ATM - A2 Milk Corporation Limited

[glenscape]

agree wity you, longy. that is not a good word always.

[nztx]

Many many lessons to be learnt from what has happened with ATM share price action in the last year.

Hope they have been learnt.


Like .. "Stay away from ATM unless you like losing a piece of your grundies in each foray" .. ;)

Oh well .. at least ZEL seem to be looking rather more positive, so all can't be lost ..

[porkandpuha]

Sheesh all this downward pressure will be enough to bring Beagle out of hiding to tell us about it!

Nice trading stock today... and the shorters will be loving it, especially for the many who have been taking positions in the last 3 weeks per shortman.

[winner69]

Apparently taking a lot of old stock back and replacing with new fresh stuff

Jeez $120m of old / excessive stock is a lot .....now many tons is that.

[longy]

Apparently taking a lot of old stock back and replacing with new fresh stuff

Jeez $120m of old / excessive stock is a lot .....now many tons is that.

I am wondering this is why Nathan has resigned... Although they are not saying it?

[bull....]

there forecasts for discounted a2 to clear stocks might get upgraded if it turns into a price war

[allfromacell]

I just hope $120M worth of IF isn't wasted.

[Balance]

Where have you been AND haven't you heard of COVID before???

Why has "B!00dy Ch!n88se" got to do with it? I do find this offensive BTW. Any body else?


Dipped my toe into ATM @ 9.15 ( 2200 ) is this the bottom, hope I dont get slaughtered once Aussie opens !

I think ATM is way over sold !

Looks like whatsup is trying to find blame, having got into ATM at $9.15 and not seen a single day when the sp went above his entry price?

First he blamed downrampers

Now he blames the Chinese

Soon he will blame ATM :p

and finally, at $4.00, he will blame himself. :t_up:

[ratkin]

Having to markedly increase marketing spend is not a good look. Was a time it flew off the shelves regardless. Now they having to work extra hard just to get rid of it.
Maybe this is the last downgrade maybe not, but it does not look very investable unless you are of a gambling persuasion.

[Beagle]

This seems a worry, NPAT 1H 2021 was $120m, if the full 2021 year NPAT is indeed around $90m than this means the company is losing $30m in the second half.
I start to wonder if breakeven for next year is going to be considered a good result. Profits went up fast over the last few years, who would have thought profits would collapse so spectacularly. Maybe Balance I guess.

I hadn't thought of it being that bad, but thanks for sharing, I think you raise a very good point. $677m for the first half, and if they make $1.2 Billion and that's a big IF, that's just $533m for the second half.

With sales in April clearly cratering, management have an enormous job in front of them to stop the bleeding and stop the erosion of market share which will clearly involve more inventory "management" in FY22 and extensive marketing spend which I feel is likely to continue well into FY23. Maybe management can steady the ship at around $1 Billion in annual sales and around 17% gross margin after much higher marketing spend but perhaps further inventory write-off's in FY22 lead to a similar gross margin (11-12%) as for 2021 leading to a similar eps number of about 10-12 cps ?

Maybe they can grow eps at a modest rate in FY23 but what's a fair PE for a far more slowly growing company off say an 11 cps new baseline ? Maybe 17 ? Does that suggest around $2 is fair value as suggested by some others on here ? What's fair value if as you suggest all they can do in FY22 is break even ? What about the apparent ever growing geopolitical risks with doing business with China, how does that affect the situation going forward ?

No question the good ship ATM, (unlike the Titanic) has the reserves to get back to dry dock for a desperately needed thorough overhaul of its systems, procedures and marketing approach but what it can earn going forward and how slow the growth will be off a much lower eps base looks very concerning to me.


Thanks to your info, many got out or held off buying.

Appreciate the input.


I would like to thank everyone who posts here and freely provide their insights. Lots of lessons learnt and it saved me from making a costly mistake.

Will continue to follow this company from the sidelines and see whether there is a good long-term buying opportunity for my personal risk tolerance.

Nice that some people appreciate the enormous effort BBB (Balance, Beagle and Bull) have put into share their objective and unbiased thoughts against what is often a tidal wave of hate. I am not surprised by this mornings TV3 survey with 82% of respondents saying that social media was mostly a bad place. Hardly anyone ever thanks you for saving their bacon.

In case there's any doubt left, I think this "train wreck" of a share price correction still has a long, long way to play itself out fully.

[Balance]

Welcome back Beagle.

Your expertise has been missed.

[BlackPeter]

Welcome back Beagle.

Your expertise has been missed.

... couldn't have expressed it in a better way - good to have the beagle back!

[Balance]

https://www.nzherald.co.nz/business/a2-milks-david-bortolussi-defends-timing-of-4th-downgrade/JCS5MHM3NHEPS6BLGS32MATV6U/

Paywalled

Sobering read

[winner69]

https://www.nzherald.co.nz/business/a2-milks-david-bortolussi-defends-timing-of-4th-downgrade/JCS5MHM3NHEPS6BLGS32MATV6U/

Paywalled

Sobering read

David says “We are not in a crisis. It's just that the company's performance is not in line with expectations."

[Lease]

Morgan Stanley have bought into ATM, now their holding back to over 5%.

[winner69]

Morgan Stanley have bought into ATM, now their holding back to over 5%.

Wow ...been buying since the new year

Average price over 10 bucks I reckon ....but I admit I didn’t add all transactions up


They probably surprised by quantum of downgrade and probably do some more averaging down

[winner69]

From NZ Herald - Bortolussi, who has been n the job since January, said that when the board met over the weekend it had become clear that a downgrade was necessary.

I think that’s code for we knew things were bad at the half year but we were hoping like hell a miracle would happen and it would be all fixed by now. ...but alas it’s no better and we better fess up.

Not a good start for David ..lost some credibility ...like the Herald mentioned something about ‘defending the timing’

[Balance]

Apparently taking a lot of old stock back and replacing with new fresh stuff

Jeez $120m of old / excessive stock is a lot .....now many tons is that.

Gross margin = 50% so if we assume A2 IF of $44 a can (900g) = cost of $22 a can,

It can be seen that the $120m = 5.5m cans = 4.95m kgs = 4,950 tonnes down the drain.

A lot of cows went through a lot of effort to produce the milk to produce that 4.950 tonnes of IF!

BTW, I believe a can of IF has a shelf life of 1.5 years from date of production.

[winner69]

Gross margin = 50% so if we assume A2 IF of $44 a can (900g) = cost of $22 a can,

It can be seen that the $120m = 5.5m cans = 4.95m kgs = 4,950 tonnes down the drain.

A lot of cows went through a lot of effort to produce the milk to produce that 4.950 tonnes of IF!

BTW, I believe a can of IF has a shelf life of 1.5 years from date of production.

Beggars belief that such a big organisation can get sales and production forecasts so wrong ...even allowing for a lot of unknowns

[winner69]

I am wondering this is why Nathan has resigned... Although they are not saying it?

Maybe still miffed at not getting CEO job and probably blamed for things going so wrong (the caretaker didn’t help him much I bet)

No wonder he’s packed a sad

[peat]

Beggars belief that such a big organisation can get sales and production forecasts so wrong ...even allowing for a lot of unknowns

is this not due to being reliant on daigou in Australasia,

[flyinglizard]

This company is so slow to review and change its marketing approach, we have covid 19 for so long. The company has light assets, so it cannot be the sort of too big to change type. Is it too lazy or incompetent to change?

Maybe many years Daigou built its brand, marketing channel and high growth business model for the management team. They used to sit back and relax, let daigou do the hard work. Now Daigou has gone. The company failed to develop new market, failed to have production differentiation and failed to adopt its new market strategy under current covid environment on a monthly basis. The management enjoys their holiday and sold hell lot of holdings at the peak with some unbelievable forecasting reports. I seriously question their ability to produce a reasonable and trustful quarterly forecasting report. If you cannot, do it monthly.

The new CBEC channel only brings their higher cost, mountains of account receivables, even bad debt. Do they really have ability to manage their cash flow under new CBEC business model? They enjoyed many years "cash sale" business model from daigou channel. Now they have problem to manage their inventory system, what would be the next? cash flow!

The share buy back plan just accelerates burning company cash reserve, it really change nothing regards to its business model.

I hold my opinion firmly that SP of ATM will reach $3.5 range soon.

[Balance]

From NZ Herald - Bortolussi, who has been n the job since January, said that when the board met over the weekend it had become clear that a downgrade was necessary.

I think that’s code for we knew things were bad at the half year but we were hoping like hell a miracle would happen and it would be all fixed by now. ...but alas it’s no better and we better fess up.

Not a good start for David ..lost some credibility ...like the Herald mentioned something about ‘defending the timing’

He sounded rather shell-shocked & a bit lost actually :

What's the current state of play with daigou?

Bortolussi said the retail component of the daigou trade had reduced substantially, although it was better than it had been.

"The corporate daigou channel - which involves multiple routes to markets - is still operating, albeit at a reduced scale - but it is still operating in a healthy way.

"The cross border English label business will continue to be an important part of our business going forward."

Have other parts of the business taken up the slack?

"Our China label business - the domestic business in China - is performing in line with expectations.

"It's broken down a little bit there at the moment for various reasons but that's a real focus for us in the future - growing our business in China domestically.

[Ruby]

https://www.nzherald.co.nz/business...sharemarket-lower/W4Z2PITK4YXEDKCHJ3M45FLFZU/ (https://www.nzherald.co.nz/business/market-close-a2-milk-drags-sharemarket-lower/W4Z2PITK4YXEDKCHJ3M45FLFZU/)
Excerpts;

"...Oyvinn Rimer, senior research analyst at Harbour Asset Management, said a downgrade had been expected for some time and did not reflect the underlying strength of the business. New chief executive David Bortolussi had made a2 Milk's position more credible with the market, he added.
"He has acknowledged that there are some pretty significant macro variables going on in the infant formula industry.
"That, in the past, has not been accepted by the company," he said.
"There has been a change in the language and he is acknowledging that this is a problem and has presented some solutions on how to deal with them," he said. "What they have presented sounds sensible," Rimer said..."

[Balance]

https://www.nzherald.co.nz/business...sharemarket-lower/W4Z2PITK4YXEDKCHJ3M45FLFZU/ (https://www.nzherald.co.nz/business/market-close-a2-milk-drags-sharemarket-lower/W4Z2PITK4YXEDKCHJ3M45FLFZU/)
Excerpts;

"...Oyvinn Rimer, senior research analyst at Harbour Asset Management, said a downgrade had been expected for some time and did not reflect the underlying strength of the business. New chief executive David Bortolussi had made a2 Milk's position more credible with the market, he added.
"He has acknowledged that there are some pretty significant macro variables going on in the infant formula industry.
"That, in the past, has not been accepted by the company," he said.
"There has been a change in the language and he is acknowledging that this is a problem and has presented some solutions on how to deal with them," he said. "What they have presented sounds sensible," Rimer said..."

Anyone read or heard about said solutions by DB today?

This is what I read : "However, the Company recognises that the China market and channel structure is changing rapidly and
has therefore commenced a comprehensive process to review its growth strategy and executional plans
to respond to this new environment."

So 8 months after the first downgrade and 9 months after the AGM where it was all rah rah rah, it will take another ? more months to come up with a comprehensive strategy!

What have they been doing over the last 9 months? Busy counting the 5.5 million cans of IF in their store rooms? :scared:

Jayne must be laughing into her champagne & caviar (no A2 milkshake please) to read that they are now going to adopt her strategy of increased spending, just to to stem the loss of sales but with no clear strategy yet until a comprehensive review! Heck, she presented one to them and they sacked her! :t_down:

[Ruby]

Investor call recording
https://assets-au-01.kc-usercontent.com/bca3e5d5-83bd-02bf-1c27-acb036630e5b/7a879a9c-1c33-41f8-8aa7-bc6312f20761/A2m_CC_100521.mp3 (https://assets-au-01.kc-usercontent.com/bca3e5d5-83bd-02bf-1c27-acb036630e5b/7a879a9c-1c33-41f8-8aa7-bc6312f20761/A2m_CC_100521.mp3)

[Baa_Baa]

Anyone read or heard about said solutions by DB today?

This is what I read : "However, the Company recognises that the China market and channel structure is changing rapidly and
has therefore commenced a comprehensive process to review its growth strategy and executional plans
to respond to this new environment."

So 8 months after the first downgrade and 9 months after the AGM where it was all rah rah rah, it will take another ? more months to come up with a comprehensive strategy!

What have they been doing over the last 9 months? Busy counting the 5.5 million cans of IF in their store rooms? :scared:

Jayne must be laughing into her champagne & caviar (no A2 milkshake please) to read that they are now going to adopt her strategy of increased spending, just to to stem the loss of sales but with no clear strategy yet until a comprehensive review! Heck, she presented one to them and they sacked her! :t_down:

When you summarised the new CEO appointment objectives (tactics), this is one you forgot to mention. I'm sure you meant to, or maybe you did but I missed it.

The new CEO list of things to do is a lot longer than just getting the skele's out of the closet. The "review", as you point out, no-one in the company, directors included, have confidence in anyone in the company to 'sum up the situation and develop a coherent response plan'. It's still fluid. CEO nicely puts himself at arms length, as well as buying some more time. Brilliantly played, for a company he knows is not fecked, far from it, but maybe like Foran he might've stepped in at a rather unfortunate time!

I didn't buy too many today, honest.

[Balance]

When you summarised the new CEO appointment objectives (tactics), this is one you forgot to mention. I'm sure you meant to, or maybe you did but I missed it.

The new CEO list of things to do is a lot longer than just getting the skele's out of the closet. The "review", as you point out, no-one in the company, directors included, have confidence in anyone in the company to 'sum up the situation and develop a coherent response plan'. It's still fluid. CEO nicely puts himself at arms length, as well as buying some more time. Brilliantly played, for a company he knows is not fecked, far from it, but maybe like Foran he might've stepped in at a rather unfortunate time!

I didn't buy too many today, honest.


Sp down 26% YTD and breaking through all the support points - now heading down towards $7.50.

Mr Hearn is doing the company no favors, engaging in a public slanging match with Jayne via the media.



The whole Ms Hrdlicka vs Hearn thing is a distraction, irrelevant past tense. $7.50 marked on my chart, Legend @Balance gives guidance on the buy of the decade.

Well, good on you Baa_Baa!

Per our exchange of views in March when the sp was >$9.00, hope you loaded up on your BUY OF THE DECADE! :t_up:

[flyinglizard]

Investor call recording
https://assets-au-01.kc-usercontent.com/bca3e5d5-83bd-02bf-1c27-acb036630e5b/7a879a9c-1c33-41f8-8aa7-bc6312f20761/A2m_CC_100521.mp3 (https://assets-au-01.kc-usercontent.com/bca3e5d5-83bd-02bf-1c27-acb036630e5b/7a879a9c-1c33-41f8-8aa7-bc6312f20761/A2m_CC_100521.mp3)

I spent one hour to complete this one. They have totally no idea for which direction the company is heading and what's results or changes they will get in terms of production, inventory management, and price differentiation betw Chinese and English labelling after business model changes. I feel that the new inventory swap policy for CBEC channel will bring A2 SP down. I need re-calculate my spreadsheet again.

[Habits]

Well, good on you Baa_Baa!

Per our exchange of views in March when the sp was >$9.00, hope you loaded up on your BUY OF THE DECADE! :t_up:

If this fall keeps up then soon ATM will be the buy of the CENTURY. Commiserations to the LT shareholders who continued to stand by the company. I know the brand will still be respected and the company will come back up in time,

[Baa_Baa]

Well, good on you Baa_Baa!

Per our exchange of views in March when the sp was >$9.00, hope you loaded up on your BUY OF THE DECADE! :t_up:

I knew you would bring this up. I bought a small parcel at $7.44 and shortly after deleted your annoyingly prescient post from my chart.

Well done you, you've nailed this debacle from the get go.

[Balance]

I knew you would bring this up. I bought a small parcel at $7.44 and shortly after deleted your annoyingly prescient post from my chart.

Well done you, you've nailed this debacle from the get go.

Actually I have not - only given my views & assessments of the downgrades & what they mean, based upon bitter & costly experiences from the past.

[RTM]

is this not due to being reliant on daigou in Australasia,

I would think that the lack of decent computer systems contributed significantly. To big of an operation to manage with spreadsheets !

[JamieJ]

Beagle - good to have you back and thank you for saving my bacon, with your advice in a situation like this to not get in until we have crossed the 90 day moving average on the up side. Is still nowhere near.

[Cyclical]

Apparently taking a lot of old stock back and replacing with new fresh stuff

Jeez $120m of old / excessive stock is a lot .....now many tons is that.


Gross margin = 50% so if we assume A2 IF of $44 a can (900g) = cost of $22 a can,

It can be seen that the $120m = 5.5m cans = 4.95m kgs = 4,950 tonnes down the drain.

A lot of cows went through a lot of effort to produce the milk to produce that 4.950 tonnes of IF!

BTW, I believe a can of IF has a shelf life of 1.5 years from date of production.

What a shocking concept, all that potentially going down the drain. Don't tell the greenies. Imagine the amount of methane produced, coal burnt and all the other environmental cost that went into making this magic white powder that they can't shift. Let's hope they find something useful to do with it.

[jimdog31]

the one thing management did right in my opinion is not paying dividends lol.They are going to need that cash runway.

[winner69]

I would think that the lack of decent computer systems contributed significantly. To big of an operation to manage with spreadsheets !

And Jayne got fired because she noted they didn't have an IT person so started hiring some

[silu]

And Jayne got fired because she noted they did have an IT person so started hiring some

I assume you mean "didn't" have an IT person. Yeah funny how Jayne seems to have had the right ideas but met a stubborn board.

[dobby41]

I assume you mean "didn't" have an IT person. Yeah funny how Jayne seems to have had the right ideas but met a stubborn board.

Also funny how some here thought she was the worst CEO ever (not getting at you).

