Respected fund manager Wilson Asset Management (WAM) has recently identified two ASX shares that it owns in its portfolio.

WAM operates several listed investment companies (LICs). Two of those LICs are WAM Capital Limited (ASX: WAM) and WAM Leaders Ltd (ASX: WLE).

There’s also one called WAM Active Limited (ASX: WAA) which looks at businesses it thinks are the most undervalued.  

WAM says WAM Active invests in market mispricing opportunities in the Australian market.  

The WAM Active portfolio has delivered gross returns (that’s before fees, expenses and taxes) of 12% per annum since inception in January 2008, which is superior to the Bloomberg AusBond Bank Bill Index return per annum of 3.1%.  

These are the two ASX shares that WAM outlined in its most recent monthly update:

Graincorp Ltd (ASX: GNC)

According to the ASX, Graincorp has a market capitalisation of $980 million.

The fund manager describes GrainCorp as a business that handles, receives and stores agricultural commodities including grain and assists with the transporting, testing, storing and marketing of agricultural products.

Graincorp recently released its FY20 results for the year to September 2020 that showed a “significant lift” in financial performance despite the impact of the drought with underlying earnings before interest, tax, depreciation and amortisation (EBITDA) from continued operations of $108 million and a fully franked dividend of 7 cents per share.

The company also reported that its underlying net profit after tax (NPAT) for continuing operations was a $16 million loss, although this was improved from the $158 million loss in FY19. The statutory net profit was $343 million.

WAM Active said that the FY21 outlook for the company is strong with a record east coast crop tracking ahead of expectations. Graincorp is leveraged to an increase in crop volumes and the fund manager believes that the efficiency gains and cost savings implemented by management over the past years will materialise in financial performance.

Management said that the 2020/2021 winter crop will be similar size to the FY17 harvest (subject to ongoing weather conditions and other variables).

At the current Graincorp share price, it’s valued at 15x FY21’s estimated earnings according to projections on Commsec.

Adore Beauty Group Ltd (ASX: ABY)

According to the ASX, Adore Beauty has a market capitalisation of $480 million.

Adore Beauty recently listed on the ASX at the end of October 2020. It’s Australia’s only exclusively-online beauty retailer. WAM said the company was launched in 2000 in the founder’s backyard.

The company has grown to now stock more than 230 leading beauty brands, offering customers access to more than 11,000 products. The company had more than 18.5 million website users across its Australian and New Zealand websites in FY20. At 30 June 2020 it had serviced more than 590,000 active customers.

WAM pointed out that in November, promotional sales during the Black Friday and cyber weekend proved stronger than Adore Beauty’s initial forecasts. That’s why Adore Beauty increased its forecast revenue guidance for the FY21 first half to approximately $95.2 million, which was more than the prospectus forecast by 7%.

At the time of the update, Adore Beauty CEO Tennealle O’Shannessy said: “We are pleased to report strong sales ahead of our prospectus forecasts. The business has continued to scale, deliver content and meet the needs of our customers at a time when they need it most.”

The expected uplift in revenue is also anticipated by the company to have a positive impact on the EBITDA forecast for the first half of the 2021 financial year.

More reading

• 2 exciting mid cap ASX shares to buy for the long term
• Here’s how Nuix (ASX:NXL) and these recent IPOs are performing since listing
• 2 highly rated mid cap ASX shares to buy for 2021
• Wilson Asset Management (WAM) thinks these 2 ASX shares are a buy
• Westpac (ASX:WBC) tips Australian dollar to hit 80 US cents in 2021

Motley Fool contributor Tristan Harrison 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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At lunch on Tuesday the S&P/ASX 200 Index (ASX: XJO) is on course to record a sizeable decline. The benchmark index is down 0.85% to 6,613 points.

Here’s what has been happening on the market today:

ANZ CFO resigns.

The Australia and New Zealand Banking GrpLtd (ASX: ANZ) share price has come under pressure on Tuesday after announcing the exit of its chief financial officer (CFO). According to the release, the bank’s CFO, Michelle Jablko, has decided to leave the company and take up a senior role at toll road operator Transurban Group (ASX: TCL). Ms Jablko will transition her duties over the coming months to current Group General Manager Internal Audit Shane Buggle, who will be appointed Acting Chief Financial Officer.

Tech shares tumble.

