE). Clearly, the company thinks it is onto a winning strategy here. 

More reading

• Is the Amaysim (ASX:AYS) share price really tumbling 70% today?
• 11 top ASX shares that WAM thinks will make great buys

Motley Fool contributor Sebastian Bowen owns shares of WAM Research Limited and WAMGLOBAL FPO. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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The Buru Energy Limited (ASX: BRU) share price is rising today after the company confirmed its drilling rig for the 2021 Canning Basin program and noted substantial progress on its pre-spud activity.

The Buru Energy share price is up 5.8% to 18 cents per share at the time of writing.

Buru Energy is engaged in oil and gas exploration and production in the Canning Basin in the northwest of Western Australia.

The group is divided into 3 reportable segments:

• Oil, which includes the development and production of the Ungani conventional oilfield;
• Gas; which includes exploration of gas in Valhalla/Asgard and Yulleroo areas;
• And exploration, which focuses on prospects along with the Ungani oil trend and evaluation of the other areas.

The company generates the majority of revenue through the sale of crude oil. It’s partnered with blue-chip energy retailer Origin Energy Ltd (ASX: ORG) in its Canning Basin drilling sites. 

Buru Energy’s Canning Basin project

The company has confirmed the drilling rig for the three-well 2021 Canning Basin program as Ensign Rig 963. It’s a sister rig to Ensign 970 currently operating at West Erregulla in the Perth Basin. Ensign is the drilling rig manufacturer. 

The Ensign 963 rig most recently drilled in the Beetaloo Basin for Origin Energy, Buru’s Joint Venture partner for the Canning Basin exploration program.

Buru has agreed on a letter of intent with Ensign, including a deposit for initial rig mobilisation, and the formal rig contract is being finalised. The bidding process for well services contracts has been completed, and awards are in progress.

Buru Energy investors have been closely monitoring recent news, with the company setting relatively high drilling targets and the Buru Energy share price rising accordingly.

The spud date of the first well, Kurrajong 1, is on track for early to mid-June, with site construction underway. Spud or spudding is the process of first beginning to drill a well in the oil industry.

The Buru operated Canning Basin field program is kicking off with the northern wet season drawing to a close. The program includes a three-well drilling program and an extensive 2D seismic program of some 1,100 kilometres of data acquisition.

The two-well exploration drilling program is on conventional oil prospects, which Buru Energy hopes will find “very significant prospective resources”. The drilling program will also include a development well on the Ungani Oilfield. 

What Buru Energy management said

Buru executive chair Eric Streitberg said it was an exciting period for Buru Energy:

We are very pleased with the way the program is coming together in what will be a very big year for Buru in the Canning. We are drilling two of the largest onshore conventional oil prospects in Australia and success will be transformational for Buru, for the Kimberley, and
for Western Australia.

It is a multi faceted process to get ready to spud the first well, and we are on track and looking forward to starting work in the field and drilling some world class oil prospects.

Buru Energy share price snapshot

The Buru Energy share price has risen 95% over the past 12 months, from a low of 8 cents on 21 April. It’s down slightly this week, but it’s up 38% this month and 50% in 2021 to date.

More reading

• How are ASX 200 shares faring in the carbon revolution?
• Genex (ASX:GNX) share price frozen on hydro project fund raising
• Top broker issues buy alert on Santos (ASX:STO) and these ASX energy shares
• Here’s why the Buru Energy (ASX:BRU) share price is flying 6% today
• ASX 200 dips, Sydney Airport falls, AGL rises

Motley Fool contributor Lucas Radbourne-Pugh has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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The Propell Holdings Ltd (ASX: PHL) share price opened 40% higher at 28 cents following the company’s initial public offering (IPO) this morning. The company had a listing price of 20 cents per share with an indicative market capitalisation of $19.2 million. 

In earlier trade, Propell shares jumped to an intraday high of 31 cents before retreating to their current level of 23.5 cents each, up 17.5% for the day so far.

The IPO will raise a combined $6 million for the company to pursue its growth strategy. 

Propell share price off and racing 

The Propell share price got off to a roaring start today with the company’s successful listing on the ASX. Propell operates in the alternative finance and payments markets, as a digital alternative to traditional banking platforms.