[winner69]

I assume you mean "didn't" have an IT person. Yeah funny how Jayne seems to have had the right ideas but met a stubborn board.

Yep I meant didn't

And worse than firing her was putting in a caretaker CEO whose heart wasn't really in it

[winner69]

At half year they said full year ebitda would be about $350m - they were on top of things blah blah blah

Yesterday they said full year ebitda will be about $130m

So whatever has happened in the last two months has cost them $220m more than expected

and we are meant to believe in the credibility of the Board and management going forward

[silu]

Also funny how some here thought she was the worst CEO ever (not getting at you).

For the record I was a supporter of Jayne as CEO and always thought that she had the right plan. She knew that A2 Milk was a marketing company and wanted to increase the spend which in my view could have become the moat around the brand (think Coca-Cola or Red Bull) if executed well.

Some people took her sale of shares almost personally and were very vocal in their "displeasure". That short term view of keeping margins was arrogant and ultimately retail investors paid the price. Management cleverly sold out at high prices probably because they knew that they got lucky with Daigou and were hoping that this channel will continue to do the marketing for them. As it turned out "hope and pray" is not the right strategy for a maturing company.

[Balance]

https://www.newsroom.co.nz/a2-milk-needs-chinese-daigou-sales

Sounds like ATM problems with daigou went back before the pandemic and the pandemic simply accelerated the problems. ATM basically cut the profitability of the daigou channel which made ATM what it was in China in favour of e-commerce channels.

Excerpt:

‘ Li, who is in regular communication with daigou sales people in China, said in recent years as A2 Milk diversified its marketing and sales channels by selling through platforms like JD and Alibaba’s Tmall, daigous lost profit to the e-commerce behemoths.

“This comes back to the fundamentals. They didn't look after their relationship with daigous well.

“They moved onto working with Alibaba and these platforms, essentially cutting out the daigous because they had direct sourcing. But you can’t forget these small daigous are thousands of sales people promoting their products through word of mouth,” Li said’

[alokdhir]

At half year they said full year ebitda would be about $350m - they were on top of things blah blah blah

Yesterday they said full year ebitda will be about $130m

So whatever has happened in the last two months has cost them $220m more than expected

and we are meant to believe in the credibility of the Board and management going forward

Originally Posted by alokdhir https://www.sharetrader.co.nz/images/buttons/viewpost-right.png (https://www.sharetrader.co.nz/showthread.php?p=863468#post863468)Only hope to hold or buy ATM again around $ 8.50 is looking for a takeover offer from a better management . I am really disappointed with what they said today and in what manner . :t_down:



I was in Hold ATM camp against my better judgement after posting here first that ASM commentary is not very convincing ...today I bailed out as management let me down by trying to fool investors two times first after full year results that strong growth expected and after 40 days they down grade ...then at ASM stating no downgrades and then after 30 days give massive profit and sales warning ...really disappointing behaviour from highly paid professionals :t_down:

I posted this on 18th Dec as I realised the quality of management not good ...all companies have downturns and difficulties but need good quality management to get them out of that ...sadly ATM doesn't have that quality :t_down:

[Beagle]

At half year they said full year ebitda would be about $350m - they were on top of things blah blah blah

Yesterday they said full year ebitda will be about $130m

So whatever has happened in the last two months has cost them $220m more than expected

and we are meant to believe in the credibility of the Board and management going forward

Really breathtaking when you look at it like that.
You have a choice whether to believe or not.
Sales by half year to:-
30 June 2020 $923m
31 Dec 2020 $677m
30 June 2021 $533m F (Assumes they meet the bottom end of their forecast of $1.2 billion annual sales.

That's quite a trend to try and stop. In FY20 they spent $194m on marketing to grow and generate revenue of $1.73 Billion, more than 11% of gross revenue which is huge. Despite this we have seen a massive decline in revenue and the board signaling the need for a significant increase in marketing going forward. WOW !

Food for thought. If they are going to spend something like $225m on marketing in FY22 to try and "stabilize the ship" and stop the erosion of market share and suppose they do stop the bleeding and they achieve sales of 2 x $533m = $1,066m in FY22, that's still a reduction on FY21 sales and what does all that marketing spend do to margins in FY22 ?

On top of that there's old inventory issues rolling into FY22. Maybe Forest is right and all we can expect is a break even result in FY22 ?

More food for thought. After 4 quite spectacular downgrades surely there must be questions about the credibility of any forecast this company issues ? What credibility should we attach to their new sales forecast of $1.2 - $1.25 Billion for FY21 if any ? Is there a fifth downgrade coming and would 5 downgrades be some sort of wooden spoon record for any company listed on the NZX ?

[Oberon]

I'd love to be a buyer here as a long term value play. But as Beagle said - and I agree - the current share price savaging is a long way from resolving itself.

Bortolussi has perked my interest, but clearing the decks is only a beginning.

And my concern remains the same as it did before this 9 month or so downtrend commenced: China. I've never been comfortable with A2 having so many eggs in the China basket. Too many potential curveballs in the present climate.

No faith in management. But, it'll stay on the radar.

[Balance]

Really breathtaking when you look at it like that.
You have a choice whether to believe or not.
Sales by half year to:-
30 June 2020 $923m
31 Dec 2020 $677m
30 June 2021 $533m F (Assumes they meet the bottom end of their forecast of $1.2 billion annual sales.

That's quite a trend to try and stop. In FY20 they spent $194m on marketing to grow and generate revenue of $1.73 Billion, more than 11% of gross revenue which is huge. Despite this we have seen a massive decline in revenue and the board signaling the need for a significant increase in marketing going forward. WOW !

Food for thought. If they are going to spend something like $225m on marketing in FY22 to try and "stabilize the ship" and stop the erosion of market share and suppose they do stop the bleeding and they achieve sales of 2 x $533m = $1,066m in FY22, that's still a reduction on FY21 sales and what does all that marketing spend do to margins in FY22 ?

On top of that there's old inventory issues rolling into FY22. Maybe Forest is right and all we can expect is a break even result in FY22 ?

More food for thought. After 4 quite spectacular downgrades surely there must be questions about the credibility of any forecast this company issues ? What credibility should we attach to their new sales forecast of $1.2 - $1.25 Billion for FY21 if any ? Is there a fifth downgrade coming and would 5 downgrades be some sort of wooden spoon record for any company listed on the NZX ?

So H1 2020 to H1 2021 sales drop = 42%!

And ATM is still blaming it all on Daigous - when per my post #21543, it is becoming clear that there has been massive cannibalization of sales by the e-commerce channels of the daigous.

Looks to me like Daigous made ATM and now, Daigous are going to un-make ATM.

I don't think there will be a fifth downgrade for F21 (results may even come in a little better due to the provisionings for stock & expenses - something DB would have insisted on) but there will be massive downgrades of earnings & profits for F22 and F23.

And the market will have to wait until August to get any kind of indication from the company of what F22 and F23 numbers are going to look like.

[winner69]

https://www.newsroom.co.nz/a2-milk-needs-chinese-daigou-sales

Sounds like ATM problems with daigou went back before the pandemic and the pandemic simply accelerated the problems. ATM basically cut the profitability of the daigou channel which made ATM what it was in China in favour of e-commerce channels.

Excerpt:

‘ Li, who is in regular communication with daigou sales people in China, said in recent years as A2 Milk diversified its marketing and sales channels by selling through platforms like JD and Alibaba’s Tmall, daigous lost profit to the e-commerce behemoths.

“This comes back to the fundamentals. They didn't look after their relationship with daigous well.

“They moved onto working with Alibaba and these platforms, essentially cutting out the daigous because they had direct sourcing. But you can’t forget these small daigous are thousands of sales people promoting their products through word of mouth,” Li said’


When I saw quotes from Li i thought it was quotes from Li Xiao (A2 China Exec) and thought heck

No, the Li quoted is an expert

Suppose the A2 Li Xiao hasn't done a good job

[bull....]

Looks to me like Daigous made ATM and now, Daigous are going to un-make ATM.



very good point and you have to wonder how much of the marketing spend was incentives to daigous to pump it. like any sales incentive scheme it works to it doesnt. covid was what stopped it working.
will it go back to normal ... no chinese brands are much more popular now unlike before.

[winner69]

Fletcher Building were champions of downgrades and bad news following bad news

Taken Taylor a few years to sort things out and to become credible

Probably take Bortolussi a few years to sort things out at A2 and to become credible

ATM could do a FBU in a couple of years time - wonder what the starting share price will be at recovery time

[Balance]

Fletcher Building were champions of downgrades and bad news following bad news

Taken Taylor a few years to sort things out and to become credible

Probably take Bortolussi a few years to sort things out at A2 and to become credible

ATM could do a FBU in a couple of years time - wonder what the starting share price will be at recovery time

Let's see over the next week what analysts and brokers come out with as financial forecasts for the next 2 years.

Almost all of them have relied heavily on ATM to provide guidance but as of yesterday, they are going to have to do some real work & projections.

I will be using their numbers as a starting point to make my own projections.

[Beagle]

FBU hit a low of $3.16 in May 2020....couldn't happen to ATM...or could it ?

[sb9]

Investor call recording
https://assets-au-01.kc-usercontent.com/bca3e5d5-83bd-02bf-1c27-acb036630e5b/7a879a9c-1c33-41f8-8aa7-bc6312f20761/A2m_CC_100521.mp3 (https://assets-au-01.kc-usercontent.com/bca3e5d5-83bd-02bf-1c27-acb036630e5b/7a879a9c-1c33-41f8-8aa7-bc6312f20761/A2m_CC_100521.mp3)

New CEO David definitely hit right notes in Q&A with Analysts. Sounded very open and honest in giving out lot of detail. I would be happy give him some time.

[Habits]

FBU hit a low of $3.16 in May 2020....couldn't happen to ATM...or could it ?

Huh? What is the connection

[silu]

Huh? What is the connection

Hubris
.
.
.
there's none

[flyinglizard]

When I saw quotes from Li i thought it was quotes from Li Xiao (A2 China Exec) and thought heck

No, the Li quoted is an expert

Suppose the A2 Li Xiao hasn't done a good job

You are right, Winner.

The daigou marketing activities and sales volume slowed down since mid of 2017. The corporate daigous setup new marketing channel, shifting from retailed sales to custom bonded warehouse in China. Now the corporate daigous have more than 40 different brands of milk powder for sale, instead of less than 20 in 2017. There is no loyalty for daigou channel to select a particular brand to do the marketing. The ads of A2 in daigou channel have significantly reduced since 2019, as I noticed.

[flyinglizard]

Really breathtaking when you look at it like that.
You have a choice whether to believe or not.
Sales by half year to:-
30 June 2020 $923m
31 Dec 2020 $677m
30 June 2021 $533m F (Assumes they meet the bottom end of their forecast of $1.2 billion annual sales.

That's quite a trend to try and stop. In FY20 they spent $194m on marketing to grow and generate revenue of $1.73 Billion, more than 11% of gross revenue which is huge. Despite this we have seen a massive decline in revenue and the board signaling the need for a significant increase in marketing going forward. WOW !

Food for thought. If they are going to spend something like $225m on marketing in FY22 to try and "stabilize the ship" and stop the erosion of market share and suppose they do stop the bleeding and they achieve sales of 2 x $533m = $1,066m in FY22, that's still a reduction on FY21 sales and what does all that marketing spend do to margins in FY22 ?

On top of that there's old inventory issues rolling into FY22. Maybe Forest is right and all we can expect is a break even result in FY22 ?

More food for thought. After 4 quite spectacular downgrades surely there must be questions about the credibility of any forecast this company issues ? What credibility should we attach to their new sales forecast of $1.2 - $1.25 Billion for FY21 if any ? Is there a fifth downgrade coming and would 5 downgrades be some sort of wooden spoon record for any company listed on the NZX ?


Hi Mr. B, the current low exchange rate helps A2 a bit, saying 10%. The next thing is to exam whether they have a sound exchange rate hedging system to against NZD/CNY appreciation in the long term. Daigou Cash Sale in NZD model has gone, I am just wondering the management has ready for this business model change. Now they are having and will have large amount of CNY through Chinese brand sales.

[Leftfield]

Fletcher Building were champions of downgrades...Taken Taylor a few years to sort things out and to become credible....Probably take Bortolussi a few years to sort things out at A2 and to become credible

ATM could do a FBU in a couple of years time - wonder what the starting share price will be at recovery time


Let's see over the next week what analysts and brokers come out with as financial forecasts for the next 2 years.

ATM's August results update will be v interesting.... particularly whether ATM stick with their 'Capital Light' approach or proceed with their purchase of Mataura V Milk.

Lots of options.... will ATM sell their SML shares to fund MVM???..... will ATM decide not to proceed to with the MVM purchase at all??? Interesting times.

[Balance]

ATM's August results update will be v interesting.... particularly whether ATM stick with their 'Capital Light' approach or proceed with their purchase of Mataura V Milk.

Lots of options.... will ATM sell their SML shares to fund MVM???..... will ATM decide not to proceed to with the MVM purchase at all??? Interesting times.

http://nzx-prod-s7fsd7f98s.s3-website-ap-southeast-2.amazonaws.com/attachments/ATM/365654/338149.pdf

Purchase of MVM is unconditional - so how can ATM back out?

Selling out of SML is certainly an option but at what price? Will be a huge loss and would it be worthwhile, given that the purchase was supposedly so strategic?

[xp04]

ATM's August results update will be v interesting.... particularly whether ATM stick with their 'Capital Light' approach or proceed with their purchase of Mataura V Milk.

Lots of options.... will ATM sell their SML shares to fund MVM???..... will ATM decide not to proceed to with the MVM purchase at all??? Interesting times.

“The acquisition will be undertaken on a debt-free cash-free basis and funded from a2MC’s existing cash reserves”

[Balance]

“The acquisition will be undertaken on a debt-free cash-free basis and funded from a2MC’s existing cash reserves”

"Cash-free debt-free simply means that when an acquirer buys another company, the transaction will be structured such that the buyer will not assume any of the debt on the seller's balance sheet, nor will the buyer get to keep any of the cash on the seller's balance sheet."

[Balance]

Looking grim - short coverings yesterday which limited the sp fall and now, second wave sell down by the market from analysts' F22 & F23 downgrades coming through.

Will A$5.25 hold this week?

[bull....]

chinese love affair over , is there demand for a2 meat?

[winner69]

Speculation still rife that A2 might fall out of MCSI World Index

Macquarie reckon about $50m worth of stock would have to be quit

[flyinglizard]

Death Spiral - One institution starts to sell and brings the SP down, then will trigger another one's stop limit target, start to sell, and another one......

For all institutions in ATM, this is a Prisoner's Dilemma situation. Who would be the first to break out?

[xp04]

"Cash-free debt-free simply means that when an acquirer buys another company, the transaction will be structured such that the buyer will not assume any of the debt on the seller's balance sheet, nor will the buyer get to keep any of the cash on the seller's balance sheet."

and "funded from a2MC’s existing cash reserves" means they will borrow from lenders I presume

[Beagle]

Huh? What is the connection I was merely responding to Winner's suggestion that the CEO of FBU took quite some time to build credibility with the market. There is no suggestion that there is any link. That said, yesterday i outlined a scenario wherein based on one possible outcome of future earnings metrics ATM could decline all the way back to ~ $2 and i note in the forum i am certainly not the only one holding that view. I don;t know where the bottom is, and neither does anyone else. What I do know is that buying in a confirmed downtrend is extremely risky. Waiting for a confirmed trend change, (for example a fresh break up through the 100 day moving average), makes a lot of common sense to me.


Hi Mr. B, the current low exchange rate helps A2 a bit, saying 10%. The next thing is to exam whether they have a sound exchange rate hedging system to against NZD/CNY appreciation in the long term. Daigou Cash Sale in NZD model has gone, I am just wondering the management has ready for this business model change. Now they are having and will have large amount of CNY through Chinese brand sales. They haven't demonstrated they can even manage their inventory and its ageing well and I think its now clear their reporting systems are dated and inadequate and give them little if any forward visibility. That doesn't suggest to me its likely they have good systems to manage currency risks. Unlike Balance I feel there is a real chance of another downgrade as its clear management have no forward visibility on sales whatsoever so relying on management to forecast May and June 2021 sales seems like a mugs game.

[Balance]

and "funded from a2MC’s existing cash reserves" means they will borrow from lenders I presume

ATM has over $700m on its balance sheet - no need for debt. Yet.

[bull....]

Macquarie Group Ltd (ASX: MQG) (https://www.fool.com.au/tickers/asx-mqg/) is also bearish. It downgraded its shares to an underperform rating and cut the price target on them to $5.60.
As is Citi, which has retained its sell rating and cut its price target to $5.85.
Morgans is a little more positive. It has retained its hold rating but slashed its price target to $6.65. Based on its forecasts, it estimates that its shares are trading at 26x FY 2022 earnings.
Elsewhere, Bell Potter has retained its buy rating and cut its price target to $8.50, Morgan Stanley has a $7.10 price target, and UBS has a buy rating and lofty NZ$13.50 (A$12.52) price target. All three targets offer meaningful upside from the current a2 Milk share price of $6.10.

https://www.fool.com.au/2021/05/11/is-the-a2-milk-asxa2m-share-price-cheap-heres-what-brokers-think/

[Dassets]

Got to settle Mataura I thought. That loss making acquisition now looks like a (milk)white elephant

[Beagle]

Macquarie Group Ltd (ASX: MQG) (https://www.fool.com.au/tickers/asx-mqg/) is also bearish. It downgraded its shares to an underperform rating and cut the price target on them to $5.60.
As is Citi, which has retained its sell rating and cut its price target to $5.85.
Morgans is a little more positive. It has retained its hold rating but slashed its price target to $6.65. Based on its forecasts, it estimates that its shares are trading at 26x FY 2022 earnings.
Elsewhere, Bell Potter has retained its buy rating and cut its price target to $8.50, Morgan Stanley has a $7.10 price target, and UBS has a buy rating and lofty NZ$13.50 (A$12.52) price target. All three targets offer meaningful upside from the current a2 Milk share price of $6.10.

https://www.fool.com.au/2021/05/11/is-the-a2-milk-asxa2m-share-price-cheap-heres-what-brokers-think/


Think you missed this one - One broker that doesn’t think its shares are cheap is Credit Suisse. This morning the broker retained its underperform rating and cut its price target to $5.00. It estimates that its shares are changing hands for 34x FY 2022 earnings at present.