Many of Australia’s leading tech shares are trading lower on Tuesday. The likes of Nearmap Ltd (ASX: NEA) and Zip Co Ltd (ASX: Z1P) are trading notably lower and weighing heavily on the the S&P ASX All Technology Index (ASX: XTX). The tech index is down a sizeable 1.2% lower at the time of writing. This follows a soft night of trade on Wall Street’s tech-focused Nasdaq index.

Iron ore price hits a nine-year high.

Mining giants BHP Group Ltd (ASX: BHP), Fortescue Metals Group Limited (ASX: FMG), and Rio Tinto Limited (ASX: RIO) are all dropping lower today despite the iron ore price jumping higher overnight. According to CommSec, the spot iron ore price jumped a massive 7.8% higher to a nine-year high of US$176.90 a tonne. This has been driven by concerns over a supply outage at one of Vale’s mines in Brazil.

Best and worst ASX 200 performers.

The best performer on the ASX 200 on Tuesday has been the A2 Milk Company Ltd (ASX: A2M) share price with a 1.5% gain. Bargain hunters appear to be snapping up shares after a heavy decline last week. The worst performer has been the Ramelius Resources Limited (ASX: RMS) share price with a 7% decline. A number of gold miners are dropping lower today, but Ramelius is leading the pack.

More reading

• Transurban (ASX:TCL) share price wobbles on new CFO announcement
• Why brokers slashed their A2 Milk (ASX:A2M) share price target
• The Unibail Rodamco Westfield (ASX:URW) share price has dipped 3% today
• Iron ore hits 9-year high: What this means for BHP, Fortescue, & Rio Tinto
• Is the Zip (ASX:Z1P) share price a buy yet?

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 Nearmap Ltd. and ZIPCOLTD FPO. The Motley Fool Australia owns shares of and has recommended A2 Milk. The Motley Fool Australia owns shares of Transurban Group. The Motley Fool Australia has recommended Nearmap 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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In late morning trade the S&P/ASX 200 Index (ASX: XJO) is on course to record another decline. At the time of writing, the benchmark index is down 0.4% to 6,642.2 points.

Four shares that are falling more than most today are listed below. Here’s why they are dropping lower:

AGL Energy Limited (ASX: AGL)

The AGL share price is down 3% to $12.17. Investors have been selling the energy company’s shares after it downgraded its guidance on Monday afternoon. AGL now expects its net profit after tax to be in the range of $560 million-$660 million, down from $500 million-$580 million previously. This represents an 11% reduction at the midpoint. This led to analysts at Morgans cutting their price target on the company’s shares to $11.18 this morning.

Mesoblast limited (ASX: MSB)

The Mesoblast share price has continued to sink lower and is down a further 4% to $2.21. Investors have been selling the biotech company’s shares after the release of a couple of disappointing updates last week. Both its advanced chronic heart failure and COVID-19 Acute Respiratory Distress Syndrome trials failed to achieve their primary endpoints.

WiseTech Global Ltd (ASX: WTC)

The WiseTech share price has fallen 2% to $30.13. Investors have been selling the logistics solutions company’s shares after it was the subject of a short seller attack by Viceroy Research. Its analysts claim many of the 37 acquisitions made by WiseTech over the past four years are from distressed sales or bankrupt companies with revenues falling post-acquisition.

Woodside Petroleum Limited (ASX: WPL)

The Woodside share price is down almost 2.5% to $22.53. Investors have been selling Woodside and other energy producers after oil prices tumbled lower overnight. Fears over a new strain of COVID-19 in Europe has led to concerns over demand for energy. Both WTI and Brent crude oil prices fell 2% during overnight trade.

More reading

• 5 things to watch on the ASX 200 on Tuesday
• Why the AGL (ASX:AGL) share price has fallen 6% today
• Under attack! Why the WiseTech Global (ASX:WTC) share price is down 9%
• Why Elixinol Global, Flight Centre, Mesoblast, & WiseTech shares are dropping lower
• ASX 200 down 0.4%: NIB jumps, a2 Milk rebounds, WiseTech sinks lower

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of WiseTech Global. 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 Volpara Health Technologies Ltd (ASX: VHT) share price has jumped by almost 5% this morning, after the company announced a new contract with BreastScreen Queensland.

At the time of writing, the Volpara share price is trading at $1.38, up by 6 cents.

What’s driving the Volpara share price? 

The Volpara share price is on the rise today after the medical technology company reported it has signed a five-year software-as-a-service (SaaS) contract with BreastScreen Queensland following a successful pilot trial.