Traditionally, SMEs (small to medium enterprises) have to manage and deal with multiple providers to access financial products and services. According to Propell, it offers a platform that brings together a range of financial services and products under one consolidated and easy-to-use platform. 

The company currently has two core products. First, a proprietary lending product that provides unsecured lines of credit to customers through its Credit Decision Engine. Second, a transactional product, which is a simple and straightforward payments solution that can facilitate various non-traditional payment methods. Propell also offers business insights data to help businesses view and track how they interact with customers.

It is important to note that Propell is a loss-making business. In FY20, it generated $592,954 in revenue, an earnings before interest, taxes, depreciation, and amortisation (EBITDA) loss of $1.54 million and a net loss after tax of $2.7 million. The company has pointed to a number of initiatives to drive medium to long-term shareholder value. 

Future growth 

According to Propell, it is focused on a number of key strategic initiatives to build its product offering and drive customer growth. 

The company aims to both develop new lending products as well as partner with third party alternative lenders which offer differentiated lending products. Instead of developing its own technology for different types of credit, Propell will partner with different lenders through integrations on the Propell platform. 

Propell also aims to build out its transactional product to provide its customers with greater flexibility in getting paid. This includes connecting a greater number of third parties to the platform, including buy now, pay later (BNPL) providers, to enhance the experience for their end customers. 

Propell will also continue to invest in its technology to increase its value proposition to customers. Its current focus is on developing automated actionable insights that allow for better cash flow management and optimisation. 

Finally, Propell has made a small investment into exploring international opportunities. The company will assess entry into new markets over the medium to long term on a case by case basis. 

More reading

• Why’s the Magnetite Mines (ASX:MGT) share price up 34% this week?
• Why Tesla stock soared higher on Tuesday
• How does Afterpay’s (ASX:APT) growth rates compare to peers?
• A2 Milk (ASX:A2M) share price sours amid international student uncertainty
• Why BrainChip, Dubber, Galaxy, & Resolute shares are charging higher

Motley Fool contributor Kerry Sun has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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The Magnetite Mines Limited (ASX: MGT) share price is up 34% since the start of this week, leaving investors scratching their heads.  

There’s been no real news from the mineral explorer for nearly a month. Could Cyclone Sejora – which devastated parts of Western Australia earlier this week – be to blame?

The Magnetite Mines share price began the week trading for 4.7 cents. It’s since risen to 6.3 cents.

Let’s take a closer look at what’s been going on with iron ore mining company lately.

He said, she said

The question many interested investors are asking was also put to Magnetite Mines by the ASX yesterday, in the form of a price query.

The ASX asked why the Magnetite Mines share price was trading for 4.4 cents last Tuesday yet reached an intraday high of 7.5 cents yesterday. It also noted a significant increase in the number of shares trading hands in the same period.

Magnetite Mines responded by saying that, perhaps, it was caused by its acquisition of the Muster Dam Iron Ore Project, combined with near-record iron ore prices. The company announced its acquisition of the project in early March.

Iron ore prices are rising this week due to demand from China and supply concerns caused by Cyclone Sejora. Cyclone Sejora made landfall early this week, wreaking havoc on many of Australia’s iron ore ports.

The company also pointed to an announcement of the appointment of its interim CEO and technical director in mid-March as a potential reason for its share price boom.

The Magnetite Mines share price has a recent history of rapid growth. In fact, its risen an enormous 530% this year so far, without announcing much in the way of news.

What’s been driving it this week is yet another guessing game.

Magnetite Mines share price snapshot

The Magnetite Mines share price started 2021 trading for just 1.3 cents. Interestingly, August 2020 was the first time the company’s share price closed above 1 cent since 2018.  

Currently, it’s up by a whopping 3,050% since this time last year.

The company has a market capitalisation of around $194 million, with approximately 2.8 billion shares outstanding.

More reading

• The Magnetite Mines (ASX:MGT) share price is up 330% in 2021

Motley Fool contributor Brooke Cooper has no position in any of the stocks mentioned.

The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

What happened

Shares of electric car and green energy company Tesla (NASDAQ: TSLA) soared on Tuesday. As of 3:42 p.m. EDT, the stock was up by about 7.8%

The stock was likely trading higher due to a combination of the market’s upbeat mood regarding growth stocks and some recent optimistic notes about the company from analysts.