[bull....]

Think you missed this one - One broker that doesn’t think its shares are cheap is Credit Suisse. This morning the broker retained its underperform rating and cut its price target to $5.00. It estimates that its shares are changing hands for 34x FY 2022 earnings at present.

lol missed the most relevant one ............... yuk so very expensive to buy at todays price eh according to the broker

[Balance]

Think you missed this one - One broker that doesn’t think its shares are cheap is Credit Suisse. This morning the broker retained its underperform rating and cut its price target to $5.00. It estimates that its shares are changing hands for 34x FY 2022 earnings at present.

The brokers are doing the classic follow the sp down with their valuations, target prices and recommendations.

[Beagle]

The brokers are doing the classic follow the sp down with their valuations, target prices and recommendations.

Even the most zealous and ardent supports are getting more cautious on HC now.

[gbogo]

Jarden's cut to $6.10 from $7.90.

[silu]

Brokers probably have even lower estimates but if they cut target prices too much they'd field calls from their clients why they not long ago had a much higher valuation.

And I can confess that I was an ardent supporter until a few weeks ago. The lofty gains I made with A2 Milk clouded my judgement. When I finally let the message filter through to my brain that this is not a high growth company anymore I punched my own numbers and nearly fainted. Sold them all around the $10 mark and didn't look back since. Currently I wouldn't touch it until a) it's in a clear uptrend or b) gets closer to the $2-$3 range I think would be fair value.

[silu]

Article of interest: https://www.theguardian.com/world/2021/may/11/chinas-population-growing-at-slowest-rate-generations-one-child

China’s population growing at slowest rate in generations
Census data reveals demographic timebomb, adding pressure on Beijing to boost incentives for couples to have more children and avert an irreversible decline

[RTM]

This was pretty interesting.

https://youtu.be/f5SE47Xjx2Q

[Beagle]

Growing trend towards plant milk ?
https://www.nzherald.co.nz/lifestyle/scam-or-not-are-plant-milks-good-for-you/X5LYS5LOWRNJAEWYUZDWOJMK6E/ (paywalled)

[bull....]

price going to $2 ?

[RTM]

chinese love affair over , is there demand for a2 meat?

Well....this for me was the post of the day.

[Cyclical]

Well....this for me was the post of the day.

I was just going to say the same thing. Bull's post of the year!

[winner69]

I reckon as at today A2 are down about 50% on their $280m 'investment' in Synlait

Pretty costly strategic positioning

Probably their new venture will be costly as well

[Getty]

chinese love affair over , is there demand for a2 meat?

The cows will have to kowtow, or the freezers will be full of Friesans.

[voltage]

I am still holding, extremely disappointing, would you be a seller now? I see the advantage of index ETFs

[bull....]

price will still have to fall quite a bit yet to catch up with implied fundamentals going forward then will trade in no - mans land until fundamentals stabilize sometime in the future.

[Habits]

I am still holding, extremely disappointing, would you be a seller now? I see the advantage of index ETFs

Yes. If unsure I would sell a portion. Strangely u can still see more downside even though the price has come off as much as it has. And then there's the MSCI decision due out this month. Obviously very disappointing and will rise again though not for at least one year. Institutions are still processing the latest from company. Some good analyses done above

[Raz]

I reckon as at today A2 are down about 50% on their $280m 'investment' in Synlait

Pretty costly strategic positioning

Probably their new venture will be costly as well

Synlait was the forward indicator on this one, only last year with their bad management news coming to surface in the MSM yet we have seen key people running from the company over the prior year up to that and the link with A2. It unwinding may well be shocking, so is the reality so few people did see it and exit earlier. Blinded by the story and share price success.

[Nor]

Maybe they should put the daigous on the payroll.

[winner69]

Charts with Fractal Chaos Bands often look really cool - some times more so from an artistic point of view, beautiful image etc

The ATM chart at the moment below

Maybe in a few years time there will be a stair way to heaven showing

[Balance]

Maybe they should put the daigous on the payroll.

ATM was trying to have its cake and eat it at the same time - relying on the diagou sales while shafting them by supplying to the daigou competitors.

That is now very clearly a huge problem - how to revitalize the informal channel when the underlying profitability is now gone for the channel, courtesy of ATM!

[Nor]

Difficult business. With no international travel there are no daigou anyway I suppose.

[Getty]

Year 2040 Quiz question.

Which business was most affected by Covid in 2020/21?

Airlines, AIR?, no

Hotels, MCK?, no

Hospitality, GSH?, no

Tourism, THL?, no

Milk, ATM? BINGO!!!!

[Justin]

Year 2040 Quiz question.

Which business was most affected by Covid in 2020/21?

Airlines, AIR?, no

Hotels, MCK?, no

Hospitality, GSH?, no

Tourism, THL?, no

Milk, ATM? BINGO!!!!

App Plexure :scared:

[BlackPeter]

Difficult business. With no international travel there are no daigou anyway I suppose.

Yes and no - there are some quite sophisticated and commercial parcel based Daigou channels. They receive orders via some of the Chinese social networks (like Weibo), recommend which product to buy, have their people buying product in Australia and to a lesser degree NZ off the supermarket shelf, put the stuff into parcels and ship them to China. No international travel required.

I don't think the lack of Chinese students shuttling between the Chinese mainland and Australia / NZ is the big problem. ATM could have easily dealt with commercial Daigou traders using the parcel service - hey, they could have hired their own boats and containers to support these traders and prioritize their Platinum Daigou parcels, couldn't they?

ATM's main problem is that they never understood that their only cash cow is selling infant formula to China, and they never understood how their main marketing and sales channel to China works. All their other A2 ventures (but A2 IF) are either cash neutral at best or loss makers.

They didn't talk with the people running Daigou. They don't have them on their payroll (or their bonus list). They don't know the influencers who convince Chinas mothers to buy this or that brand of IF for their baby. Instead of getting the Daigou buyers to empty supermarket shelves they could have contacted them directly ... and even offered them a better deal. Would have been a win - win for both sides.

Most companies would treat their (one and only) cash cow with care. ATM didn't care. Lack of international travel is not their big problem - a board which might have had the right skills (or just luck?) to grow a boutique company into a dinosaur, but which is clearly inept to run a billion dollar company is.

[kizame]

Yes and no - there are some quite sophisticated and commercial parcel based Daigou channels. They receive orders via some of the Chinese social networks (like Weibo), recommend which product to buy, have their people buying product in Australia and to a lesser degree NZ off the supermarket shelf, put the stuff into parcels and ship them to China. No international travel required.

I don't think the lack of Chinese students shuttling between the Chinese mainland and Australia / NZ is the big problem. ATM could have easily dealt with commercial Daigou traders using the parcel service - hey, they could have hired their own boats and containers to support these traders and prioritize their Platinum Daigou parcels, couldn't they?

ATM's main problem is that they never understood that their only cash cow is selling infant formula to China, and they never understood how their main marketing and sales channel to China works. All their other A2 ventures (but A2 IF) are either cash neutral at best or loss makers.

They didn't talk with the people running Daigou. They don't have them on their payroll (or their bonus list). They don't know the influencers who convince Chinas mothers to buy this or that brand of IF for their baby. Instead of getting the Daigou buyers to empty supermarket shelves they could have contacted them directly ... and even offered them a better deal. Would have been a win - win for both sides.

Most companies would treat their (one and only) cash cow with care. ATM didn't care. Lack of international travel is not their big problem - a board which might have had the right skills (or just luck?) to grow a boutique company into a dinosaur, but which is clearly inept to run a billion dollar company is.

All sounds very good with hindsight, the big reality is nobody saw covid coming in the way it did. It's great to run management down when things aren't going so great, when a little while back they could do no wrong. I'm sure ATM will adapt when covid settles, and yes I would be putting the daigou on commission, lets just see how this all evolves.

[MauroNZ]

Yes and no - there are some quite sophisticated and commercial parcel based Daigou channels. They receive orders via some of the Chinese social networks (like Weibo), recommend which product to buy, have their people buying product in Australia and to a lesser degree NZ off the supermarket shelf, put the stuff into parcels and ship them to China. No international travel required.

I don't think the lack of Chinese students shuttling between the Chinese mainland and Australia / NZ is the big problem. ATM could have easily dealt with commercial Daigou traders using the parcel service - hey, they could have hired their own boats and containers to support these traders and prioritize their Platinum Daigou parcels, couldn't they?

ATM's main problem is that they never understood that their only cash cow is selling infant formula to China, and they never understood how their main marketing and sales channel to China works. All their other A2 ventures (but A2 IF) are either cash neutral at best or loss makers.

They didn't talk with the people running Daigou. They don't have them on their payroll (or their bonus list). They don't know the influencers who convince Chinas mothers to buy this or that brand of IF for their baby. Instead of getting the Daigou buyers to empty supermarket shelves they could have contacted them directly ... and even offered them a better deal. Would have been a win - win for both sides.

Most companies would treat their (one and only) cash cow with care. ATM didn't care. Lack of international travel is not their big problem - a board which might have had the right skills (or just luck?) to grow a boutique company into a dinosaur, but which is clearly inept to run a billion dollar company is.

Thanks BP for the post. I'm not very knowledgeable about this company and lately reading the updates it seems to me they have no idea how to improve the current situation, like pressing all the buttons of any control board to 'see what happens'.

After reading your post I wonder then if all these years was just luck? I mean I read the Mainfreight book story and they clearly managed to overcome a lot of obstacles but ATM gives me the feeling they can't.

Thanks again.

[Lease]

Yes and no - there are some quite sophisticated and commercial parcel based Daigou channels. They receive orders via some of the Chinese social networks (like Weibo), recommend which product to buy, have their people buying product in Australia and to a lesser degree NZ off the supermarket shelf, put the stuff into parcels and ship them to China. No international travel required.

I don't think the lack of Chinese students shuttling between the Chinese mainland and Australia / NZ is the big problem. ATM could have easily dealt with commercial Daigou traders using the parcel service - hey, they could have hired their own boats and containers to support these traders and prioritize their Platinum Daigou parcels, couldn't they?

ATM's main problem is that they never understood that their only cash cow is selling infant formula to China, and they never understood how their main marketing and sales channel to China works. All their other A2 ventures (but A2 IF) are either cash neutral at best or loss makers.

They didn't talk with the people running Daigou. They don't have them on their payroll (or their bonus list). They don't know the influencers who convince Chinas mothers to buy this or that brand of IF for their baby. Instead of getting the Daigou buyers to empty supermarket shelves they could have contacted them directly ... and even offered them a better deal. Would have been a win - win for both sides.

Most companies would treat their (one and only) cash cow with care. ATM didn't care. Lack of international travel is not their big problem - a board which might have had the right skills (or just luck?) to grow a boutique company into a dinosaur, but which is clearly inept to run a billion dollar company is.

Daigou is not as you described. A2M is right the main part of Daigou is students and travellers. Long-term residents, like us, have day job or business to do. We don't have time and energy to do daigou which is not an easy business. Chinese consumers are very fussy. I know several Chinese migrants used to do daigou. One of them told me customers in China want to see her live the whole process, from home drive to supermarket, take A2 IF from shelf, go to distribution to put IF in parcel, etc. Chinese customers want to see every step to ensure the products they buy are real.

So we reside here and we don't want to do such hard job. But travellers come and buy IF for their family and friends, and students may have more time to do daigou and earn extra money.

Actually A2M is not the only one to blame Covid has huge impact on daigou. Other dairy companies have similar experience.

[LaserEyeKiwi]

Most large food suppliers internationally have done incredibly well over the last year as consumers have had little else to spend money on other than grocery food (& items for the home). Does covid really carry all the blame for ATM implosion or is the reality actually that it is colossal failure by management?

[BlackPeter]

All sounds very good with hindsight, the big reality is nobody saw covid coming in the way it did. It's great to run management down when things aren't going so great, when a little while back they could do no wrong. I'm sure ATM will adapt when covid settles, and yes I would be putting the daigou on commission, lets just see how this all evolves.

You are right - easy to state things with 20/20 hindsight, and nobody I am aware of predicted Covid. Actually - that's not quite right. Read in a quiet weekend "The Fourth Turning" - the authors (two historians - William Strauss and Neile Howe) mentioned (already in the 1990ies) that one of the possible triggers for the by them in the early 21st century predicted fourth turning might be a world wide epidemic. Interesting (and worthwhile) reading.

But back to the ATM board and the Daigou channel: Their dependence on and their lack of understanding of the Daigou channel was well known and commented on, just go back through this thread and check for yourself. Not trying to improve visibility and control on the sales channel which pays the lions share of their salaries and board fees clearly points to an inept board sleeping at the helm - hey, they don't even seem to read this thread :p;.

[BlackPeter]

... when a little while back they could do no wrong.

Maybe just a reflection on your (quite normal and human) confirmation bias. Most of these popular threads (of which ATM is one) contain messages from two different worlds - the hypers (up and / or down rampers) and the realists. Depending on one's respective endowment bias many people take notice only of the particular flavour which fits into their picture of the world.

I do remember plenty of critical posts related to A2m board and management - long before Covid 19 started. It is just that a certain class of posters tended to put them down as "down ramping", decided to shoot the messengers and to stay happily on in their euphoric bubble.

Did you really not see these critical posts - or did you classify them as "down ramping" as well?

Here might be a learning opportunity - you never know ;):

[winner69]

You are right - easy to state things with 20/20 hindsight, and nobody I am aware of predicted Covid. Actually - that's not quite right. Read in a quiet weekend "The Fourth Turning" - the authors (two historians - William Strauss and Neile Howe) mentioned (already in the 1990ies) that one of the possible triggers for the by them in the early 21st century predicted fourth turning might be a world wide epidemic. Interesting (and worthwhile) reading.

But back to the ATM board and the Daigou channel: Their dependence on and their lack of understanding of the Daigou channel was well known and commented on, just go back through this thread and check for yourself. Not trying to improve visibility and control on the sales channel which pays the lions share of their salaries and board fees clearly points to an inept board sleeping at the helm - hey, they don't even seem to read this thread :p;.

That book The Fourth Turning one of the best books ever written

Neil Howe still does a lot of commentating on these generational things and how it might turn out over the next few years. Google him ...lots of podcasts / YouTube stuff.

[dobby41]

That book The Fourth Turning one of the best books ever written

Neil Howe still does a lot of commentating on these generational things and how it might turn out over the next few years. Google him ...lots of podcasts / YouTube stuff.

The trick isn't saying what might happen but getting the 'when' right.

[LaserEyeKiwi]

The trick isn't saying what might happen but getting the 'when' right.

Those who predict the future we call futurists.

Those who know when the future will happen we call billionaires.

[BlackPeter]

Daigou is not as you described. A2M is right the main part of Daigou is students and travellers. Long-term residents, like us, have day job or business to do. We don't have time and energy to do daigou which is not an easy business. Chinese consumers are very fussy. I know several Chinese migrants used to do daigou. One of them told me customers in China want to see her live the whole process, from home drive to supermarket, take A2 IF from shelf, go to distribution to put IF in parcel, etc. Chinese customers want to see every step to ensure the products they buy are real.

So we reside here and we don't want to do such hard job. But travellers come and buy IF for their family and friends, and students may have more time to do daigou and earn extra money.

Actually A2M is not the only one to blame Covid has huge impact on daigou. Other dairy companies have similar experience.

Maybe you don't understand Daigou either ... this might qualify you to join the ATM board :):

Lots of people running the Daigou channel as a profession. More money in it than sitting in the office.

If you want to learn a bit more about Daigou - here is a starting point:

https://www.abc.net.au/news/2019-07-31/chinese-daigou-changing-influencing-australian-business/11221498

[MarineSalvage]

I'm assuming its a party line for people to minimise what daigou is - maybe people are meant to say its just travellers picking up a few things, in reality its quite big business. NZ's business press did quite a lot of articles about "new immigrant business success" as daigou went nuts over a few years - lots of banal reporting on people getting warehousing and going from 0 to 3m t/o in minutes - I never thought much of it as a business model really, but ATM did
Maybe you don't understand Daigou either ... this might qualify you to join the ATM board :):

Lots of people running the Daigou channel as a profession. More money in it than sitting in the office.

If you want to learn a bit more about Daigou - here is a starting point:

https://www.abc.net.au/news/2019-07-31/chinese-daigou-changing-influencing-australian-business/11221498

[Lease]

Maybe you don't understand Daigou either ... this might qualify you to join the ATM board :):

Lots of people running the Daigou channel as a profession. More money in it than sitting in the office.

If you want to learn a bit more about Daigou - here is a starting point:

https://www.abc.net.au/news/2019-07-31/chinese-daigou-changing-influencing-australian-business/11221498

Haha, doesn't matter BP, if you really know what sort of people did daigou, you will see the picture, rather than read such ABC articles. Mainstream Aussie and Kiwi don't do it. Only migrants do. And we know who did daigou in migrant community.

[Justin]

Same story happen to comvita as well?

[bottomfeeder]

Traders averaging down. Likely drop by Friday.

[flyinglizard]

Many "hopes" from CEO during 1 hour investor recording, the management really does not know Daigou and Chinese customer consuming behaviour, the price war between individual Daigou, retail shops in NZ, Corporate Daigou since 2017/2018. Corporate Daigou is not as important as they used to be. Daigou only work for money and not for A2 brand solely. They will sell hundreds of different products across nations through Corporate Daigou ( many big ones are international logistic companies owned by local Chinese).

Before 2016/2017, everyone went to the supermarket or pharmacy to get the products and manually posted them to China.