BreastScreen Queensland is the third largest public breast screening program in Australia, and is head-quartered on the Gold Coast.

The contract, initially for Volpara’s quality assurance platform, VolparaEnterprise, will allow for the expansion of services to include VolparaDensity and VolparaLive.

The initial stage will involve the roll-out of VolparaEnterprise to 11 BreastScreen Queensland services operating in Brisbane and elsewhere in the state.

The BreastScreen Queensland services comprise 69 gantries and 43 sites that include 10 mobile units, covering 171 radiologists and technologists.

The roll-out of VolparaEnterprise to BreastScreen Queensland has already begun, and Volpara expects it to go live in early 2021.

Although the terms and conditions of the contract will remain confidential, Volpara CEO Dr Ralph Highnam believes the deal will put Volpara’s name on the world map, saying:

We are delighted to now have BreastScreen Queensland signing up to use our software, making it the second major public breast cancer screening programme in Australia signed up to Volpara products.

This is news that will resonate around the world, and we are extremely pleased that our software will be helping women in the fight against breast cancer, including women in the lives of many of our long-term investors.

What is Volpara?

Volpara is a New Zealand-based provider of breast imaging analytical products that improve clinical decision-making and the early detection of breast cancer.

It suite of software helps clinicians understand their patients, and administrators better understand their practices.

Today’s announcement is the second major contract the company has been able to secure in the space of just one week.

Last Friday, Volpara also announced it has signed a five-year contract with a major United States-based customer, US Radiology.

That contract was for the delivery and ongoing use of the Volpara Breast Health Platform.

About the Volpara share price in 2020

In its latest update to the market in November, the company reported net revenue of NZ$9.5 million for the first half of FY21, up 38% on the prior corresponding period.

However, that top line revenue resulted in a net loss after tax of NZ$8 million, compared to a NZ$8.9 million loss in 2019.

This performance has been reflected in the Volpara share price, which is down 25% this year.

Based on the current share price, the company commands a market capitalisation of $329 million.

More reading

• The Volpara (ASX:VHT) share price is flat today despite announcement
• 3 quality SaaS ASX shares to buy
• 3 exciting small cap ASX shares to buy
• Volpara (ASX:VHT) share price falls on half-year results

Eddy Sunarto has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of and recommends VOLPARA FPO NZ. The Motley Fool Australia has recommended VOLPARA FPO NZ. 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 Transurban Group (ASX: TCL) share price has been wobbly in morning trade despite the company announcing a change in the management team. At the time of writing, the toll road operator’s shares are inching up 0.43% to $14.06.

What did Transurban announce?

Transurban advised it has appointed Ms Michelle Jablko as the new chief financial officer.

Ms Jablko will leave her role as chief financial officer with Australia and New Zealand Banking Group Ltd (ASX: ANZ). Having held that position since 2016, Ms Jablko was also a member of the bank’s executive committee.

Ms Jablko has developed her skills across large and multinational organisations and brings a wealth of experience to Transurban. Her core competencies involve capital efficiency and allocation, as well as taking lead on merger and acquisition deals.

Prior to her role at ANZ, Ms Jablko spent most of her career in investment banking, most notably working for UBS and Greenhill Australia. In the latter, she held the role of managing director.

In her early career, Ms Jablko was employed by Allens Linklaters, which focuses on mergers and acquisitions, banking, tax and finance law.

Ms Jablko will join the Transurban team in the new year and be based in its offices in Melbourne, Victoria.

CEO commentary

Transurban CEO, Mr Scott Charlton, spoke highly about Ms Michelle Jablko and the new appointment:

We are delighted that Michelle will be joining Transurban Group and I believe that with her leadership, capabilities and experience she will make a significant contribution to the Transurban business.

About the Transurban share price

The Transurban share price has almost recovered to pre-COVID-19 levels. Its shares are currently down just under 10% from their 52-week high of $16.44 in January. However, since the beginning of June, the Transurban share price has mostly stagnated.

The company has a current market capitalisation of $38.2 billion.

More reading

• ANZ (ASX:ANZ) share price under pressure after CFO resigns
• ASX 200 Weekly Wrap: ASX hits new post-March high
• Top brokers name 3 ASX shares to sell next week
• 2 blue chip ASX dividend shares to buy next week
• Brokers name 3 ASX shares to buy right now

Motley Fool contributor Aaron Teboneras has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of Transurban Group. 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 Ramsay Health Care Limited (ASX: RHC) share price has lifted this morning after the company announced a new contract in the United Kingdom.

