ATM - A2 Milk Corporation Limited

[ratkin]

A2 Platinum is now is now ranked seventh as a company in online share of the top 25 formula bestsellers. While the results for the second quarter were promising, the analysts warned that overall, the price premium of imported brands in China over domestic ones appears to be narrowing and is now at about 11 per cent, compared to 50 per cent in January 2016. Still, imported brands have continued to increase their share of total online stock keeping units, now at 83 per cent, compared to 75 per cent a year ago.[/COLOR]

“The ‘easy ride’ of multinationals might be coming to an end, with Nestlé and Danone losing momentum on bestseller lists and a2 Milk’s pricing down for the first time in two years, ahead of the new label launch,” the analysts said. “We think the market is currently not pricing in any downside risk to the long-term profitability of the multinationals in the Chinese IMF market.”

These Two paragraphs seem a little concerning. They would not be if the company was not priced at such high multiples, but because it is, anything less than perfection is going to hurt the shareprice. One good reason why buying at any price is not to be recommended however good the company may look.

[Joshuatree]

They are and i believe KW is out for those reasons but more importantly (for KW)the T/A.

Disclose still holding my first small parcel but havn't added atp as I planned.

[bull....]

Attachment 9815

When looking at T/A should start from longer time frame Weekly above notice the divergence in price to rsi often considered a warning sign of weakening trend also the overbrought level of price also considered warning sign.

Attachment 9816

daily timeframe shows the weekly divergence and also the now apparent downtrend channel that has estabilished. also of mention notice how ;onger term price has respected the 50day moving average bouncing in the past of this but recently not being able to stay above it. longer term people sometime use a 200 day moving average which price is still above.

Attachment 9817

Notice how the gap acts as support on the retest from extreme overbrought levels in may now in june it acts as resistance as well as the 50 day moving average

Attachment 9818

during june july the price was in range bollingers tighten , the last few days they stretch which often is said to start a trend. the price maybe in larger range time will tell when we retest each boundary of the lines drawn.

and lastly an intra day look below

Attachment 9819

you will notice the breakdown from range and bollingers pushing down also my what i refer to as death crosses of moving averages.

anyway this is a relative simple view of how i personally study a stock chart from longer time frame to intra day time frame and reflects one of my method of investing.

thats why i am currently talking short as short term the price is heading down as represented by the chart in the longer term who knows what will happen but as a technical analysis you react to changes in the market weather long or short.
all people are in market to make money one way or another thats why there are so many views as everyone has different methods at the end of the day if you have conviction in your method everything else is noise.

[davflaws]

Thank you Bull. That was extremely informative.

[bull....]

It would be nice if some of the fundamental people on here showed there workings out on valuation , i can only remember ever seeing snoopy give his.

Ideally an all rounded investor would incorporate fundamental as well as technical analysis to form views.

[winner69]

It would be nice if some of the fundamental people on here showed there workings out on valuation , i can only remember ever seeing snoopy give his.

Ideally an all rounded investor would incorporate fundamental as well as technical analysis to form views.

I daren’t ...not the answer punters want to see

And even though pretty thick skinned couldn’t take the ‘criticism’

[kiora]

Thanks Bull.Great to see your perspective and charts,keep posting these please!

[BlackPeter]

It would be nice if some of the fundamental people on here showed there workings out on valuation , i can only remember ever seeing snoopy give his.

Ideally an all rounded investor would incorporate fundamental as well as technical analysis to form views.

Cheers bull - great post and thanks that you did show us what you see. Keep it up!

Not sure I consider myself a "fundamentalist" more a "balanced" person ... but hey - here is in a nutshell what I see from a fundamental perspective:

forward PE: (at 10.75 and based on 4 traders analyst consensus): 29; Obviously a risk if & when PE contraction starts (some say it did already);

CAGR: huge, but hard to capture given the immense jumps. Lets take 50 as backward (revenue) CAGR. EPS CAGR is still ways higher, but clearly not sustainable, i.e. in my view just describing the past.

The big issue here is that we can't really use these numbers for any future projections - given that they describe the agility of a small antelope (which ATM used to be), but not the future movements of a elephant turning into a mammoth. Elephants don't gallop .

FY16 growth 127%
FY17 growth 56%
FY18 growth 67%
FY19 growth (predicted): 34%
FY20 growth (predicted): 23%


Anybody noticing the trend?

Looks like the 50% CAGR is history as well. So - big question is - what would be a sensible assumption for future long term growth?

Get this number right - and your fundamental assessment will be spot on

If we take the growth out of the equation, than the share would be worth something like 10 PE - $3.71; Obviously - we do have growth, so halt your flogging and take this just as a base number.

If we take Rogers modified Graham formula and assume 10% sustainable growth, than the share value would be $7.42;

Still too conservative? Make it 15% sustained growth: $9.27

And for the optimists - here is the result based on the original Graham formula and 15% growth: $14.28;

Given the huge unknowns about future market growth, competition (margins shrinking) and the science around A2 did I not bother to do a DCF. Garbage in - garbage out.

From experience - if a share is priced close to its Graham value, than there is not that much upside potential left but obviously - increase the growth assumptions and the sky is the limit.

Still - if I may says so - the bears have in my view a bigger chance of winning this contest ... despite A2 being a good company.

Discl: not holding and cancelled my buy order at $9.50. Analysis is good.

[Beagle]

All of the above is predicated upon what assumption one makes regarding the average growth rate over the next 7-10 years. I am not going to attempt to put a number on it other than to say I think this has potential that's well and truly above an average NZX50 stock. One needs to think about product expansion in regard to the tie up with Fontera and expansion of IF demand in China and elsewhere in the world. Then there's the growth in fresh milk sales.

FY19 PE of 29 seems pretty reasonable to me for this fast growing company and represents a PE premium above the NZX50 market average of only about 8 and its well worth noting that a considerable number of slower growing companies trade on similar or more elevated multiples.

I agree that short term the TA indicates that long term holders may be in for some more short term psychological challenges. This task would be made easier if shorters we're quite so overtly gleeful about the pleasure they get from their profits. Long term investors have every reason to be hopeful about the future in my opinion. Perhaps there's maybe something like another $1 downside risk from here, long term the upside potential is what I am focused on.
http://www.4-traders.com/A2-MILK-COM...ment-26937975/
Worth noting for long term holders that if the company makes its targets as per consensus 4 traders estimates for FY19 and everything looks okay for FY20 then if the stock does nothing this year in terms of its SP, (I can live with that after a ripper year last year) then this time next year it will be on a FY20 PE of just 23.
http://www.4-traders.com/A2-MILK-COM...22/financials/

For me about 10% of my portfolio in total in the ATM and Synlait "dynamic duo" feels right in terms of weathering this volatility. I might add a bit later in the year or early in 2019 if their relative SP's offer even better value either through a lower price or a situation of more EPS growth and the same price.

[peat]

Attachment 9815

When looking at T/A should start from longer time frame Weekly above notice the divergence in price to rsi often considered a warning sign of weakening trend also the overbrought level of price also considered warning sign.

Just for the record:

I dont see that drawing of divergence as being correct. It is exaggerated. Strictly speaking there is only divergence when the price moves in the opposite direction to the RSI which means that line of divergence you've drawn should be much shorter and should stop at the all time price high. Sure there is some divergence at that point - but from thereon price and RSI are convergent as they both move in the same direction.