After Wechat App developed the payment function. All shops, corporate daigou, and individual daigoy use its online system. The individual daigou does not purchase inventory anymore, instead they contact with shops, Corporate Daigou, or other individual daigous through Wechat to complete a real time purchase within 2 minutes. There are also other technology such as paywaves App between CNY and NZD/AUD used in shops or Corporate Daigou to provide convenient foreign exchange services.

The industry seemed to reach the peak since 2017/2018, lots of shops open, more students and travelers became Daigou. Capital and technology rushed in the sector. The price war started. The margin became less than before. Some daigou retired. Corporate daigou built some big custom bonded warehouse in China and created online platform and its own brand. Retailed daigou got squeezed out the market, because they only deal with relatives, friends or people referred by someone they know.

Now, Chinese people can buy cheap imported products through local supermarkets and shops, where the products are from duty free custom bonded warehouses. The purchasing power from retail daigou is shrinking.

We cannot say Covid -19 hit the daigou market, they still can place order through Wechat and other online systems, the money transaction system still there. The competition among the industry caused more pain to A2 than Covid effect.

However, after more than one year, the ATM management still talking about covid effect, rather than the competition and strategy change.

[MarineSalvage]

thanks Flying Lizard - very interesting
Many "hopes" from CEO during 1 hour investor recording, the management really does not know Daigou and Chinese customer consuming behaviour, the price war between individual Daigou, retail shops in NZ, Corporate Daigou since 2017/2018. Corporate Daigou is not as important as they used to be. Daigou only work for money and not for A2 brand solely. They will sell hundreds of different products across nations through Corporate Daigou ( many big ones are international logistic companies owned by local Chinese).

Before 2016/2017, everyone went to the supermarket or pharmacy to get the products and manually posted them to China.

After Wechat App developed the payment function. All shops, corporate daigou, and individual daigoy use its online system. The individual daigou does not purchase inventory anymore, instead they contact with shops, Corporate Daigou, or other individual daigous through Wechat to complete a real time purchase within 2 minutes. There are also other technology such as paywaves App between CNY and NZD/AUD used in shops or Corporate Daigou to provide convenient foreign exchange services.

The industry seemed to reach the peak since 2017/2018, lots of shops open, more students and travelers became Daigou. Capital and technology rushed in the sector. The price war started. The margin became less than before. Some daigou retired. Corporate daigou built some big custom bonded warehouse in China and created online platform and its own brand. Retailed daigou got squeezed out the market, because they only deal with relatives, friends or people referred by someone they know.

Now, Chinese people can buy cheap imported products through local supermarkets and shops, where the products are from duty free custom bonded warehouses. The purchasing power from retail daigou is shrinking.

We cannot say Covid -19 hit the daigou market, they still can place order through Wechat and other online systems, the money transaction system still there. The competition among the industry caused more pain to A2 than Covid effect.

However, after more than one year, the ATM management still talking about covid effect, rather than the competition and strategy change.

[BlackPeter]

Haha, doesn't matter BP, if you really know what sort of people did daigou, you will see the picture, rather than read such ABC articles. Mainstream Aussie and Kiwi don't do it. Only migrants do. And we know who did daigou in migrant community.

Not quite sure I get your point. What "sort of people" do you think did Daigou? Anybody living in Australia or New Zealand is a migrant or from a migrant family. This includes yourself and myself. Some of them (including international students, but as well most other Aussies and Kiwis of Chinese descent) speak Chinese. Some other people speak Chinese as well (well, I do ;): All of them could run the Daigou channels. Some do.

Not sure I get the point of your "Mainstream Aussie and Kiwi" comment? The families of some Chinese speaking Kiwis and Ossies arrived in their relevant destinations many generations ago ... are they not part of what you call "mainstream Aussie and Kiwi"?

Why?

... and why would anybody need to be part of your so called "mainsteam" (whatever you mean with that expression) to run the Daigou channel?

[Habits]

Same story happen to comvita as well?

Difference being that when CVT provides a market earnings update it is revised upwards such as on 13 April there was a greater than 10 percent UPgrade. ATM should take tips from CVT and learn how to do a proper update.

[silu]

At least some good news for holders. It is staying in the MSCI index for now.

[Snow Leopard]

...but as well most other Aussies and Kiwis of Chinese descent) speak Chinese. Some other people speak Chinese as well (well, I do...

You do know that 'Chinese' is not a single spoken language as such, but an umbrella 伞 term for a range of languages?

So you do not speak Chinese as such, probably Mandarin.

[BlackPeter]

You do know that 'Chinese' is not a single spoken language as such, but an umbrella 伞 term for a range of languages?

So you do not speak Chinese as such, probably Mandarin.

China is a country of many different languages ... that's the reason they introduced Mandarin to allow at least the bureaucrats (the mandarins) and the soldiers in the empire to communicate.

I don't think however the term "Mandarin" is these days still in use (hey, the Mandarins died out, didn't they)?

But yes, I do speak some 汉语 or (as they call it in the mainland) 普通话. This is what people used to call mandarin - and close enough to a generic "Chinese".

[Maxtrade]

Do you think there is any chance of ATM becoming successful again. Or is it a dream over hoping SP could work its way back up to where it was at $20. Hard to believe that SP has fallen off down to where it is now from where it was at the start of the year.

Seems to be finding some solid support above 6.1. Could this finally be the bottom and now get a bit of a more sustained progressive increase in SP going forth from here? Albeit a slow increase

[tommy_d]

Do you think there is any chance of ATM becoming successful again. Or is it a dream over hoping SP could work its way back up to where it was at $20. Hard to believe that SP has fallen off down to where it is now from where it was at the start of the year.

Seems to be finding some solid support above 6.1. Could this finally be the bottom and now get a bit of a more sustained progressive increase in SP going forth from here? Albeit a slow increase

sounds like the desperate hopeful plea of someone, like me, who tried to catch a falling knife, and now considering selling to staunch the bleeding.
I think you might gain value from re-framing your question. Do you think A2M is a good buy at current prices? if you didn't hold, and had never held, would you be considering buying in at current prices?

the way in which you have framed your question instead seems to seek a reason to hold and cross your fingers. Good luck, hope the bleeding hasn't been too bad, i'm down 60-ish percent on A2M, it's annoying, but probably needed a lesson, and i've got away with it fairly cheaply

in answer to your question. Sure, it could be the bottom. It could also, and seems more likely to me, be a brief plateau before a further fall.

[Balance]

... and why would anybody need to be part of your so called "mainsteam" (whatever you mean with that expression) to run the Daigou channel?

Anybody can be a daigou player but daigou works best if you are a mainland Chinese with good contacts in China who want to buy genuine or unobtainable products in NZ or Oz, and get you to buy said products for a fee on their behalf.

As in 代表 diabiao, according to my migrant Chinese friend in Hamilton who is in the daigou business. She specialises in high end products like Gucci, Loui Vuitton, Prada etc. Business was good until last year when orders dried up due to the pandemic. But starting to pick up again.

Then there’s my Chemist contact in Auckland who partners with several Chinese to supply and export all manner of health supplements, beauty & yes, infant formula products to China via the daigou channel. He is a third generation Kiwi of Scottish descent.

Then there’s the corporate daigous so big that they ship products by the tonne to China and obtain their supply directly from the suppliers/manufacturers. One of the corporate daigou in Auckland had a supermarket owner as a partner.

Trust the examples give those still hazy about Daigou a better idea.

[dreamcatcher]

UBS still a BUY .....Valuation: $13.50/share (was $15.50) in 12 months' time

Risk/reward improved with possible T/O target ?

[Balance]

UBS still a BUY .....Valuation: $13.50/share (was $15.50) in 12 months' time

Risk/reward improved with possible T/O target ?

Posted 2 days ago by bull ....

Hope you are not too punch drunk from your ATM losses not to notice and be up with the news? :scared:


Macquarie Group Ltd (ASX: MQG) (https://www.fool.com.au/tickers/asx-mqg/) is also bearish. It downgraded its shares to an underperform rating and cut the price target on them to $5.60.
As is Citi, which has retained its sell rating and cut its price target to $5.85.
Morgans is a little more positive. It has retained its hold rating but slashed its price target to $6.65. Based on its forecasts, it estimates that its shares are trading at 26x FY 2022 earnings.
Elsewhere, Bell Potter has retained its buy rating and cut its price target to $8.50, Morgan Stanley has a $7.10 price target, and UBS has a buy rating and lofty NZ$13.50 (A$12.52) price target. All three targets offer meaningful upside from the current a2 Milk share price of $6.10.

https://www.fool.com.au/2021/05/11/is-the-a2-milk-asxa2m-share-price-cheap-heres-what-brokers-think/

[Balance]

https://www.stuff.co.nz/business/125103096/a2-milks-profit-may-slump-75-this-year-after-daigou-market-dries-up

Forbar cuts valuation to $7.50.

While a2 Milk had a number of redeeming features, including a strong cash position and a highly-regarded brand, the hit to profits and future growth “has been rapid and painful,” the analysts said.

The company was also facing risks from a lower Chinese birth rate, down 15 per cent in 2020, and increased competition, the analysts said.

“There are many unknowns, with recent announcements a stark reminder visibility is low and there is a high margin of error in earnings forecasts,” they said.

[Balance]

https://www.nzherald.co.nz/business/a2-milk-remains-in-influential-msci-index-for-now/QFQACLZAP66PF2543UW7ZUIJJ4/

ATM's MSCI inclusion may be history in August unless share price goes up substantially in next 3 months.

The MSCI New Zealand constituents are F&P Healthcare, Auckland International Airport, Spark, Meridian Energy, Ryman Healthcare, Mercury NZ and ATM.

[LaserEyeKiwi]

https://www.nzherald.co.nz/business/a2-milk-remains-in-influential-msci-index-for-now/QFQACLZAP66PF2543UW7ZUIJJ4/

ATM's MSCI inclusion may be history in August unless share price goes up substantially in next 3 months.

The MSCI New Zealand constituents are F&P Healthcare, Auckland International Airport, Spark, Meridian Energy, Ryman Healthcare, Mercury NZ and ATM.

Fletcher Building looking like a good replacement (assuming they wish to replace a NZ company with another NZ company, and not be too overweight to NZ power cos, otherwise Contact also in the running)

[Getty]

App Plexure :scared:

Combined with post#21594.
Not even close.

PLX high$1.36 to low 72, -47%
ATM"""""$21.74""""""$6.05, -72%

[Balance]

Fletcher Building looking like a good replacement (assuming they wish to replace a NZ company with another NZ company, and not be too overweight to NZ power cos, otherwise Contact also in the running)

It is the NZ component of the MSCI index so ATM would be replaced with a NZ company.

FBU looks like the one at current market cap rankings but things could change in 3 months!

[Getty]

https://www.stuff.co.nz/business/125103096/a2-milks-profit-may-slump-75-this-year-after-daigou-market-dries-up

Forbar cuts valuation to $7.50.

While a2 Milk had a number of redeeming features, including a strong cash position and a highly-regarded brand, the hit to profits and future growth “has been rapid and painful,” the analysts said.

The company was also facing risks from a lower Chinese birth rate, down 15 per cent in 2020, and increased competition, the analysts said.

“There are many unknowns, with recent announcements a stark reminder visibility is low and there is a high margin of error in earnings forecasts,” they said.

That last sentence could cause a few to gulp.

[bottomfeeder]

https://www.stuff.co.nz/business/125103096/a2-milks-profit-may-slump-75-this-year-after-daigou-market-dries-up

Forbar cuts valuation to $7.50.

While a2 Milk had a number of redeeming features, including a strong cash position and a highly-regarded brand, the hit to profits and future growth “has been rapid and painful,” the analysts said.

The company was also facing risks from a lower Chinese birth rate, down 15 per cent in 2020, and increased competition, the analysts said.

“There are many unknowns, with recent announcements a stark reminder visibility is low and there is a high margin of error in earnings forecasts,” they said.

Most brokers will reduce their valuations to close to SP. They would look like fools if they didn't.

[Balance]

That last sentence could cause a few to gulp.

They should have observed by now that almost all the brokers and analysts have been wildly inaccurate in their forecasts for the last two years (yes, last 2 years).

All they do is blindly follow the company's guidance and adjust by +/- 5% to show their forecasts!

So what are the chances of the brokers being correct over the next 2 years?

[Getty]

I dont know about the brokers, but I do know many such as myself are grateful for your reality checks.
Thankyou.

[dreamcatcher]

[QUOTE Hope you are not too punch drunk from your ATM losses not to notice and be up with the news? :scared:[/QUOTE]

Last few months has been a wake up call but certainly not punch drunk as my a2 holdings are all free-held with surplus. As you know the share market plays plenty of games regarding SP valuations which are all basically guesses to a degree but could change rapidly at very short notice.

Have plenty a2 at this time so prefer to watch and wait for positive news

[flyinglizard]

If ATM breaks down through $6.05, then prob another 10% drop in days.

[Beagle]

They should have observed by now that almost all the brokers and analysts have been wildly inaccurate in their forecasts for the last two years (yes, last 2 years).

All they do is blindly follow the company's guidance and adjust by +/- 5% to show their forecasts!

So what are the chances of the brokers being correct over the next 2 years?

Less likely than ever before due to the extent of unknowns as nicely summed up by Forbar
There are many unknowns, with recent announcements a stark reminder visibility is low and there is a high margin of error in earnings forecasts,” they said.

I think in the prevailing circumstances the company should stop making forward looking statements at all as they clearly have limited, if any, forward visibility themselves.

[nztx]

If ATM breaks down through $6.05, then prob another 10% drop in days.

looks like $6.00 sitting as target reached on the scoresheet now

$5.00 Anyone ?

Prevailing market sentiment or is everyone now tipping out yesterday's darling with the bathwater as they run ? ;)

[flyinglizard]

looks like $6.00 sitting as target reached on the scoresheet now

$5.00 Anyone ?

Prevailing market sentiment or is everyone now tipping out yesterday's darling with the bathwater as they run ? ;)

12506

I will not be surprised even $2.50 this year after hearing that one hour investor calling record.

[Entrep]

12506

I will not be surprised even $2.50 this year after hearing that one hour investor calling record.

Holy crap that RSI! Simply amazing, one of the worst monthly charts I've ever seen.

[Balance]

looks like $6.00 sitting as target reached on the scoresheet now

$5.00 Anyone ?

Prevailing market sentiment or is everyone now tipping out yesterday's darling with the bathwater as they run ? ;)

What is the compelling reason to invest in ATM at the present times?

I just visited our local Pak n Save - Karicare A2 is on special at $26.95 vs A2 at $44.00 - 40% cheaper!

ATM is taking a high risk strategy of writing off expiring stock and exchanging new stock for expiring stock with its key retailers to avoid discounting and maintain its premium price position.

I do not see that as a sound strategy & wise spend of funds - now that the A2 spell (moat) has been broken and there are other A2 brands available at hugely lower prices.

ATM has buggered up its all important and crucial daigou market - that now is clear from the commentary coming out from various sources. Biting the hand that feeds A2 capital light strategy was not a smart move.

[bull....]

wonder what the price do when we have a bear market

[ratkin]

Holy crap that RSI! Simply amazing, one of the worst monthly charts I've ever seen.

The second red in the sequence looked a pretty obvious selling point, was pretty clear then that the trend had gone

[Entrep]

wonder what the price do when we have a bear market

What's a PE of 10-12? About $2-$3?

[Beagle]

What is the compelling reason to invest in ATM at the present times?

I just visited our local Pak n Save - Karicare A2 is on special at $26.95 vs A2 at $44.00 - 40% cheaper!

ATM is taking a high risk strategy of writing off expiring stock and exchanging new stock for expiring stock with its key retailers to avoid discounting and maintain its premium price position.

I do not see that as a sound strategy & wise spend of funds - now that the A2 spell (moat) has been broken and there are other A2 brands available at hugely lower prices.

ATM has buggered up its all important and crucial daigou market - that now is clear from the commentary coming out from various sources. Biting the hand that feeds A2 capital light strategy was not a smart move.

I couldn't agree more ! The MVM acquisition looks like a white elephant given the rapidly changing demand situation and talk about an "own goal" undermining Synlait's business !
The best aspect of ATM's current business plan is their strong cash position, (over $1 a share) and capital light model and they're rapidly proceeding towards shooting themselves in both feet on those fronts while they try and convince customers their product is still worth a significant price premium.

Mothers who can't get reliable supplies of A2 product have moved on already to other brands and if baby is doing well on that other brand they're not going to change just because fresh ATM IF at premium prices suddenly becomes available are they ! Rebuilding growth, if possible at all, is going to be a VERY long, slow and VERY expensive exercise.

The P is one thing and should probably come down into the value range, (mid to late teens) until they can prove they can start growing again, but the real question is what is the E ?

[BlackPeter]

What's a PE of 10-12? About $2-$3?

Jeez - don't ramp it :):

PE 10 at this years earnings as per May 10 forecast would be $1.20 :scared:;

Just saying.

[Balance]

Jeez - don't ramp it :):

PE 10 at this years earnings as per May 10 forecast would be $1.20 :scared:;

Just saying.

Wouldn’t be priced on this year’s profit but a PER of 16 times next year’s profit would be realistic.

But what is next year’s profit? Company is not giving any guidance but even if it does, it’s credibility is pretty much zip given the 4 downgrades in 8 months!

[Beagle]

Wouldn’t be priced on this year’s profit but a PER of 16 times next year’s profit would be realistic.

But what is next year’s profit? Company is not giving any guidance but even if it does, it’s credibility is pretty much zip given the 4 downgrades in 8 months!

What if, as Forest suggested, there is no profit in FY22, how do you price it fairly then ? I am sitting on my paws indefinitely until there is a clear break up through through the 100 day moving average line, (if this actually happens at some point in the future). TA has been an infinitely more accurate forecaster than company management !!