At the time of writing, the Ramsay share price is up 0.98% at $63.11.

What did Ramsay announce?

In today’s release, Ramsay advised it has signed a new volume-based agreement with NHS England (NHS). Ramsay will make its services available to the NHS to help meet the ongoing COVID-19 demands.

The NHS, or National Health Service, is the United Kingdom’s publicly-funded healthcare system.

The new agreement will run from 1 January to 31 March next year, unless terminated earlier on 6 weeks’ notice. It replaces an existing cost recovery agreement with NHS, which completes on 31 December 2020.

The company says NHS may trigger a peak surge period on 7 days’ notice, should Ramsay’s capacity be required to enable the NHS to respond to COVID-19 cases.

In these circumstances, the affected hospitals will be paid on a cost recovery basis.

Quick take on Ramsay Health Care

Ramsay Health Care is a global private hospital provider. Its facilities cater for a broad range of health care needs from primary care to highly complex surgery, as well mental health care and rehabilitation.

Ramsay Australia has around 36% market share of the private hospital market in Australia, with demographic positioning skewed to urban and mid- to high-income areas.

The Australian business has been a good cash generator for the company, as more Australians are on private health insurance (PHI) compared to our European counterparts.

According to recent data from APRA (Australian Prudential Regulatory Authority), 45% of Australians have PHI. In addition, more than 80% of private hospital revenue in Australia comes from private insurance.

This compares with 20% private insurance revenue in the United Kingdom and France, and 10% in the Nordic countries.

The cash revenue generated from Ramsay’s Australian business has enabled the company to expand overseas. Its most recent acquisition is the Swedish-based private hospital company Capio.

How has the Ramsay share price performed in 2020

The Ramsay share price is down 9.5% in 2020. The company delivered net profit after tax (NPAT) of $337 million for FY20, compared to $591 million for FY19.

However in its latest first-quarter update to the market, Ramsay Australia reported a 1.5% increase in total revenue during the first quarter of FY21. This reflects a 1.7% increase in surgical admissions.

Overseas, Ramsay UK business has also experienced a recovery in private care in recent months.

Given near-term uncertainties however, Ramsay declined to give any guidance for fiscal 2021. The company commands a market cap of $14.3 billion.

More reading

• These are 8 of the best performing ASX healthcare shares of 2020 so far
• 3 reasons why Soul Patts (ASX:SOL) is a great ASX dividend share
• 2 top ASX blue chip shares to buy
• ASX 200 events this week that could move the market

Motley Fool contributor Eddy Sunarto has no position in any of the stocks mentioned. The Motley Fool Australia has recommended Ramsay Health Care Limited. 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 investments regulator has kept the heat on ASX Ltd (ASX: ASX) for its 16 November systems crash, ordering it to conduct an independent review.

Australian Securities and Investments Commission (ASIC) continues to assess whether ASX is fit to hold its share market licence. 

In a sign that this assessment is not casting the best light on the company, ASIC and the Reserve Bank of Australia have notified ASX that it should perform an independent review within the next 6 months.

The concern for ASX holding the market licence is whether it “has sufficient financial, technological and human resources to operate its markets”.

Critics have pointed to the virtual monopoly the company enjoys, citing that it provides no incentive for it to invest sufficiently in infrastructure.

OpenMarkets chief executive Ivan Tchourilov said in October after an ASX website crash that its dominance was unhealthy.

“The industry is concerned that ASX has too much power to dictate play and there isn’t much of an opportunity for competitors to create a diverse environment that will ultimately benefit customers.”

ASX Ltd confirmed to The Motley Fool that it will complete an independent report. 

“We are focused on operating a safe and reliable market, and restoring confidence,” said an ASX spokesperson.

Broking firms told off for not having a backup to ASX

ASIC also took aim at broking firms for not having a backup to ASX available for their clients.

The sole reliance on the ASX only consolidates the monopoly. The regulator is also concerned that not having a backup fails brokers’ “best execution” obligations to clients.

Chi-X is an alternative market in Australia where trades for a subset of ASX-listed shares can be executed.

ASIC is alarmed at how it didn’t experience an increase in volume on 16 November when the ASX was down for most of the day.

