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The A2 Milk (ASX:A2M) share price fell 13% in March 2021

The A2 Milk Company Ltd (ASX: A2M) share price dropped 13% in March. Measured from 2 March 2021, it declined by 18% to the end of the month.

That’s quite a painful decline considering how far the business has already fallen. Between 30 July 2020 and today, it has dropped over 60%. Ouch!

What happened in March?

A2 Milk didn’t actually make any important announcements during March, though its FY21 half-year result came right at the end of February 2021, so investors may have been reacting to those numbers throughout the month.

Those half-year numbers were pretty rough with revenue down 16% to $677.4 million and EBITDA (EBITDA explained) down 32.2% to $178.5 million.

A2 Milk is suffering from COVID-19 disruption experienced in the daigou/reseller channel which is having a flow on impact to the cross-border e-commerce (CBEC) channel. The company is taking steps to re-activate those channels.

Whilst A2 Milk didn’t give any updates, we saw two announcements from Synlait Milk Ltd (ASX: SM1).

At the start of the month, Synlait announced a profit downgrade. Synlait is a major supplier to A2 Milk and A2 Milk also owns a substantial chunk of Synlait shares.

Synlait said, as we mostly knew, that there is ongoing uncertainty of A2 Milk’s expected demand for the rest of FY21 and FY22, as it continues to rebalance its inventory levels and recovers from the impact of COVID-19 on the sale channels of the daigou and CBEC channels.

Shipping delays is also hurting things.

Then, earlier this week, Synlait released its FY21 half-year result. It said there continues to be uncertainty with A2 Milk demand for the rest of FY21 and FY22 and it does not have the confidence to forecast when a recovery will occur.

Where to now for the A2 Milk share price?

It could really go either way. The business is still expecting to generate well over $1 billion of revenue in FY21, so it’s not like the share price is going to $0. Plus, A2 Milk has a lot of growth potential in North America and it’s doing well in the mother and baby stores (MBS) in China, which is steadily making up for the lost revenue through other channels to Chinese customers.

There’s certainly a ‘bottom’ for this decline – but who knows where that will be? If you’re a believer in A2 Milk, then this is the lowest price since early 2018 and could be a contrarian turnaround pick. But it seems the recovery is going to take longer than expected.

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