[allfromacell]

A2 was originally heavily crisitised for being so reliant on the 'grey market' channel and pretty much everyone was screaming how they needed to diversify and go direct to the consumer, doing this whilst maintaining daigou relationships who could continue to promote their brand was not an easy task. Up until just about a year ago pretty much everyone was in agreement that management were balancing this superbly, maintaining margins and growing revenue at such a clip it seemed they were unstoppable.

So what changed? Covid initially appeared to be a tailwind as pantry stocking ramped up and revenue had a significant kick however this quickly turned south with excess stock held by everyone, consumer's, daigou, supermarkets and other retails all seemed to have way too much stock. This all from a company that used to hold back stock in order to give a premium product illusion, it seems they got greedy?

Lowering birth rates, increased local brand loyalty and competition all added to the pain but I think it was this overstocking that has really taken the wind out of the brands image. Recovering from this will be tricky, obviously they're in good financial health but getting that growth rate back is a big ask. Remember this is the product people literally got into fights in the supermarket over, I doubt we'll ever see those days again just as I doubt we'll see a2 with a PE ratio above 30 or a SP above $20..

I wish the new CEO and shareholders luck! A one market one product company is always a risky bet. Anyone who's studied this company knows that's all this company really is.

[flyinglizard]

Let's back to Aug 2020.

https://www.fool.com.au/2020/08/28/a2-milk-share-price-lower-after-chairman-ceo-coo-and-other-execs-sell-millions-of-shares/

According to a change of director’s interests notice, the company’s Chair and Non-Executive Director David Hearn has offloaded a large number of shares this week.
The notice reveals that Mr Hearn sold 250,000 of the company’s New Zealand listed shares through an on market trade on 24 August for an average of NZ$20.31 per share (~A$18.57). This represents a total consideration of NZ$5,077,500 or approximately A$4,642,500.


Mr Hearn isn’t the only seller of shares. In a series of other notices filed with the NZX, and not the ASX, it was revealed that the company’s chief executive has been selling shares as well. Geoffrey Babidge sold 100,000 shares on market on 24 August.
But the biggest seller of all has been the Asia Pacific chief executive, Peter Nathan. After exercising 800,000 options at NZ$0.63 per option on 19 August, he swiftly sold 750,000 shares between 24 August and 26 August for an average of NZ$20.12 or a total consideration of almost NZ$15.1 million. He is left owning 100,000 shares.
Joining the selling was Chief Growth and Brand Officer Susan Massasso and Chief Operations Officer Shareef Khan.
Massasso offloaded 541,391 shares through on market trades. Whereas Khan exercised 400,000 options for NZ$0.63 and then promptly sold 200,000 shares for NZ$19.87 per share.
No explanation was given for the share sales, which is disappointing given the magnitude of these transactions.

[Habits]

Let's back to Aug 2020.

https://www.fool.com.au/2020/08/28/a2-milk-share-price-lower-after-chairman-ceo-coo-and-other-execs-sell-millions-of-shares/

According to a change of director’s interests notice, the company’s Chair and Non-Executive Director David Hearn has offloaded a large number of shares this week.
The notice reveals that Mr Hearn sold 250,000 of the company’s New Zealand listed shares through an on market trade on 24 August for an average of NZ$20.31 per share (~A$18.57). This represents a total consideration of NZ$5,077,500 or approximately A$4,642,500.


Mr Hearn isn’t the only seller of shares. In a series of other notices filed with the NZX, and not the ASX, it was revealed that the company’s chief executive has been selling shares as well. Geoffrey Babidge sold 100,000 shares on market on 24 August.
But the biggest seller of all has been the Asia Pacific chief executive, Peter Nathan. After exercising 800,000 options at NZ$0.63 per option on 19 August, he swiftly sold 750,000 shares between 24 August and 26 August for an average of NZ$20.12 or a total consideration of almost NZ$15.1 million. He is left owning 100,000 shares.
Joining the selling was Chief Growth and Brand Officer Susan Massasso and Chief Operations Officer Shareef Khan.
Massasso offloaded 541,391 shares through on market trades. Whereas Khan exercised 400,000 options for NZ$0.63 and then promptly sold 200,000 shares for NZ$19.87 per share.
No explanation was given for the share sales, which is disappointing given the magnitude of these transactions.





Very ironical as it was only Jayne that got exposed and vilified at the time. Sounds pretty disgusting offloading to someone else what they knew was a ticking bomb

[Rawz]

What if, as Forest suggested, there is no profit in FY22, how do you price it fairly then ? I am sitting on my paws indefinitely until there is a clear break up through through the 100 day moving average line, (if this actually happens at some point in the future). TA has been an infinitely more accurate forecaster than company management !!

ATM say "it is estimated that if the one-off charges and sales reductions to reduce inventory in the trade werebacked out for this year, the business would record annual revenues in the order of $1.3 billion with an EBITDAmargin percent in the low to mid-twenties."

EBITDA margin of say 21% would give an underlying NP of $180m ish.

Not that what ATM say carries much weight... but I think no profit fy22 is unrealistic.

[Beagle]

ATM say "it is estimated that if the one-off charges and sales reductions to reduce inventory in the trade werebacked out for this year, the business would record annual revenues in the order of $1.3 billion with an EBITDAmargin percent in the low to mid-twenties."

EBITDA margin of say 21% would give an underlying NP of $180m ish.

Not that what ATM say carries much weight... but I think no profit fy22 is unrealistic.

Second half sales will be only $523m if they make their $1,200m sales forecast for FY21....down heaps on 1H FY21 and down mega on 2H FY20. Its too simplistic and simply window dressing to say if for this or for that we would have achieved the other...such a statement ignores the downtrading sales which exacerbated the inventory situation. Apart from that management have indicated more stock write-downs for FY22 and increased marketing spend.

With this company management, they now have a well established track record or making very light of the size of any problem and the reality is usually much worse. I expect the old stock issue to materially undermine margins in FY22 and they will need to spend up really large to try and stop the brand losing market share going forward. Break even is one possible and quite plausible result in my opinion. (Remember they are forecast to lose ~ $30m in 2H FY21 !). I will simply follow the TA and look for an entry point when it breaks up through the 100 day MA.

[flyinglizard]

Second half sales will be only $523m if they make their $1,200m sales forecast for FY21....down heaps on 1H FY21 and down mega on 2H FY20. Its too simplistic and simply window dressing to say if for this or for that we would have achieved the other...such a statement ignores the downtrading sales which exacerbated the inventory situation. Apart from that management have indicated more stock write-downs for FY22 and increased marketing spend.

With this company management, they now have a well established track record or making very light of the size of any problem and the reality is usually much worse. I expect the old stock issue to materially undermine margins in FY22 and they will need to spend up really large to try and stop the brand losing market share going forward. Break even is one possible and quite plausible result in my opinion. (Remember they are forecast to lose ~ $30m in 2H FY21 !). I will simply follow the TA and look for an entry point when it breaks up through the 100 day MA.


Mr.B. ATM holds 20% of SML if I am right. The loss of investment for FY22 would be calculated? They need huge marketing budget for the Chinese Label and pay tax and employment expense in China now. I suspect that the inventory swap policy is the condition raised from the CBEC channels. Maybe more other conditions, like extended credit term (6 months or 12 months?) The pages are only half open, we cannot see the whole picture so far.

[Balance]

Very ironical as it was only Jayne that got exposed and vilified at the time. Sounds pretty disgusting offloading to someone else what they knew was a ticking bomb

And one by one, they are leaving the 'sinking (sp)' ship.

[Beagle]

Mr.B. ATM holds 20% of SML if I am right. The loss of investment for FY22 would be calculated? They need huge marketing budget for the Chinese Label and pay tax and employment expense in China now. I suspect that the inventory swap policy is the condition raised from the CBEC channels. Maybe more other conditions, like extended credit term (6 months or 12 months?) The pages are only half open, we cannot see the whole picture so far.

We're not getting the whole story, that's for sure and it seems every time the page is turned on this book its more bad news after more bad news after...its like watching a super slow motion car crash that just goes on and on and on...its mesmerizing and you can't stop watching, wondering how its all going to end...

[Balance]

What if, as Forest suggested, there is no profit in FY22, how do you price it fairly then ? I am sitting on my paws indefinitely until there is a clear break up through through the 100 day moving average line, (if this actually happens at some point in the future). TA has been an infinitely more accurate forecaster than company management !!

Let's indulge in a bit of mental stimulation :

https://www.marketscreener.com/quote/stock/THE-A2-MILK-COMPANY-LIMIT-11384022/financials/

Updated consensus forecast is for 23c in F22.

Let's use this number and let's apply a generous PER of 18 times.

Gives a price target of $4.14 as a realistic share price.

[Swala]

This may be a silly question, but might we be getting into the realms of takeover territory?

[Beagle]

Let's indulge in a bit of mental stimulation :

https://www.marketscreener.com/quote/stock/THE-A2-MILK-COMPANY-LIMIT-11384022/financials/

Updated consensus forecast is for 23c in F22.

Let's use this number and let's apply a generous PER of 18 times.

Gives a price target of $4.14 as a realistic share price.

Lets give it a few more days mate. Can take a couple of days for analysts to rework their forward guesses and a few more for them all to be showing on market screener.
By the middle of next week we should get a handle on the average analysts forecast. One thing for sure is without a confirmed new uptrend there's no way I'm getting the cheque book out at $4.

Just wait for a momentum trend change, company and analyst forecasts have been essentially and practically, useless, whereas TA has been extremely helpful in keeping me sitting on my paws. TA worked an absolute treat with MET too, another stock I loved to hate but when the TA said BUY that's exactly what I did.

[dreamcatcher]

Does anyone wish to share their thoughts on latest 200 page .........SPH notice from Morgan Stanley and its Subsidiaries

Disclosure of beginning to have substantial holding

[nztx]

Anyone see where all the blue air keeping the SP up in the clouds all the past months suddenly went ? ;)

it can't all have gone to AIR , NTL , MFB or HMY or any of the other ratbag IPO's creeping onto the board .. ;)

[nztx]

Does anyone wish to share their thoughts on latest 200 page .........SPH notice from Morgan Stanley and its Subsidiaries

Disclosure of beginning to have substantial holding


They've probably been watching their mates successes with CEN Power Stocks etc recently and want to see if they can do it better .. ;)

Now no-one let out a whisper on where we think things ATM may go in the meantime .. ;)

[nztx]

Wonder if we can enlist Ogg to inspire FonTerror into wanting to buy up the job at $12 a share or better ? ;)

or even to look at backing the Large Terrible into ATM seeing as reorganisation thoughts are on the Farmer's
Co-op large table .. ;)

[alokdhir]

KFL still holding 6% of ATM ....I wonder why they dont throw it out from their portfolio ...they have been known to do that before ...so no pride or ego issues .

Since Dec last when they managed to figure it out before 2nd downgrade that its not working out for them ...they just sold 1% down while keeping rest ...it has been the biggest drag on its NAV ...but they still hold ...Makes me wonder why ??

Do they think turnaround will be as quick too ??? Makes me wonder ...:confused:

[YoungBull]

Lets give it a few more days mate. Can take a couple of days for analysts to rework their forward guesses and a few more for them all to be showing on market screener.
By the middle of next week we should get a handle on the average analysts forecast. One thing for sure is without a confirmed new uptrend there's no way I'm getting the cheque book out at $4.

Just wait for a momentum trend change, company and analyst forecasts have been essentially and practically, useless, whereas TA has been extremely helpful in keeping me sitting on my paws. TA worked an absolute treat with MET too, another stock I loved to hate but when the TA said BUY that's exactly what I did.

Hi Beagle,

Just out of curiosity, what would be your investment strategy with this stock? I always viewed you as a fundamental investor that jumps in or out based on TA, but here it seems it would be a purely TA play? Do you see any compelling fundamentals?

No problem if you don't want to divulge your secrets, thanks

[Balance]

KFL still holding 6% of ATM ....I wonder why they dont throw it out from their portfolio ...they have been known to do that before ...so no pride or ego issues .

Since Dec last when they managed to figure it out before 2nd downgrade that its not working out for them ...they just sold 1% down while keeping rest ...it has been the biggest drag on its NAV ...but they still hold ...Makes me wonder why ??

Do they think turnaround will be as quick too ??? Makes me wonder ...:confused:

KFL is like many ATM shareholders - caught out due to using the rear mirror (high sp) as their guide of future potential.

[dreamcatcher]

KFL is like many ATM shareholders - caught out due to using the rear mirror (high sp) as their guide of future potential.

I think a2 were also caught out increasing stock levels to respond to quick demand which suddenly vanished because of Covid.

Instos still own majority of a2 ..........care to comment on Morgan Stanley's 200 pages of Buys or is this just box moving

[Sideshow Bob]

From the latest MFAT China report:

12507

The interesting aspect (to me at least) is the whole of NZ is only between $700 - $800m last year. Probably if had looked at it in previous years would have revealed just how much was going via daigou/informal channels.

[Balance]

I think a2 were also caught out increasing stock levels to respond to quick demand which suddenly vanished because of Covid.

Instos still own majority of a2 ..........care to comment on Morgan Stanley's 200 pages of Buys or is this just box moving

And therein lies the problem with ATM - the company had no idea what was really happening to sales (and stock levels) at a ground level - it was all too easy until Covid exposed just how badly run the company was!

As for Morgan Stanley, they trade ATM aggressively if you check the numerous SPHs they have issued in the last 2 years. A non event.

[Master98]

Morningstar new valuation "We lower our fair value estimate for a2 Milk by 34% to NZD 10 per share"

[Biscuit]

And therein lies the problem with ATM - the company had no idea what was really happening to sales (and stock levels) at a ground level....

Its quite amazing that a company that is all about the brand and marketing seems to have no connection to its customers or the route to market. Surely that would be one of the things they would be all over.

[Balance]

Its quite amazing that a company that is all about the brand and marketing seems to have no connection to its customers or the route to market. Surely that would be one of the things they would be all over.

ATM should have been spending at least 10% of its sales revenues to look after its daigou network - it’s a bugger all amount compared to what ATM would have had to pay to keep such a motivated and effective sales force in place.

Instead ATM was content to not only keep creaming from that sales channel (without said investment in understanding & maintaining the sales force) but to undermine it by supplying IF via other competing channels.

I think its daigou sales channel has been severely damaged if not irreparably damaged - the telling symptom being the 8 to 9 million cans of unsold & expiring IF which ATM finally woke up to! Hence, the 4 downgrades in 8 months!

As one poster wrote a few months ago (& received abuse for his observation), babies still have to fed and mothers still have to buy IF so it is very clear that ATM has lost sales & overall market share to other brands. And once parents find that other brands are not only okay for their babies but are actually cheaper, will they go back to ATM IF?

Think about it - why would any well managed company keep producing and try to shove product down a non functioning & choked sales channel?

Answer? ATM did not have a clue as to what was really happening at ground level!

Anyone contemplating investing in this company needs to figure out whether its problems are transitionary (as the company wants us to believe) or structural (evidence points clearly in this direction).

It is going to be a very long road ahead for ATM to revive its sales growth.

[Beagle]

https://businessdesk.co.nz/article/opinion/a2-milk-goes-sour-on-poor-board-decisions Fabulous article by Bryan Gaynor on the entire ATM fiasco, paywalled.
Excerpt " In A2’s latest profit downgrade, released earlier this week, Bortolussi noted “challenges in the daigou/reseller and CBEC (cross border e-commerce) channels have been exacerbated by excess inventory and difficulties with visibility”. This is a worrying comment, particularly as the highly regarded Peter Nathan, A2’s chief executive officer Asia-Pacific, announced his retirement this week.

Bryan raises some very pertinent and hard questions over the succession plan of the company, its management appointments in recent times and the lack of relevant expertise on the board and how thinly some are spread.

[Balance]

https://businessdesk.co.nz/article/opinion/a2-milk-goes-sour-on-poor-board-decisions Fabulous article by Bryan Gaynor on the entire ATM fiasco, paywalled.
Excerpt " In A2’s latest profit downgrade, released earlier this week, Bortolussi noted “challenges in the daigou/reseller and CBEC (cross border e-commerce) channels have been exacerbated by excess inventory and difficulties with visibility”. This is a worrying comment, particularly as the highly regarded Peter Nathan, A2’s chief executive officer Asia-Pacific, announced his retirement this week.

Bryan raises some very pertinent and hard questions over the succession plan of the company, its management appointments in recent times and the lack of relevant expertise on the board and how thinly some are spread.

Same Peter Nathan who sold most of his shares a month before the shock profit downgrade?

I beg to differ - highly disregarded will be the word I would use to describe him.

As for the excess inventory, that is a function of the collapse of sales in the daigou & CBEC sales channel surely, not the other way round! Cause & effect - causes me to question how much DB as the new CEO is on top of the problem!

[winner69]

Always thought that young growing companies with exceptional margins that hoarded cash was a recipe for disaster

[tango]

https://businessdesk.co.nz/article/opinion/a2-milk-goes-sour-on-poor-board-decisions Fabulous article by Bryan Gaynor on the entire ATM fiasco, paywalled.
Excerpt " In A2’s latest profit downgrade, released earlier this week, Bortolussi noted “challenges in the daigou/reseller and CBEC (cross border e-commerce) channels have been exacerbated by excess inventory and difficulties with visibility”. This is a worrying comment, particularly as the highly regarded Peter Nathan, A2’s chief executive officer Asia-Pacific, announced his retirement this week.

Bryan raises some very pertinent and hard questions over the succession plan of the company, its management appointments in recent times and the lack of relevant expertise on the board and how thinly some are spread.

I can’t read the article but I listened to the call with analysts and completely lost faith in the management of A2 milk. I don’t really know much about the new management but I didn’t get the feeling that they had the right approach to fix this. Yes, they are going to throw a lot of money at Marketing to reach the end consumer but let’s see how good their marketing is. The local Chinese companies now have a2 milk powder and advertise direct to consumers with local pop star celebrities and seem well organised.