“Participants’ duties to their clients, including the obligation to take reasonable steps to obtain best execution, do not fall away where there has been a market outage or disruption,” said ASIC commissioner Cathie Armour.

“The behaviour of market participants during this outage indicated too many firms are reliant on the ASX to trade listed securities. With a fully functioning alternative venue available, we are examining why far more trading did not occur on Chi-X on the day of the outage.”

In the coming year, the regulator will review what business continuity arrangements market participants (ie brokers) have in place.

Some broking platforms, like CommSec, already have Chi-X available as an alternative place of trade execution. Such providers were able to continue to provide a partial service to their clients on 16 November.

More reading

• Why zero-fee apps will never exist for ASX shares
• Top brokers name 3 ASX shares to sell next week
• Will ASX kick out companies that don’t have board diversity?
• Meet the most unpopular ASX large cap stock according to analysts
• Why ASX, Kogan, Myer, & Northern Star shares are dropping lower

Motley Fool contributor Tony Yoo 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 50 index may not be as well-known as the S&P/ASX 200 Index (ASX: XJO), but it is arguably just as important.

This exclusive index is home to 50 of the largest companies on the Australian share market. These include household names and companies that are regarded as true blue chip shares.

While not all shares on the index are necessarily in the buy zone, two that come highly rated are listed below:

Goodman Group (ASX: GMG)

Goodman Group is one of the world’s leading integrated commercial and industrial property companies. It owns, develops, and manages industrial real estate globally. This includes warehouses, large scale logistics facilities, and business and office parks across a total of 17 countries. 

The company has been growing at a solid rate over the last decade thanks to its high quality portfolio. Management has curated its portfolio to give it exposure to industries benefiting from structural tailwinds such as online, logistics, food, consumer goods, and the digital economy.

Morgan Stanley is a fan of the company and was pleased with its recent first quarter update. It believes the company’s focus on strong locations is paying off. The broker has an overweight rating and $20.90 price target on its shares.

Xero Limited (ASX: XRO)

Xero is actually the newest addition to the ASX 50 index, having only joined it on Monday following the quarterly rebalance. It is a leading cloud-based business and accounting software provider with a focus on small to medium sized businesses.

Thanks to its highly successful evolution into a full service small business solution over the last few years, Xero has been growing its customer numbers and recurring revenues at a rapid rate. This has underpinned very strong returns for shareholders.

Pleasingly, due to the quality of its offering, the ongoing shift to cloud-based solutions, its global market opportunity, and burgeoning app ecosystem, Xero has been tipped for more of the same in the future.

Analysts at Goldman Sachs are very positive on its prospects. They recently put a buy rating and $157.00 price target on the company’s shares.

More reading

• The most crazy ASX chart of 2020
• Buy these ASX blue chip shares for your retirement portfolio
• How useful is the P/E ratio in assessing ASX shares?
• These are the 5 best ASX real estate shares of 2020
• Why 2021 may be an even better year for ASX investors

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 Xero. 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 Over the Wire Holdings Ltd (ASX: OTW) share price is edging lower on Tuesday following the release of a business update.

At the time of writing, the telecommunications, cloud and IT solutions provider’s shares are down 2.5% to $4.35.

What was in Over the Wire’s update?

Over the Wire’s update provided investors with guidance for the first half and revealed a major new contract win.

In respect to the contract win, the company revealed that it has recently been awarded a contract with Eagers Automotive Ltd (ASX: APE).

According to the release, the contract will see Over the Wire provide Eagers Automotive with SD-WAN, WAN carriage, ongoing management services, and assistance with Internet Security across its Australia and NZ-wide operation.

Management expects this to contribute meaningfully to its revenue and earnings before interest, tax, depreciation and amortisation (EBITDA) from the second half of FY 2021.

In the meantime, Over the Wire is forecasting EBITDA to be in the range of $10 million and $10.5 million during the first half. This will be a 22% to 28% increase on the EBITDA of $8.2 million it achieved in the prior corresponding period.

However, FY 2021’s EBITDA has been boosted by the acquisitions of Zintel, Fonebox, and Digital Sense.

Management advised that its existing businesses are expected to contribute ~$7.5 million to $8 million EBITDA in the first half, which implies a year on year decline on a like for like basis. This may be why its shares are underperforming today.