So what

Many tech stocks were trading higher on Tuesday, with the tech-heavy Nasdaq Composite up by 1% as of this writing. And a number of growth stocks like Tesla, however, were up several percentage points or more. Broadly speaking, growth stocks seem to be rebounding from the steep sell-off they experienced in the second half of February and early March.

Meanwhile, Credit Suisse analyst Dan Levy released earnings per share estimates for Tesla’s first quarter that were ahead of the current average analyst forecast for the period. Levy also noted that he believes the company’s vehicle deliveries in 2021 could be higher than expected. He’s forecasting 929,000 deliveries this year, up from about 500,000 in 2020.

This bullish take on Tesla’s business added weight to another analyst’s optimistic remarks Monday.

Now what

Tesla is rapidly building out its production capacity this year for both its vehicles and its battery cells. For now, demand seems to be growing in line with that rapidly increasing production. Investors, however, should watch to see if this remains the case throughout the year.

Management has guided for vehicle deliveries in 2021 to grow by more than 50%.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

More reading

• The stock that I’d hold for the next 5 years: fundie
• Tesla and Palantir were some of the most popular US shares last week
• Tesla stock: headed to $1,071?
• Tesla (NASDAQ:TSLA) shares are still cheap: fundie
• 2 investing approaches to help get you started on the ASX

The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of and recommends Tesla. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

Daniel Sparks has no position in any of the stocks mentioned. His clients may own shares of the companies mentioned. The Motley Fool owns shares of and recommends Tesla. The Motley Fool has a disclosure policy.

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This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

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The record revenue reported by Zip Co Ltd (ASX: Z1P) yesterday shines a light on arguably the most important metric when it comes to high-growth shares — revenue growth. Which beckons the question, how does Afterpay Ltd (ASX: APT) stack up against its peers on this measure?

Is the largest ASX-listed buy now, pay later (BNPL) player still competitive with its smaller competitors? Is Afterpay delivering growth at scale? Also, is Zip catching up?

Grow now, profits later

Although payment instalment options existed earlier, the BNPL sector really came to life in 2017. A simple, interest-free payment system in the palm of our hands began to resonate with a new generation of shoppers. Since then, instalment payments have exploded in supply and demand. In such a rapidly expanding market, growth has been the absolute focus of these companies — profits can wait.

Afterpay and its rivals are all competing to take as big of a chunk of the payment pie as possible. The main way to do this is to grow fast, faster than your competition. If you can win a customer and/or merchant before your competition, that’s half the battle.

Let’s have a look at each company’s recent revenue growth:

ASX BNPL share	Reported revenue (as of 31 December 2020)	Year-on-Year revenue growth (as of 31 December 2020)	Market capitalisation
Afterpay Ltd (ASX: APT)	$670.9 million	115.2%	$36.16 billion
Zip Co Ltd (ASX: Z1P)	$247.7 million	110.5%	$4.60 billion
Sezzle Inc (ASX: SZL)	$58.8 million	272.1%	$913.3 million
Splitit Ltd (ASX: SPT)	$6.7 million	309.2%	$386.5 million
Openpay Group Ltd (ASX: OPY)	$23.2 million	60.8%	$225.9 million

ASX Afterpay peers need to grow at scale

Straight away, we can see extreme growth occurring in smaller ASX-listed Afterpay peers. Splitit, for instance, notched up a 309% increase in its revenue year-over-year. However, its revenue is coming from a low base, at sub $10 million. This touches on the ‘law of large numbers’.

The law of large numbers is demonstrated quite well here. The fundamental point of this law is that it’s much easier to grow from a small number than a big number. For example, for Openpay to double its revenue, it would need to add another $23 million in revenue — not all too difficult. Whereas Afterpay would need to source a further $671 million in revenue — much more challenging.

We can see that both Zip and Afterpay have managed to more than double their revenue, despite being much larger than their peers. But an interesting difference between these two payment providers is scaling.

Growing and scaling are two different things. Growing is increasing revenue and resources at the same pace, while scaling is increasing revenue rapidly with resources increasing incrementally. To double revenue in the last year, Afterpay increased its losses by 35%. Meanwhile, Zip’s losses increased by nearly 13 times. At face value, this would indicate that Zip is not scaling as effectively as Afterpay.