The fact that ATM still need to do a strategic review to work out where they are really at and formulate a plan was extremely worrying. They also mentioned that population growth is slowing and there are less babies being born in China. Obviously, this means the market size is going to shrink. Unless they can penetrate other markets (products or new geographic regions) the writing is on the wall. I hope to be wrong and I wish to hell that I had followed all of the execs and sold when they did because this is an appalling run of bad management and bad decisions. I’m not convinced the new management can get on top of it.

Happy to hear arguments to the contrary

[Ggcc]

I can’t read the article but I listened to the call with analysts and completely lost faith in the management of A2 milk. I don’t really know much about the new management but I didn’t get the feeling that they had the right approach to fix this. Yes, they are going to throw a lot of money at Marketing to reach the end consumer but let’s see how good their marketing is. The local Chinese companies now have a2 milk powder and advertise direct to consumers with local pop star celebrities and seem well organised.

The fact that ATM still need to do a strategic review to work out where they are really at and formulate a plan was extremely worrying. They also mentioned that population growth is slowing and there are less babies being born in China. Obviously, this means the market size is going to shrink. Unless they can penetrate other markets (products or new geographic regions) the writing is on the wall. I hope to be wrong and I wish to hell that I had followed all of the execs and sold when they did because this is an appalling run of bad management and bad decisions. I’m not convinced the new management can get on top of it.

Happy to hear arguments to the contrary

All these negative comments about management are quite interesting and again I feel no one should need to plan for a once in one hundred year scenario. I do agree that this Covid event has opened up some questions into management.

Now they will need to prove to us how competent they are in getting us out of the mess, but I have faith that they will.

Look at Fletcher building and how their share price has done after their fall from grace. A total comparison to the constant negative comments about management from posters when s$&7 hit the fan for them.

[Beagle]

Same Peter Nathan who sold most of his shares a month before the shock profit downgrade?

I beg to differ - highly disregarded will be the word I would use to describe him.

As for the excess inventory, that is a function of the collapse of sales in the daigou & CBEC sales channel surely, not the other way round! Cause & effect - causes me to question how much DB as the new CEO is on top of the problem!

WOW, I didn't realise that...what an absolute shocker...surely that's insider trading ?

[Balance]

All these negative comments about management are quite interesting and again I feel no one should need to plan for a once in one hundred year scenario. I do agree that this Covid event has opened up some questions into management.

Now they will need to prove to us how competent they are in getting us out of the mess, but I have faith that they will.

Look at Fletcher building and how their share price has done after their fall from grace. A total comparison to the constant negative comments about management from posters when s$&7 hit the fan for them.

There is a world of difference between FBU & ATM - and I believe I should know as I took the opportunity of FBU’s fall from grace to load up on the shares last year.

Differences:

1. FBU purged its BOD and management during and after the debacle - allowing for a reset of strategy & direction.

2. FBU’s problems were confined principally to its large commercial building & construction projects division. The rest of the group, as Ralph Waters pointed out years ago, has sound underlying oligopolistic businesses which have always underpinned it as a company

3. FBU’s moat (domestic competitive advantages in building supplies & house buildings) is very much intact and very difficult to assail given NZ’s distance from competitors.

Compare & contrast with ATM:

1. BOD is intact and imo, dysfunctional - Chairman runs the board from the UK and management are based in Sydney while underlying production & origin are in NZ. Go figure!

2. ATM’s problem is massive - the all critical daigou sales channel where most of its sales & profits were made.

3. ATM’s much acclaimed moat has been breached.

[BlackPeter]

All these negative comments about management are quite interesting and again I feel no one should need to plan for a once in one hundred year scenario. I do agree that this Covid event has opened up some questions into management.

Now they will need to prove to us how competent they are in getting us out of the mess, but I have faith that they will.

Look at Fletcher building and how their share price has done after their fall from grace. A total comparison to the constant negative comments about management from posters when s$&7 hit the fan for them.

Google "endowment effect".

Looking at the comments about managements capabilities - It does not really matter whether the company should have been prepared for Covid-19, but that they did not bother to understand and control their distribution chain, is in my view not how you recognize a good board and management.

Looking into the comparison with FBU ... I do agree that both companies used to have shocking governance and management. However - the difference is:

FBU has a quasi monopoly (well, the major player in a duopoly ...) position in providing building supplies in NZ. They do control part of the production of these products and they certainly have close links to the distribution chain. I am sure the links from the old Fletcher empire are still alive and kicking (remember who got the timber during the latest timber shortage?) and the distribution network is quite dependent on them as well. Talk with a Truckie, if you don't know what I mean. No matter how stupid FBU will act, as long as NZ does not roll up its toenails altogether they will benefit from nearly all building activities.

ATM has none of these advantages. Their major market was China, there are no moats protecting them from any competition and ATM did provide plenty of evidence that they neither understood the significance of their major distribution channel, nor did they try to manage it.

Sure - they might have had some first mover advantage, but they flushed this advantage down the drain by neglecting their distribution chain. Chinese babies survived quite well on competitors products ... why would their parents want to go back, buy a dearer product their babies are not used to anymore and pay through the nose?

So - why do you think that they are anything else than a boring old milk marketing company which does not even understand the meaning of marketing?

[Baa_Baa]

WOW, I didn't realise that...what an absolute shocker...surely that's insider trading ?

The period from 19/8/20 to 28/9/20 makes for sobering reading in hindsight. Starting with the FY20 Results where it was all peaches and a lot of cream, with a small side mention of channel weakness emerging.

Check these out:
19/8/20 FY20 Results (https://www.nzx.com/announcements/358233) - a boomer with a hint of channel weakness - SP $20.35

24/8/20 - Options conversions (http://nzx-prod-s7fsd7f98s.s3-website-ap-southeast-2.amazonaws.com/attachments/ATM/358551/329100.pdf), Nathan & Massasso - SP $20.43

27/8/20 - The BIG DUMP! (https://www.nzx.com/announcements/358806), Hearn, Babidge, Nathan, Masasso, Khan, Burquest - SP $20.11

24/9/20 - Performance Rights (https://www.nzx.com/announcements/360313) vest, Nathan, Strauss - SP $18.15

28/9/20 - Updated FY21 Outlook (https://www.nzx.com/announcements/360483) (the first downgrade) - SP $16.65

So in summary, just three 'market open' days after the FY20 results, the exec's unload big time after flagging a boomer FY20 with just a hint of issue in channels, then a mere 22 market open days later they say 'Oh Bugger' (for the first time). Then Oh Bugger again 18/12/20, then again 25/2/21, then AGAIN! 10/5/21 - SP $6.50

SP now $6.03, a 71% decline from the $21.74 high prior to FY20 results.

[tango]

Sure - they might have had some first mover advantage, but they flushed this advantage down the drain by neglecting their distribution chain. Chinese babies survived quite well on competitors products ... why would their parents want to go back, buy a dearer product their babies are not used to anymore and pay through the nose?


I agree with most of your comments, however the Chinese market is unique in that they equate price with quality. So, the ATM strategy is to increase the price. That’s partly to make up for the erosion of margins because their other channels have discounted prices online and partly because many Chinese consumers think that better products cost more

All in all the board do not impress me.

I recommend that everyone go to the ATM investor centre, listen to the phone call and make their own conclusions. My conclusion is that the board do not have a good handle on this and are unlikely to at the end of the “strategic review”.

To say that I am disappointed is an understatement. If you look at the 4 Ms of a good company management and moat now look weak.

https://thea2milkcompany.com/results

[tango]

The period from 19/8/20 to 28/9/20 makes for sobering reading in hindsight. Starting with the FY20 Results where it was all peaches and a lot of cream, with a small side mention of channel weakness emerging.

Check these out:
19/8/20 FY20 Results (https://www.nzx.com/announcements/358233) - a boomer with a hint of channel weakness - SP $20.35

24/8/20 - Options conversions (http://nzx-prod-s7fsd7f98s.s3-website-ap-southeast-2.amazonaws.com/attachments/ATM/358551/329100.pdf), Nathan & Massasso - SP $20.43

27/8/20 - The BIG DUMP! (https://www.nzx.com/announcements/358806), Hearn, Babidge, Nathan, Masasso, Khan, Burquest - SP $20.11

24/9/20 - Performance Rights (https://www.nzx.com/announcements/360313) vest, Nathan, Strauss - SP $18.15

28/9/20 - Updated FY21 Outlook (https://www.nzx.com/announcements/360483) (the first downgrade) - SP $16.65

So in summary, just three 'market open' days after the FY20 results, the exec's unload big time after flagging a boomer FY20 with just a hint of issue in channels, then a mere 22 market open days later they say 'Oh Bugger' (for the first time). Then Oh Bugger again 18/12/20, then again 25/2/21, then AGAIN! 10/5/21 - SP $6.50

SP now $6.03, a 71% decline from the $21.74 high prior to FY20 results.

I think there is a good case to investigate the board for insider trading.

The board is so incompetent in my opinion, they should be replaced. But that’s another matter. I think the board knew it couldn’t last and none of them spoke up and said let’s get out in front of this and protect our channel. They sold out and went on their merry way

[Ggcc]

There is a world of difference between FBU & ATM - and I believe I should know as I took the opportunity of FBU’s fall from grace to load up on the shares last year.

Differences:

1. FBU purged its BOD and management during and after the debacle - allowing for a reset of strategy & direction.

2. FBU’s problems were confined principally to its large commercial building & construction projects division. The rest of the group, as Ralph Waters pointed out years ago, has sound underlying oligopolistic businesses which have always underpinned it as a company

3. FBU’s moat (domestic competitive advantages in building supplies & house buildings) is very much intact and very difficult to assail given NZ’s distance from competitors.

Compare & contrast with ATM:

1. BOD is intact and imo, dysfunctional - Chairman runs the board from the UK and management are based in Sydney while underlying production & origin are in NZ. Go figure!

2. ATM’s problem is massive - the all critical daigou sales channel where most of its sales & profits were made.

3. ATM’s much acclaimed moat has been breached.
I agree that there are very few similarities between ATM and FBU except they ran into problems that needed fixing. The same will be required for ATM. Let’s hope the new CEO removes the rotten apples off the tree. The product will sell itself, if they market it correctly and understand their market and distribution centre better.

As BlackPeter mentioned. They need to get to grips with their distribution channel better. Flaw number 1.
Management selling at near the top off the market and a month later saying they had no idea things were that bad......... I call bull. Flaw number 2

I am sure there have many other flaws. Let’s hope the new CEO gets rid of flaws like these and learn to adapt from them. I am sure more skeletons will come out in the next few months.

I still own some, but sold most of mine around $11

[Beagle]

Google "endowment effect".

Looking at the comments about managements capabilities - It does not really matter whether the company should have been prepared for Covid-19, but that they did not bother to understand and control their distribution chain, is in my view not how you recognize a good board and management.

Looking into the comparison with FBU ... I do agree that both companies used to have shocking governance and management. However - the difference is:

FBU has a quasi monopoly (well, the major player in a duopoly ...) position in providing building supplies in NZ. They do control part of the production of these products and they certainly have close links to the distribution chain. I am sure the links from the old Fletcher empire are still alive and kicking (remember who got the timber during the latest timber shortage?) and the distribution network is quite dependent on them as well. Talk with a Truckie, if you don't know what I mean. No matter how stupid FBU will act, as long as NZ does not roll up its toenails altogether they will benefit from nearly all building activities.

ATM has none of these advantages. Their major market was China, there are no moats protecting them from any competition and ATM did provide plenty of evidence that they neither understood the significance of their major distribution channel, nor did they try to manage it.

Sure - they might have had some first mover advantage, but they flushed this advantage down the drain by neglecting their distribution chain. Chinese babies survived quite well on competitors products ... why would their parents want to go back, buy a dearer product their babies are not used to anymore and pay through the nose?

So - why do you think that they are anything else than a boring old milk marketing company which does not even understand the meaning of marketing?

Don't hold back mate, tell us what you really think LOL. Surely this is the post of the month ! (You other guys especially Balance have had some great ones too)


The period from 19/8/20 to 28/9/20 makes for sobering reading in hindsight. Starting with the FY20 Results where it was all peaches and a lot of cream, with a small side mention of channel weakness emerging.

Check these out:
19/8/20 FY20 Results (https://www.nzx.com/announcements/358233) - a boomer with a hint of channel weakness - SP $20.35

24/8/20 - Options conversions (http://nzx-prod-s7fsd7f98s.s3-website-ap-southeast-2.amazonaws.com/attachments/ATM/358551/329100.pdf), Nathan & Massasso - SP $20.43

27/8/20 - The BIG DUMP! (https://www.nzx.com/announcements/358806), Hearn, Babidge, Nathan, Masasso, Khan, Burquest - SP $20.11

24/9/20 - Performance Rights (https://www.nzx.com/announcements/360313) vest, Nathan, Strauss - SP $18.15

28/9/20 - Updated FY21 Outlook (https://www.nzx.com/announcements/360483) (the first downgrade) - SP $16.65

So in summary, just three 'market open' days after the FY20 results, the exec's unload big time after flagging a boomer FY20 with just a hint of issue in channels, then a mere 22 market open days later they say 'Oh Bugger' (for the first time). Then Oh Bugger again 18/12/20, then again 25/2/21, then AGAIN! 10/5/21 - SP $6.50

SP now $6.03, a 71% decline from the $21.74 high prior to FY20 results.

Yeah mate I was aware of much of the early shenanigan's...you ain't kidding when you named it the big dump...just 9 days after a results presentation titled "Building From Strength" which contained a huge number of references to growth and included this statement "Notwithstanding these uncertainties, overall for FY21, we anticipate continued strong revenue growth supported by our continued investment in
marketing and organisational capability"

Some double speak in that results presentation concerned me and of course the big dump was the beginning of the BBB team sniffing out and warning about this fiasco.

I seriously doubt the next few chapters in this fiasco will make much better viewing that those over the last ~ 9 months. GLTAH, you're seriously going to need it !

[Balance]

I think there is a good case to investigate the board for insider trading.

The board is so incompetent in my opinion, they should be replaced. But that’s another matter. I think the board knew it couldn’t last and none of them spoke up and said let’s get out in front of this and protect our channel. They sold out and went on their merry way

The one senior executive who foresaw what could happen, Jayne, was fired because she wanted to spend money on beefing up sales & marketing spend and maintaining the sales channels! Short term pain for long term gain but the board was all for short term gain at the expense of long term gain - which suited their sale of shares last year.

The Board is not only incompetent but has no strategic sense of what got the company to where it was, and what was needed to take it further. And the institutions supported the board at that time.

Been an extremely short-sighted and expensive multi-billion dollar decision by the board & the institutions.

[BlackPeter]

I agree with most of your comments, however the Chinese market is unique in that they equate price with quality. So, the ATM strategy is to increase the price. That’s partly to make up for the erosion of margins because their other channels have discounted prices online and partly because many Chinese consumers think that better products cost more

..


Something they say about other Asian markets as well, and for some products this seems to be in some cases even true. Particularly for gifts (need to have the right price to save or improve face of the giver as well of the receiver).

Not sure it is true for baby formula as well (unless it is a gift :) ); ... babies don't understand the concept of status and face ... and to shine in front of the neighbors it might be more productive to wear an expensive branded handbag or drive the latest Daimler instead of feeding your baby more expensive but as white powder ... Sort of annoying if you always need to carry the empty Platinum can together with your baby (just to demonstrate you have enough money to throw away) - if you know what I mean :):

But I think the ultimate test to this theorem is - what are the competitors doing? If the perception of the quality of a product increases with the price, how hard would it be for the competition to sell their as good stuff more expensive to make it better?

让游戏开始 - Let the games begin ...

[Leftfield]

The one senior executive who foresaw what could happen, Jayne, was fired because she wanted to spend money on beefing up sales & marketing spend and maintaining the sales channels! Short term pain for long term gain but the board was all for short term gain at the expense of long term gain - which suited their sale of shares last year. .

Hindsight is a great thing. If we go back on this forum there were many posters loudly questioning CEO Jayne's skills and methods; there were also many prepared to praise Peter Nathan (I'm guilty of the latter.)

The truth no doubt lies somewhere in between. Perhaps Nathan was instrumental in Jaynes dismissal or perhaps it was her own goals in relation to the appointment of her mates, early sale of her performance shares and her refusal to shift from Melbourne to Sydney, growing interests in Tennis etc etc.

Must say I'm more concerned about the future of ATM than it's past and I won't write it off....... yet.

Clearing the decks is a healthy sign. Roll on August results and comments.

[Balance]

Hindsight is a great thing. If we go back on this forum there were many posters loudly questioning CEO Jayne's skills and methods; there were also many prepared to praise Peter Nathan (I'm guilty of the later.)

The truth no doubt lies somewhere in between. Perhaps Nathan was instrumental in Jaynes dismissal or perhaps it was her own goals in relation to the appointment of her mates, early sale of her performance shares and her refusal to shift from Melbourne to Sydney, growing interests in Tennis etc etc.

Must say I'm more concerned about the future of ATM than it's past and I won't write it off....... yet.

Clearing the decks is a healthy sign. Roll on August results and comments.

There is no hindsight in what Jayne was proposing the company needed to do.

There was no foresight by the Board and other executives.

Huge difference between the two.

[Ggcc]

There is no hindsight in what Jayne was proposing the company needed to do.

There was no foresight by the Board and other executives.

Huge difference between the two.

You have been a supporter of Jayne. Maybe I need to keep a closer eye on things. I once was a negative speaker about Jayne. Maybe you and her saw something I didn’t

[flyinglizard]

omg, from Bryan Gaynor 's article, it seems that the board has some problems too. We thought only the management has the problem. Both of them failed to understand the advantages and disadvantages of current business model, strengths and weakness of future business model. How to deal with the conflict interest betw different sales channels? They tried to use English label and Chinese label to solve the price mismatching and channel competitions, but sales in both channels down.

When I looked back others companies traded during last March & April, they all have business updated with clear indications regards to Covid 19 and a few of they have business model transition plans. ATM' update has nothing, just saying business uncertainty. The business review should have happened last Aug, rather than the coming Aug. There is one year time lag.