The company believes this is a commendable performance considering that non-recurring revenue is expected to be c.$3.5 million below initial expectations. This reflects client caution on some project spend in recent months. Over the Wire is also facing a reduction in recurring data services revenue of ~$1 million as a result of the migration to NBN and clients downsizing services to reduce costs.

Outlook.

The company remains confident about its prospects for the second half and beyond.

It continues to invest heavily to strengthen its competitive position, build on the positive sales results in the first half, and generate growing revenue and EBITDA from its recent acquisitions.

Over the Wire’s Managing Director, Michael Omeros, commented, “In a challenging period for most of the community, I am proud of the significant achievements of the company in this half, which is a credit to the whole team at Over the Wire. As a result of our progress, we enter the new year in even better shape to support our clients as we continue simplifying technology to empower business.”

More reading

• These are the 7 best ASX retail shares in 2020
• ASX 200 up 0.55%: Altium update, Afterpay jumps, NAB given ACCC approval
• Why Afterpay, Alcidion, Eagers Automotive, & Pacific Smiles are storming higher
• Trading at record highs, why the Eagers (ASX:APE) share price is lifting again today
• ASX 200 drops on Friday

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 Over The Wire Holdings Ltd. The Motley Fool Australia has recommended Over The Wire Holdings 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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A2 Milk Company Ltd (ASX: A2M) may have lost its market darling status after yet another earnings downgrade. After reviewing A2’s updated FY21 and first half guidance provided on 18 December, Citi and Morgan Stanley slashed their A2 Milk share price targets. Here’s the rundown of what happened and how the brokers view A2 moving forward. 

Recovery slower than expected 

A2’s daigou channel represents a significant proportion of its domestic infant nutrition sales in the Australia/New Zealand region. In A2’s guidance update, the company revealed disruption to the channel has proved to be more significant than previously anticipated. Not only has this affected infant nutrition sales, but sales in other nutritionals segments have now also been impacted. 

The company now expects that COVID-19 related travel restrictions will continue to negatively impact the reseller channel due to reduced travel between Australia and China through the remainder of FY21. Its internal sales forecasts for both the daigou and cross border e-commerce channel (CBEC) for the remainder of FY21 are now materially lower. 

The update did highlight some positives including a strong performance in its Mother & Baby Stores (MBS) and liquid milk businesses in Australia and the United States. However, these segments represent a smaller percentage of the company’s revenue when compared to daigou and CBEC sales. 

1H21 and FY21 guidance lowered

A2 now expects group revenue for the first half of FY21 to be in the order of $670 million, noting that the second quarter will be higher than the first quarter. Its group revenue for FY21 is expected to be between $1.40 billion and $1.55 billion. 

This compares to the company’s previous FY21 outlook announced on 28 September, which forecasted group revenue for the first half of FY21 of $725 million to $755 million and group revenue of $1.80 billion to $1.90 billion for FY21. 

A2’s updated FY21 first half performance represents a 16.9% decline compared to its FY20 first half revenue of $806.7 million. Meanwhile, the company’s updated FY21 revenue represents a 10.4% to 23.1% decline on FY20 revenue of $1.73 billion. 

Brokers slash A2 Milk share price targets 

Both Citi and Morgan Stanley updated their A2 Milk share price targets on Monday after reviewing the company’s guidance update.

Citi retained a sell rating while lowering its price target from $14.20 to $9.50. This represents an 8.6% downside to the current A2 Milk share price of $10.39 (at the time of writing). The broker reacted negatively to the company’s revised profit guidance and was disappointed by the magnitude of the downgrade. Citi cut its expected A2 Milk earnings for FY21 by 15% and by over 20% for FY22 and FY23. 

Surprisingly, Morgan Stanley upgraded its price rating from underweight to equalweight. This rating upgrade was simply due to the significant fall in share price. The broker lowered its A2 Milk share price target from $12.40 to $11.00, or an upside of 5.9% to its current price. In doing so, Morgan Stanley highlighted A2’s lower sales, building margin pressures and daigou channels remaining severely impacted by the pandemic. 

More reading

• What does China have to do with the a2 Milk (ASX:A2M) share price?
• Leading brokers name 3 ASX shares to buy today
• ASX 200 down 0.4%: NIB jumps, a2 Milk rebounds, WiseTech sinks lower
• Is the a2 Milk (ASX:A2M) share price in the buy zone after last week’s 22% decline?
• These are the 10 most shorted shares on the ASX

Motley Fool contributor Lina Lim has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended A2 Milk. 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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