Foolish takeaway

Revenue growth is the prime focus for these companies. We can see that smaller ASX-listed Afterpay peers are increasing their revenue at a faster rate, but the law of large numbers will likely see that diminish longer term.

A likely contributor to Afterpay’s share price and business success is its scaling. Although Zip is growing at phenomenal rates, the expense needed to grow will need to reduce over time to demonstrate scaling.

More reading

• Top brokers name 3 ASX shares to buy today
• Are brokers bullish on the Zip (ASX:Z1P) share price after quarterly results?
• ASX 200 up 0.6%: Zip rises, Resolute rockets, tech shares storm higher
• Could this help the Zip (ASX:Z1P) share price catch up to Afterpay?
• 5 things to watch on the ASX 200 on Wednesday

Mitchell Lawler owns shares of AFTERPAY T FPO. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of ZIPCOLTD FPO. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. recommends Sezzle Inc. The Motley Fool Australia owns shares of AFTERPAY T FPO. The Motley Fool Australia has recommended Sezzle Inc. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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The A2 Milk Company Ltd (ASX: A2M) share price is turning sour today. At the time of writing, shares in the New Zealand dairy company are trading for $8.23 – down 0.72%. By comparison, the S&P/ASX 200 Index (ASX: XJO) is 0.3% higher.

Over the last year, the A2 Milk share price has fallen by an astounding 53%.

While daily share price movements can be influenced by a myriad of factors, one possible reason behind today’s A2 Milk doldrums could be recent developments surrounding international student arrivals into Australia.

Let’s take a closer look at recent reports and why they could be negatively impacting the A2 Milk share price.

Australia may not see international students return soon

According to a report in yesterday’s The Australian, as a result of Australia’s delayed vaccine rollout for COVID-19, the country appears unlikely to reach herd immunity by the end of 2021 and therefore not open its borders to international students. Just last week, Prime Minister Scott Morrison said a general border opening was not on the cards in the near term.

There were hopes international students could come back to Australia before 2022, and before the borders were open to all. The New South Wales Government proposed a program to allow international students to return to the country and isolate themselves separately from the hotel quarantine program.

The state government stressed international students are “vital” for the “education sector and the economy more broadly” and began seeking external expressions of interest for the management of international student arrivals, as reported by The Guardian.

Ongoing issues with Australia’s vaccine rollout may have put those hopes on ice.

What does this have to do with the A2 Milk share price?

Before the pandemic, the biggest ‘cash cow’ for A2 Milk was its infant formula. In FY19, infant formula compromised 81.5% of all revenue. The largest market for A2 Milk’s infant formula was the daigou market.

Daigou is a term that refers to a market of customers who buy products overseas (such as in Australia) and then sell and ship them to end-users in China. These entrepreneurs are usually, but not always, from the People’s Republic. Popular daigou products in Australia include Blackmores Limited (ASX: BKL) vitamins and the aforementioned infant formula.

ASX investors do not expect the international border to open for some time. An analysis by Deloitte Access Economics says the border will not open fully until at least 2024. There was hope, however, an exception could be made for international students.

The reason the A2 Milk share price could be impacted by the return of international students to Australia is that a large portion of these students come from mainland China.

According to the Department of Education, in 2019 (pre-pandemic) 212,000 international students in Australia were from China, representing the single largest nationality bloc. In fact, this number was greater than those of the next three nationalities combined.

For further context, in FY19, 1.4 million tourists arrived in Australia from China. While the Chinese international student number is obviously much smaller, it still represents around one-sixth of total Chinese visitors to Australia.

The return of international students has the potential to reactivate the daigou channel in Australia. If the latest reports are to be believed, however, international student arrivals are still some way off. This could be partially responsible for the continued slump in the A2 Milk share price in the short term.

More reading

• Is it time to get your hopes up for the A2 Milk (ASX: A2M) share price?
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Motley Fool contributor Marc Sidarous has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended A2 Milk and Blackmores Limited. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

The post A2 Milk (ASX:A2M) share price sours amid international student uncertainty appeared first on The Motley Fool Australia.

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