[tango]

I was an early supporter of A2 because I could see the potential. I bought in at 36 cents, sold over 100,000 shares at just under $1 because I thought I would pick up plenty of shares in the SPP. It was heavily scaled and I only got 2000 shares and ended up buying more shares at just over $2 and resenting it heavily. At $20 I was smiling.

Since then I have held thinking that the first downgrade was an understandable blip. I think I was also becoming as complacent as the board and management. Since then my doubts have grown and I am not sure the new CEO has a deep enough knowledge of the China market. Sure, he knows branding and marketing but I don't know if he understands the China channels. I hope he can get up to speed fast.

In the meantime I will sell down some or all of my holdings.

Is anyone here a holder?

[RTM]

Google "endowment effect".

Looking at the comments about managements capabilities - It does not really matter whether the company should have been prepared for Covid-19, but that they did not bother to understand and control their distribution chain, is in my view not how you recognize a good board and management.

Looking into the comparison with FBU ... I do agree that both companies used to have shocking governance and management. However - the difference is:

FBU has a quasi monopoly (well, the major player in a duopoly ...) position in providing building supplies in NZ. They do control part of the production of these products and they certainly have close links to the distribution chain. I am sure the links from the old Fletcher empire are still alive and kicking (remember who got the timber during the latest timber shortage?) and the distribution network is quite dependent on them as well. Talk with a Truckie, if you don't know what I mean. No matter how stupid FBU will act, as long as NZ does not roll up its toenails altogether they will benefit from nearly all building activities.

ATM has none of these advantages. Their major market was China, there are no moats protecting them from any competition and ATM did provide plenty of evidence that they neither understood the significance of their major distribution channel, nor did they try to manage it.

Sure - they might have had some first mover advantage, but they flushed this advantage down the drain by neglecting their distribution chain. Chinese babies survived quite well on competitors products ... why would their parents want to go back, buy a dearer product their babies are not used to anymore and pay through the nose?

So - why do you think that they are anything else than a boring old milk marketing company which does not even understand the meaning of marketing?

Hallelujah ! Right on the money.

[Dassets]

I chuckled at flyinglizard's description of executive as "Both of them failed to understand". That prompted me on a post I was working on but it evaporated. So here is a summary without the humour.

There seems no explanation as to what the plan was or is. So how are investors meant to respond. But that is not the worst of it. If investors do not know, what do the different stakeholders in the distribution channels know, understand etc. This is a scary comment. Because if the answer is they do not have an understanding then a2 is at sea.

So I had a look at their staff via linkedin(not perfect but a guide). Jane Broughton, senior regulatory manager lasted 4 months leaving late last year to go to Nestle. She was earlier at Fonterra (and Nestle). I found 1 person in a role but junior. While regulatory is not everything it is something especially in a company focused heavily in a market affected by regulatory, and sometimes in nasty ways AND with very few product categories.

Head of Strategy, seems light but what would I know as I think young people go to the RSA and a Smartphone means you don't have to use the operator.

Let's turn to the US which I have heard is struggling for the 2nd time. 50 people claim to work on Linkedin in the US for a2. In the USA financial results EBITDA loss of $106m over the past 5 halves of on revenue of $135m. I would back out US to find the margins in business ex USA btw. No super growth in revs. But listen to this insight, COVID has made the consumer more value conscious(last result paraphrased).

What did a2 understand about the people that walk into Costco, Walmart and Target(amongst others) who are the bulk of the stores a2 claims. Maybe when they signed the distribution deals it was the Annual Rolls Royce USA Drivers Club outing to Walmart. Did a2 notknow all the customers were cost conscious at these outlets even pre-COVID. For the US to break even on the 22% margin they will have to increase sales by at least 600% per annum.

To wrap up does anyone truly understand what is happening, probably no and this in itself is an issue.

[tango]

I chuckled at flyinglizard's description of executive as "Both of them failed to understand". That prompted me on a post I was working on but it evaporated. So here is a summary without the humour.

There seems no explanation as to what the plan was or is. So how are investors meant to respond. But that is not the worst of it. If investors do not know, what do the different stakeholders in the distribution channels know, understand etc. This is a scary comment. Because if the answer is they do not have an understanding then a2 is at sea.

So I had a look at their staff via linkedin(not perfect but a guide). Jane Broughton, senior regulatory manager lasted 4 months leaving late last year to go to Nestle. She was earlier at Fonterra (and Nestle). I found 1 person in a role but junior. While regulatory is not everything it is something especially in a company focused heavily in a market affected by regulatory, and sometimes in nasty ways AND with very few product categories.

Head of Strategy, seems light but what would I know as I think young people go to the RSA and a Smartphone means you don't have to use the operator.

Let's turn to the US which I have heard is struggling for the 2nd time. 50 people claim to work on Linkedin in the US for a2. In the USA financial results EBITDA loss of $106m over the past 5 halves of on revenue of $135m. I would back out US to find the margins in business ex USA btw. No super growth in revs. But listen to this insight, COVID has made the consumer more value conscious(last result paraphrased).

What did a2 understand about the people that walk into Costco, Walmart and Target(amongst others) who are the bulk of the stores a2 claims. Maybe when they signed the distribution deals it was the Annual Rolls Royce USA Drivers Club outing to Walmart. Did a2 notknow all the customers were cost conscious at these outlets even pre-COVID. For the US to break even on the 22% margin they will have to increase sales by at least 600% per annum.

To wrap up does anyone truly understand what is happening, probably no and this in itself is an issue.

When I listened to the investor call I was underwhelmed. It was a little bit confusing as David kept passing back to David LOL which didn’t help but generally I didn’t feel they had adequate answers for the questions. They simply don’t know what’s going on and their one plan is throw lots of money at it and conduct a strategic review. They are also recruiting a replacement for the Asia channel after the resignation. That’s pretty much it.

[tango]

PS I wouldn’t believe the employee numbers on LinkedIn. I have a company and there are several people who claim to work for my company on LinkedIn who I’ve never heard of. Probably fake profiles…

Other than that good research, thank you!

[Sideshow Bob]

https://www.odt.co.nz/business/corporate-world-stalwart-shares-perspective-crisis

I would have thought would have been focusing a lot of time on A2 currently.....

[Dassets]

https://www.globaltimes.cn/page/202105/1223271.shtml

Above is a link to an english language article in China on infant formula, very interesting. Hope any a2 exec reads it. Quotes one personal shopper saying she stopped in March 2020. Why? 3 reasons, first couldn't travel, second mail/courier was delayed by a month, 3rd buyers worried COVID could be transmitted via the packaging/courier process.

Talks about chinese competition, sale of an international competitor's operations(why are they exiting I wonder).

The other thing I have noticed and maybe this is normal for China, why does a2 have blue eyed blonde girls' pictures/video and european families(mainly) on its chinese website. Do chinese not like chinese images? Honest question.

Why does the US just sell milk(and maybe some coffee creamer. The coffee creamer sounds like a waste of time to me.

[tango]

This article talks about one of the competitors in China expanding its product range - something ATM is yet to do. Feihe added a2 milk and is now adding a full nutritional milk powder from goat milk (which is usually an a2 protein)

“China’s infant formula giant Feihe to expand into FSMPs after goat-milk powder patent granted
18-Jan-2021 By Tingmin Koe

Major China infant formula brand Feihe’s patent application for a special medical use goat milk powder has been granted, with market observers now expecting the company to expand its range and retail channels.”

You can read more at:
https://www.nutraingredients-asia.com/Article/2021/01/18/China-s-infant-formula-giant-Feihe-to-expand-into-FSMPs-after-goat-milk-powder-patent-granted

[Balance]

https://www.globaltimes.cn/page/202105/1223271.shtml

Above is a link to an english language article in China on infant formula, very interesting. Hope any a2 exec reads it. Quotes one personal shopper saying she stopped in March 2020. Why? 3 reasons, first couldn't travel, second mail/courier was delayed by a month, 3rd buyers worried COVID could be transmitted via the packaging/courier process.

Talks about chinese competition, sale of an international competitor's operations(why are they exiting I wonder).

The other thing I have noticed and maybe this is normal for China, why does a2 have blue eyed blonde girls' pictures/video and european families(mainly) on its chinese website. Do chinese not like chinese images? Honest question.

Why does the US just sell milk(and maybe some coffee creamer. The coffee creamer sounds like a waste of time to me.

Very interesting article, thx for posting.

Other pertinent bits :

‘According to Euromonitor, the market scale of China's infant formula is nearly 200 billion yuan ($31.12 billion), accounting for about 50 percent of global market. In the Chinese market, local brands' share has increased to about 60 percent in recent years from 30 percent in 2013.’

‘ …… overseas infant formula brands have long enjoyed the advantage of online sales channels, and the e-commerce sector may witness the fiercest competition this year as leading local brands start to step up efforts in this regard.’

So much for those who argued that China domestic brands cannot compete with foreign IF brands. A bit like saying that China car companies cannot compete with foreign car companies.

ATM really has its work cut out to maintain its market position and so the question is - does it have the right management to lead it into the future?

[aperitif]

Geeez balance, how much of your time do you spend on this website... Go and allocate that time to your loved ones, your return is far greater than any stock.

[Balance]

Geeez balance, how much of your time do you spend on this website... Go and allocate that time to your loved ones, your return is far greater than any stock.

Thanks but I devote plenty of all of my time to my loved ones - it’s all about balance.

Do you?

Looks to me you waste your precious time on this website simply reading & posting your incorrect positive bias confirmation on ATM? Where has it got you?

[Leftfield]

I was an early supporter of A2 because I could see the potential. ........Is anyone here a holder?

Tango, I suspect there are still many holders...... and that to some, it is not all doom and gloom.

I'm still a long term holder and have held since 2012.

ATM grew to 70% of my portfolio for several years when revenue and profits were growing rapidly. However, as ATM's annual revenue increases slowed, I started slowly selling and diversifying predominantly between the $15 to $22 SP range (going both up and down.)

By the time the TA death cross became apparent ATM was down to 20% of my portfolio and currently sits at just under 10% of my now much more well diversified portfolio. All my remaining ATM now very much 'free held' and my realised capital gain profits rate ATM as my most successful share investment.

I will review my remaining holding after the next Aug update and am heartened by the fact that most institutions bought in at prices well north of mine, and still hold. I held XRO during it's dumping from $40 to $13 and see many similarities in the short term.

When the news becomes more positive, and TA signals a strong uptrend I may well buy more ATM.

I appreciate some have not been so fortunate so as always, DYOR and take responsibility for your own decisions. GLH.

[Ggcc]

PS I wouldn’t believe the employee numbers on LinkedIn. I have a company and there are several people who claim to work for my company on LinkedIn who I’ve never heard of. Probably fake profiles…

Other than that good research, thank you!
I have been asked to link with other companies on LinkedIn and do not know these people either. I feel too much rubbish is out there and too many fake profiles. Don’t believe every positive or negative feedback about companies through their LinkedIn profile.

[davflaws]

They also mentioned that population growth is slowing and there are less babies being born in China. Obviously, this means the market size is going to shrink.

That isn't obvious to me. The key metric is the number of upper middle class babies. Is the Chinese standard of living rising fast enough to compensate for the declining birthrate?

[Blue Skies]

That isn't obvious to me. The key metric is the number of upper middle class babies. Is the Chinese standard of living rising fast enough to compensate for the declining birthrate?


There were just over 10 million babies born in China last year (down from 11.79 in 2019). Blaming a declining birth rate is equivalent to taking several of buckets of water out of an Olympic size swimming pool Imo, just another excuse.

[silu]

I think it was Balance who talked about "divergence" here. Why keep money invested in one company while it's going for a restructuring with some hope & prayer attached to it when there are other investing opportunities around. Is it only takeover activity that keeps one holding?

[winner69]

Difference being that when CVT provides a market earnings update it is revised upwards such as on 13 April there was a greater than 10 percent UPgrade. ATM should take tips from CVT and learn how to do a proper update.

Maybe A2 learnt from the Comvita of old - years of useless forecasts and downgrades losing all credibility in the process

Never too late to learn and change your ways

[mike2020]

CVT isn't holding a perishable product.

[ShouldHaveHeld]

I think there was some doco? news report the other day about how parents are moving away from Cows milk to alternatives like almond etc... Cannot find the link for it though unfortunately as it was glimpse of it on TV.

[Getty]

TV3.

Gave a few warnings that much of that stuff was not suitable for under 5's, so probably not material to ATM.
2 spoons of sugar per litre added to many as well, gotta get 'em addicted eh?

[BlackPeter]

TV3.

Gave a few warnings that much of that stuff was not suitable for under 5's, so probably not material to ATM.
2 spoons of sugar per litre added to many as well, gotta get 'em addicted eh?

LOL - what exactly do you think does Synlait puts into its Infant formula? From memory - about 2/3rd of the weight of the formula is made from real milk ... the rest are additives including various sugars.

[BlackPeter]

LOL - what exactly do you think does Synlait puts into its Infant formula? From memory - about 2/3rd of the weight of the formula is made from real milk ... the rest are additives including various sugars.

Here is the list of ingredients for
A2's (Synlait's) IF:

12511

Yum - nature pure ... and just in case you are wondering: galacto-oligosaccharide are various complex sugar structures ...

[Getty]

It was presented as a negative by the nutritionist anyway, but it was liquid form, not powder.

I'm not on the stuff myself, so I should leave it to others, lol

[Sideshow Bob]

Got more ingredients than dog food......!! :sleep:

Saw the article about alternate juices last night.

[Getty]

I've just had a poke in the ribs, and been told its women's work, leave well alone!! lol

[xp04]

Here is the list of ingredients for
A2's (Synlait's) IF:

12511

Yum - nature pure ... and just in case you are wondering: galacto-oligosaccharide are various complex sugar structures ...

Galacto-oligosaccharides are most commonly used for stomach disorders such as constipation and for preventing allergies in infants. They are also used for colon and rectal cancer, upper airway infections, and other conditions, but there is no good scientific evidence to support most of these uses.

Oligosaccharides are the third largest component of human milk (Newburg 1997), and high levels are found in the colostrum where these substances constitute up to 24% of total colostrum carbohydrates. Concentrations of these substances in breast milk steadily decrease to between 19% and 15% in the first 2 months after birth (Miller et al. 1994). Oligosaccharides in breast milk can reach concentrations as high as 8–12 g l−1 (Kunz and Rudloff 1996; Kunz et al. 2000), which is 100 times greater than in cow’s milk.

[Beagle]

Quite an interesting segment on TV3 news last night about the rise and rise of alternative plant based milk products which indicated the shift to plant based alternatives has real momentum.

Much more of an issue for ATM in my opinion is the momentum of the Chinese brand A2 IF suppliers and speaking of momentum, to complete the perfect trifecta of headwinds the alarming drop in the birth rate of Chinese babies. Combine these factors with the well known diagou issue, (Forsyth Barr out with a note last week opining that international travel might not return to pre-pandemic level's until 2026), questions about management's strategy and understanding of their target market and you have quite the combination of headwinds that's for sure !

It would be nice if shareholders could draw solace from the fact that their company is well managed and governed and that management didn't come out with soothing statements and then dump vast numbers of shares into any rally but alas, one cannot reach that conclusion either so the train wreck trundles along and its hard not to rubber neck when this is the corporate car crash that just keeps on giving and giving and...

Some on Hot Copper opining that if the Kasper61's of this world appear to have finally now become far more circumspect and at least partially capitulated perhaps there are few sellers left however one suspects that forthcoming results willl drive an ever more realistic realization of this companies future prospects together with the company being accorded far more appropriate metrics.

The trend is your friend...or its your enemy. I will stand well back from this train wreck until such time as a confirmed bottoming process has occurred, (assuming it does bottom out at some point in the future).

[silu]

Quite an interesting segment on TV3 news last night about the rise and rise of alternative plant based milk products which indicated the shift to plant based alternatives has real momentum.

Much more of an issue for ATM in my opinion is the momentum of the Chinese brand A2 IF suppliers and speaking of momentum, to complete the perfect trifecta of headwinds the alarming drop in the birth rate of Chinese babies. Combine these factors with the well known diagou issue, (Forsyth Barr out with a note last week opining that international travel might not return to pre-pandemic level's until 2026), questions about management's strategy and understanding of their target market and you have quite the combination of headwinds that's for sure !

It would be nice if shareholders could draw solace from the fact that their company is well managed and governed and that management didn't come out with soothing statements and then dump vast numbers of shares into any rally but alas, one cannot reach that conclusion either so the train wreck trundles along and its hard not to rubber neck when this is the corporate car crash that just keeps on giving and giving and...

Some on Hot Copper opining that if the Kasper61's of this world appear to have finally now become far more circumspect and at least partially capitulated perhaps there are few sellers left however one suspects that forthcoming results willl drive an ever more realistic realization of this companies future prospects together with the company being accorded far more appropriate metrics.

The trend is your friend...or its your enemy. I will stand well back from this train wreck until such time as a confirmed bottoming process has occurred, (assuming it does bottom out at some point in the future).

But posting "downrampers and market manipulators have their fun with this stock. I'm buying more and should easily be $20 by year end" gets more upvotes. Hence why voting for a posts popularity increases the echo chamber.

[gbogo]

I'm short ATM (and SML). Looks like a lot further to go to me. Institutions have digested last week's update and only have offers now.

[Sideshow Bob]

I'm short ATM (and SML). Looks like a lot further to go to me. Institutions have digested last week's update and only have offers now.

Shortman only goes up to the 10th of May currently - when the latest trading update announcement was made. No doubt would have increased further over the last week. 6.68% shorted as at 10/5, peak over the last year at 8.1%.

[Beagle]

I'm short ATM (and SML). Looks like a lot further to go to me. Institutions have digested last week's update and only have offers now.

Looks like a very smart move to me with a very high probability of success on both fronts.

[see weed]

Hey Beagle, I'm free. You can put your cane away. I couldn't take the punishment any more. After been with a2 for 7 years have just sold my last 20,000 50c shares at quite a good profit. Am going to stay on the side lines and sit on the fence for a while to see how it goes and maybe buy smaller amounts if the tide turns.

