Market Movers: January 2018 – A2M, GXY

A2 Milk Sentiment:

Former CEO of Jetstar, Jayne Hrdicka is set to replace Geoffrey Babidge who is retiring in 2018. The company has stated that the induction of Hrdicka is to further support the ongoing development of its businesses in Asia Pacific. She commences around the start of 2019. Obviously if she performs as expected this will be promising for investors.

So I imagine that the new CEO will be focused mostly on building and marketing the a2 brand internationally, and indeed Ms Hrdlicka does have a background in marketing roles and a2 has guided for a big lift in its marketing spend this year.

11th January:

One of the worst performers on ASX on Thursday.The fast-growing dairy company’s shares finished the day 4.5% lower at $7.0, almost 13% off their 52-week high of $8.05.

With no news out of the company or broker notes to speak of, today’s decline appears to be a case of profit taking from investors. Which shouldn’t come as a huge surprise. After all, even after factoring in today’s decline, a2 Milk’s shares are up over 230% since this time last year.

Should you buy the dip?

I think this is a great opportunity for patient investors to snap up a2 Milk shares at a reasonably fair price. While its shares are still expensive compared to the market-average, I think they are good value based on its current growth profile.

This is especially the case when you consider the huge opportunity the company has in the lucrative China market, where the popularity of the product is growing as with the wealth of the middle-class. Although sales in the nation have been growing at an incredible pace, the company still only has a tiny share of the infant formula market, 3.5%. Considering its unique a2 protein ingredient, and changes to Chinese regulations which are likely to lead to a reduction in competition, I wouldn’t be surprised to see this market share grow heavily over the next year. This could lead to above-average profit growth that more than justified buying at this undervalued price at the moment.

Its performance is improving in the UK and United States as well.

Feb reporting season could do very well for A2 milk

Bellamys upgraded their outlook for profit margin and revenues by about 15-25% approximately, saw Bellamys up 22% and seen A2M jump on the back of that also up 7%.

 

Market short trends:

Feb Winner: Altium Ltd

Feb Loser: Myers

Lithium:

Galaxy mining Ltd

  • Following the bullish trend in lithium over 2017 almost all lithium miners are trading practically at their 52 week highs, so as long as you can see lithium demand continue into the future this shouldn’t really matter too much
  • I would have to back Galaxy as my first pick in the industry due to its three world-class assets, efficient production, and strong management team. However, its share price has rallied strongly in recent months and investors may want to hold out for pull back before investing.
  • Galaxy today released their quarterly report, supplying just shy of the 160,000 tonnes of lithium although still achieved great results,

 

Tawana about to start exporting as of this quarter has a 5 year contract with a Chinese company, going to be exporting 15000 tonne of the main product to make lithium carbonate

Sayona also a possible punt

 

This content has been written and published by KOSEC – Kodari Securities.

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CEO Michael Kodari