[Beagle]

Hey Beagle, I'm free. You can put your cane away. I couldn't take the punishment any more. After been with a2 for 7 years have just sold my last 20,000 50c shares at quite a good profit. Am going to stay on the side lines and sit on the fence for a while to see how it goes and maybe buy smaller amounts if the tide turns.

WOW, you and Coutts both seen the light within the last week...things must be REALLY REALLY BAD :eek2:

[Baa_Baa]

WOW, you and Coutts both seen the light within the last week...things must be REALLY REALLY BAD :eek2:

LTH Capitulation. You know what comes soon enough.

[Beagle]

LTH Capitulation. You know what comes soon enough.

Need to see some evidence of a trend reversal first but does the market trust management or governance any more ? After all that's happened what credibility if any can we put on anything a representative of the company says now ? I think therein lies the real conundrum for momentum investors.

The best strategy would appear to be, wait for a trend reversal, ignore whatever the company says as that's been completely untrustworthy lately and put a very tight stoploss on any new position.

[carrom74]

While the directors and senior management were super swift in selling at the peak,it is strikingly surprising that not one bought any of the shares at these throwaway prices( or not)

[Baa_Baa]

Need to see some evidence of a trend reversal first but does the market trust management or governance any more ? After all that's happened what credibility if any can we put on anything a representative of the company says now ? I think therein lies the real conundrum for momentum investors.

The best strategy would appear to be, wait for a trend reversal, ignore whatever the company says as that's been completely untrustworthy lately and put a very tight stoploss on any new position.

A momentum trader doesn't give a toss about all of the questions, they just TA into a trade when the markers say so and TA out of it when it reverses. It is just sentiment for them. Has nothing to do with any of the many many questions endlessly debated on discussion groups.

Momentum is, or it is not.

[flyinglizard]

Cheap SP don't necessarily make the best investments. It's therefore worth considering other aspects of an investment too. I run the SWOT analysis for ATM this year.


Threats:

- Covid 19 shock to ATM, no students and no travelers. Prob last for couple of years.
- Some Chinese customers scared of imported goods which may contains virus.
- Chinese babies birth rate lowest level, constantly decline year on year.
- Potential Protectionism & Patriotism against imported goods
- Foreign affairs may affect trade relationship betw NZ and China
- Massive competition in A2 Niche market in China. Even Fonterra has Aptamil Essensis Organic A2 and Karicare Gold A2 range for sale in China.
- Chinese Domestic IF suppliers increase the capital and marketing investment and gain significant market shares.
- The Mataura acquisition may be declined.
- Chinese Customers spending lower than expectation, or lockdowns.
- Sky high cost and possible delay for shipping right now.

Weakness:

- New Management team does not understand the business model and slowly response to Covid 19
- Board does not understand the business
- Constantly made wrong forecast, it seems that ATM has not have data analysis and perform a price sensitive, or regulatory change stress testing
- No business strategy change or review so far after Sales, NPAT, and margin all down for a year.
- New CEO believes that ATM is not in crisis, according to media
- Number of high ranked Insiders selling at the market peak
- Corporate Daigou and CBEC share online sales channels in China, such as Taobao and its T-mall, JD, XIAOHONGSHU, VIP.COM, PINDUODUO, Suning, etc. Price war.
- When retailed Daigou and Corporate channel shrinks, CBEC increases its purchasing power, they may raise some trade conditions, such as extended credit terms, 6 months. constant inventory swap policy and lower purchasing cost.
- ATM SEO or SMB through Baidu.com. However, its official website (https://www.a2store.cn/) shows only 45 purchase for Stage 1, 31 purchase for stage 2, 57 purchase for stage 3 and 16 purchase for stage 4. Its retail price nearly doubles than T-mall and Taobao. different sales channels have different price, huge variation.



If we go back to 2015-2019 pre-covid 19 period, we still run SWOT analysis for every single year, we cannot get so many threats and weakness.

[Beagle]

A momentum trader doesn't give a toss about all of the questions, they just TA into a trade when the markers say so and TA out of it when it reverses. It is just sentiment for them. Has nothing to do with any of the many many questions endlessly debated on discussion groups.

Momentum is, or it is not.

That's fine if you are a pure TA momentum trader. Many investors use TA as one of their tools in their toolkit but also look for opportunities where TA and FA concurrently give encouragement to buy. I find my most lucrative investments are when TA and FA line up together and because they're so incredibly lucrative I spend a lot of time mining for those special opportunities. I'm sure you'll stick to what works best for you and i can assure you I'll be sticking to what i know works best for me :p

What's clear to me is that both FA and TA suggest this remains an excellent stock to avoid at this time. Great one to short though so for those that have the skills, good for them.

Excellent post flyinglizard !!

[Dassets]

ATM SEO or SMB through Baidu.com. However, its official website (https://www.a2store.cn/) shows only 45 purchase for Stage 1, 31 purchase for stage 2, 57 purchase for stage 3 and 16 purchase for stage 4. Its retail price nearly doubles than T-mall and Taobao. different sales channels have different price, huge variation.



Hi,

Flying lizard can you pls explain that part of quote Thanks

[flyinglizard]

Hi,

Flying lizard can you pls explain that part of quote Thanks

SEO means Search Engine Optimization. A2 put ads on that Baidu, which is the main search engine provider in China. if you type key word " milk", or "infant milk" in Chinese, then A2 ads shows on the top of search result. A2 has to pay Baidu for every click through Baidu. The click will link directly to A2 Chinese official website. It has an online store, but few purchases...unbelievable low.

What this means? eg, If A2 has more than 10000 clicks through Baidu, and it has 200 sales, then the SEO purchase rate is 200/10000 = 2%. Each tin sales for 300CNY,
A2 has 50% margin through online direct selling, then its sales 300x200=60000 CNY, gross profit is 30000CNY. if Baidu charges 1CNY for each click, A2 has to pay Baidu 10000CNY. then deduct overhead.

I just made up some numbers above, if the SEO purchase ratio is too low, then it is a bad online marketing.

I hope A2 has the right data analyst to exam those variables of inputs and outputs.

[X-men]

Aunty Jayne said open the border! She must be so relieved now....hahha

https://www.smh.com.au/national/virgin-ceo-calls-for-open-borders-even-if-some-people-may-die-20210517-p57sn2.html

[Balance]

Cheap SP don't necessarily make the best investments. It's therefore worth considering other aspects of an investment too. I run the SWOT analysis for ATM this year.

If we go back to 2015-2019 pre-covid 19 period, we still run SWOT analysis for every single year, we cannot get so many threats and weakness.
[/COLOR][/FONT]

Thanks for the post, flylizard - very informative & useful.

https://www.shortman.com.au/stock?q=A2M

Interesting to note that despite the very high market turnovers on 10th & 11th May after the 4th downgrade, the number of stock shorted barely budged!

Which suggests that long term holders are bailing out and short term traders & bargain hunters are the net buyers - and they must be rather miffed that the sp has continued to slide away.

Means more downside in the short term as traders bail out with their stoplosses triggered by the sp slide.

[Balance]

Came across an earnings forecast from exactly a year ago and the scale of ATM's downgrades & market reaction can best be summed up by these numbers :

Revenues EBITDA EPS

F21E 2,101m 650m 62
Updated 1,227m 151m 13

F22E 2,426m 756m 72
Updated 1,387m 282m 25

The downgraded numbers for F22 are sobering : Revenues downgraded by 43% and EPS by 78%!!!

[xp04]

Came across an earnings forecast from exactly a year ago and the scale of ATM's downgrades & market reaction can best be summed up by these numbers :

Revenues EBITDA EPS

F21E 2,101m 650m 62
Updated 1,227m 151m 13

F22E 2,426m 756m 72
Updated 1,387m 282m 25

The downgraded numbers for F22 are sobering : Revenues downgraded by 43% and EPS by 78%!!!

Last year someone made a forecast for this year which is off by 40%. Question is by how much they will be off next year?

[Balance]

Last year someone made a forecast for this year which is off by 40%. Question is by how much they will be off next year?

Well, we are seeing PER contraction (for starters) in progress so if one uses the F22E numbers above as a guide, and uses PE of between 15X (realistic) and 20X (generous) = $3.75 to $5.00.

[Entrep]

Latest from Craigs:


It has been a wild ride for A2 shareholders over the past 18 months and the note carefully deconstructs the issues leading up to the c60% fall in 2H21 underlying EBITDA last week. To recap briefly; in 3Q20 (March) A2 IF sales in China leapt 48% as consumers pantry stocked during the lockdown, in 4Q20 A2 saw strong albeit moderating sales (+22%) as Daigou replenished depleted inventories and ATM increased supply to the channel to mitigate further potential supply chain shocks. However, by this point (June 2020) sales to end-consumers were already starting to soften reflecting a preference for local brands and risk of catching COVID from imported product – coupled with the Daigou issues of delivering timely product due to logistics issues etc. ATM were not sufficiently aware as these trends accelerated at a faster rate causing over-supply and downward pricing pressure. By March of this year IF sales were down a staggering 48% - these issues were clearly outlined in Ridgewell’s note “The Worm is not Turning” based on feedback from proprietary Daigou contacts who had a more accurate read on the situation than ATM at the time……

The bad news is that the latest Daigou feedback implies A2 sales were down a further 10% MoM in the April and are even more bearish for May (Chart’s 3, 4 below) … this is not expected to impact FY21F guidance but has implications for the exit run-rate into FY22 and leaves Ridgewell’s FY22F EBITDA of $200m well below consensus (c$300m).

The Good news is that ATM management now have a clearly articulated plan to stabilise the situation – essentially by increasing brand spend to support Daigou sales and removing excess inventory from the channel to reduce discounting and enable a wholesale price rise given input cost pressures (6th chart). However, the environment is not static and local brands continue to steadily take share (5th chart below) suggesting sales will stabilise at a lower run rate. Ridgewell has FY22 revenues flat YoY - the overall increase reflects the Mataura valley acquisition.

A2 Milk remains a strong brand (see Chart in page 12 of the note) and Ridgewell’s revised TP of $7.03 (from $10) reflects the inherent long term value of the business albeit negative near-term earnings momentum tempers current sentiment and he retains the Neutral recommendation with ATM still trading on a 34x PE based on his (below market) EPS estimates.

Not sure I get the 34x PE

[flyinglizard]

Well, we are seeing PER contraction (for starters) in progress so if one uses the F22E numbers above as a guide, and uses PE of between 15X (realistic) and 20X (generous) = $3.75 to $5.00.

Any safety margin added? I hope their forecast including the updated sky-high shipping cost this year.

[winner69]

Well, we are seeing PER contraction (for starters) in progress so if one uses the F22E numbers above as a guide, and uses PE of between 15X (realistic) and 20X (generous) = $3.75 to $5.00.

Jeez mate - PE ratio contracting as fast as A2 margins

Suppose the reality is that makes sense

[xp04]

Well, we are seeing PER contraction (for starters) in progress so if one uses the F22E numbers above as a guide, and uses PE of between 15X (realistic) and 20X (generous) = $3.75 to $5.00.

:confused: My whole point was that can you trust F22E based on F21E were completely wrong?

[Balance]

Any safety margin added? I hope their forecast including the updated sky-high shipping cost this year.

Depends on how much confidence one can have in the consensus forecasts of analysts!

I err on the side of $3.75, allowing for the buggerization factor.

[Balance]

:confused: My whole point was that can you trust F22E based on F21E were completely wrong?

Your point is completely valid - based upon current F21 EPS, ATM at $20.00 was actually trading on a PER of 167X last year!

But one has to start somewhere with trying to assess a stock. Then, superimpose one’s own view on where earnings are likely to be.

[xp04]

Your point is completely valid - based upon current F21 EPS, ATM at $20.00 was actually trading on a PER of 167X last year!

But one has to start somewhere with trying to assess a stock. Then, superimpose one’s own view on where earnings are likely to be.

People who were trying to assess this stock last year and started with given F21E to see where earnings are likely to be lost up to 70% to this point. What are the chances people who are trying to assess this stock on current F22E will make profit next year? Saying that I think next year is going to be rather mediocre.

[Cyclical]

While the directors and senior management were super swift in selling at the peak,it is strikingly surprising that not one bought any of the shares at these throwaway prices( or not)

Yes, good point. I'd be adding that indicator to Beagle's strategy below.


The best strategy would appear to be, wait for a trend reversal, ignore whatever the company says as that's been completely untrustworthy lately and put a very tight stoploss on any new position.

[Cyclical]

There were just over 10 million babies born in China last year (down from 11.79 in 2019). Blaming a declining birth rate is equivalent to taking several of buckets of water out of an Olympic size swimming pool Imo, just another excuse.

Just another excuse for sure, but that's not an insignificant decline. Not sure on the exact figures, but give or take 15% I guess. More competitors chasing a shrinking market aint good. Also consider the that it takes X amount of sales to break even, another % over and above that to properly get cranking, and then whatever % over that again is creaming it. One of many factor's bringing this company to its knees.

[Balance]

Just another excuse for sure, but that's not an insignificant decline. Not sure on the exact figures, but give or take 15% I guess. More competitors chasing a shrinking market aint good. Also consider the that it takes X amount of sales to break even, another % over and above that to properly get cranking, and then whatever % over that again is creaming it. One of many factor's bringing this company to its knees.


There were just over 10 million babies born in China last year (down from 11.79 in 2019). Blaming a declining birth rate is equivalent to taking several of buckets of water out of an Olympic size swimming pool Imo, just another excuse.

Flawed logic and analogy by Blue Skies.

11.79m down to 10m = 15.2% drop in demand in infant nutrition, all things being equal.

Infant Formula as we all know, is sold in 4 stages - from stages 1 to 4 so the 15.2% drop impacts immediately on demand for stage 1 which within a year, flows through to stage 2 as well.

Taken over 3 years, the drop will result in an overall drop of 15.2% reduction in demand across all the stages of IF - at a time when supply has been increasing, especially from domestic producers.

Economics 101 - price is set by demand & supply, and when supply exceeds demand or when demand drops, prices drop.

[Blue Skies]

Flawed logic and analogy by Blue Skies.

11.79m down to 10m = 15.2% drop in demand in infant nutrition, all things being equal.

Infant Formula as we all know, is sold in 4 stages - from stages 1 to 4 so the 15.2% drop impacts immediately on demand for stage 1 which within a year, flows through to stage 2 as well.

Taken over 3 years, the drop will result in an overall drop of 15.2% reduction in demand across all the stages of IF - at a time when supply has been increasing, especially from domestic producers.

Economics 101 - price is set by demand & supply, and when supply exceeds demand or when demand drops, prices drop.



You may see it that way, but thats not the way I see it.
That rational of a smaller division of a smaller pie only works if the market has reached 100% saturation point which clearly it hasn't.

If the market for IF in China is currently for example 4 million consumers, & there is a reduction in the overall size of the potential market from 11.79 to just over 10 million consumers, it would be incorrect to assume & predict that will automatically equate to a 15% reduction in demand, while there still exists a colossal untapped potential market of consumers to reach.


While it may have a small effect, due to the size of the potential market, I think its being over egg-ed & there are much more significant issues to worry about.

[Balance]

Two views to consider and so far, the institutional heavyweight Credit Suisse has the floor :

Analysts at Bell Potter, for example, have a buy rating and $8.50 price target on the company’s shares. While this is still a long way from its high, based on the current a2 Milk share price, this still implies potential upside of approximately 65% over the next 12 months.

Bell Potter is anticipating a stronger recovery in FY 2022 and is forecasting earnings per share of 28.9 cents. If this is accurate, the company’s shares are currently trading at a much more reasonable 18x estimated FY 2022 earnings.

Credit Suisse has a sell rating and $5.00 price target on a2 Milk’s shares and are forecasting the company reporting earnings per share of ~11.2 cents in FY 2021 and then ~17.7 cents in FY 2022. This means the a2 Milk share price is trading at 46x estimated FY 2021 earnings and 29x estimated FY 2022.

[silu]

Hmm all those broker reports are giving me target prices well below my sell orders I had $13 and $9.50. 4 stocks I have bought with the proceeds with those funds are all in the green bar one (which is -7%). So my portfolio would be way worse off if I had continued to hold.

Not patting myself on the back just showing that even stubborn people like me can be convinced.

[Balance]

Hmm all those broker reports are giving me target prices well below my sell orders I had $13 and $9.50. 4 stocks I have bought with the proceeds with those funds are all in the green bar one (which is -7%). So my portfolio would be way worse off if I had continued to hold.

Not patting myself on the back just showing that even stubborn people like me can be convinced.

If you so choose, you can buy back double the number of shares you sold out? Puts it in perspective, doesn't it?

We are all here to continue to learn and exchange views for all our mutual benefit, right?

All it takes is the right attitude and perspective to benefit from the exchanges of views on this valuable site.

There will always be those who think they know better - which is fine as that is what makes the market.

[Dassets]

The drop in baby numbers is a red herring. The real issues are twofold. First action of competitors especially domestic. Seems consumer has been switching suppliers. Second is margin and the assumptions a2 has used. Its old margin was out of whack with all competition. Margin seems to be normalizing in this case down.

Neither are good for a2 and are not trends you can really reverse at least easily.

[Balance]

The drop in baby numbers is a red herring. The real issues are twofold. First action of competitors especially domestic. Seems consumer has been switching suppliers. Second is margin and the assumptions a2 has used. Its old margin was out of whack with all competition. Margin seems to be normalizing in this case down.

Neither are good for a2 and are not trends you can really reverse at least easily.

The other big issue for ATM will be the surplus A2 milk supply which they now cannot sell?

[Dassets]

Really what they are contracted to buy. Same for Synlait. Then the next issue, assuming volume growth returns, willingness of farmers to enter contracts and price premium over competitors aka Fonterra and the aussis that you need to put out. This is not the first, or last, time this situation has occurred.