ATM - A2 Milk Corporation Limited

[777]

Think big! There must be at any one time roughly 200 million babys and toddlers on this planet, why only focus on the diminishing number of Chinese babys ?

Ignoring for a moment price pressure and competition: only the sky is the limit!

It was just a comment, not a focus but sorry if I have upset you.

[BlackPeter]

Are you suggesting their "only focus" is on the China market? Surely you know that is not the case.

Sigh - irony is difficult to convey ...

I am suggesting that it feels that some punters here might have got a bit carried away ...

While the A2 ship has been for some time on growth course and still has some momentum left despite recently replacing a capable and committed captain with a in my view less capable and clearly less committed captain, there will be limits to its future market growth. The shrinking of its biggest market (China) clearly won't help. They would need to increase their market share by 12% to only keep selling the same number of tins they sold last year. The economic woes of the Chinese market (Trumps war) clearly won't help either. And despite all the hype - at the end they only sell a commodity which can't be protected. Give it a handful more years and every competitor will offer the same product.

Even the New Zealand brand is not that flash if you consider that our own proudly NZ owned Fonterra was quite involved in the largest Chinese milk safety scandal being the big cornerstone shareholder of the very company killing Chinese babies with blending milk formula with melanine. Not clean and green.

While I see no reason for A2 in the near term to stop growing and stop making money, I think they well might have reached peak growth by now. Is a forward PE of 31 in this situation really cheap? I don't know.

[Balance]

They would need to increase their market share by 12% to only keep selling the same number of tins they sold last year. The economic woes of the Chinese market (Trumps war) clearly won't help either. And despite all the hype - at the end they only sell a commodity which can't be protected. Give it a handful more years and every competitor will offer the same product.

Even the New Zealand brand is not that flash if you consider that our own proudly NZ owned Fonterra was quite involved in the largest Chinese milk safety scandal being the big cornerstone shareholder of the very company killing Chinese babies with blending milk formula with melanine. Not clean and green.

While I see no reason for A2 in the near term to stop growing and stop making money, I think they well might have reached peak growth by now. Is a forward PE of 31 in this situation really cheap? I don't know.

Nonsense.

Utter and complete illogical nonsense.

[BlackPeter]

Nonsense.

Utter and complete illogical nonsense.

You mean you disagree?

Mind to enlarge on which of my statements are you referring to and why you disagree with them?

[Lego_Man]

You mean you disagree?

Mind to enlarge on which of my statements are you referring to and why you disagree with them?

I agree with you, effectively you're paying upfront for all the growth that might or might not occur. It would be a good buy if there was some reasonable discount factoring in the innate uncertainty of the future.

Not quite as nutty as Netflix being valued on one day owning X% of the market and being able to make a profit then. But both classic late cycle behaviour.

A2 milk will be a great buy at around 5-7 bucks in the coming bear market.

[see weed]

time to be a bear again

It's only a little bear. Baby bears drink a2 milk. How much did they say a2 had in the bank last year..300mil? They might pay a little div to a little Kiwi. I like a little kiwi....div.

[BlackPeter]

It's only a little bear. Baby bears drink a2 milk. How much did they say a2 had in the bank last year..300mil? They might pay a little div to a little Kiwi. I like a little kiwi....div.

Lets face it - if they start paying a dividend, than this means that they think their shareholders can get a better return for their money elsewhere instead of reinvesting it into ATM. Nothing wrong with that (HLG or KPG or TRA are e.g. outstanding dividend plays), but this would mean that the board expects the endof the growth phase. If this is true, than the PE ratio looks truely expensive.

Ah yes - and 300 mil cash - just remind me, how much is this per share?

[allfromacell]

Sigh - irony is difficult to convey ...

I am suggesting that it feels that some punters here might have got a bit carried away ...

While the A2 ship has been for some time on growth course and still has some momentum left despite recently replacing a capable and committed captain with a in my view less capable and clearly less committed captain, there will be limits to its future market growth. The shrinking of its biggest market (China) clearly won't help. They would need to increase their market share by 12% to only keep selling the same number of tins they sold last year. The economic woes of the Chinese market (Trumps war) clearly won't help either. And despite all the hype - at the end they only sell a commodity which can't be protected. Give it a handful more years and every competitor will offer the same product.

Even the New Zealand brand is not that flash if you consider that our own proudly NZ owned Fonterra was quite involved in the largest Chinese milk safety scandal being the big cornerstone shareholder of the very company killing Chinese babies with blending milk formula with melanine. Not clean and green.

While I see no reason for A2 in the near term to stop growing and stop making money, I think they well might have reached peak growth by now. Is a forward PE of 31 in this situation really cheap? I don't know.

https://au.finance.yahoo.com/news/ch...160000130.html

This Euromonitor crowd reckons the infant-formula market will expand another 21% to $32B in 2023, that’s pretty impressive even with less babies being born than before. The economy is still growing quickly, in the last 12 months China just increased it’s GDP by the economic size of Australia,the middle class is expanding and more mothers will be able to afford to buy safer food for their little ones.

Sure, we may have reached peak growth in percentage terms that’s just the law of large numbers.. There is no sign that growth will slow down much. In the last report A2 reported that they grew their Chinese market share by 10% in just the last quarter!

With regards to the competition, I don’t think the average mother cares much for the science behind the brand. The A2 marketing team seems to be making great progress and eating all the larger corporations lunch, I have a good feeling this will continue for at least the next 3 years. Plus there is the lottery ticket in the US which could pay off massively, my main focus has always been on IF in China but the US progress does seem promising so far.

Disclosure: I hold 45% of my portfolio in ATM after recently selling down some at $12.55 to diversify a little. I plan to sell 20% more of my holding at $15NZD.

[Balance]

You mean you disagree?

Mind to enlarge on which of my statements are you referring to and why you disagree with them?

You wrote : "Even the New Zealand brand is not that flash if you consider that our own proudly NZ owned Fonterra was quite involved in the largest Chinese milk safety scandal being the big cornerstone shareholder of the very company killing Chinese babies with blending milk formula with melanine. Not clean and green."

The melamine scandal is actually the making of NZ's reputation for unquestionable food integrity and quality reputation in China - talk to any exporter and they will tell you that. Why? Because NZ was prepared to blow the whistle on the scandal and risked losing hundreds of millions of dollars in investments, and potential flow on sales of NZ produce - while the China government and authorities tried to cover up the poisoning and deaths.

You wrote : "They would need to increase their market share by 12% to only keep selling the same number of tins they sold last year."

China's births dropped 3.5% in 2017 but ATM sales charged ahead and more than doubled in 2017 and 2018. There is no correlation between China's births and A2M sales. I have already referred to the changing dynamics of the China market as the incomes of the middle classes rise.

You wrote : "at the end they only sell a commodity which can't be protected. Give it a handful more years and every competitor will offer the same product."

You could say the same about soft drinks, fruits, beers and airlines - yet there are companies which shine well above the others in those products and services - why?

[BlackPeter]

You wrote : "They would need to increase their market share by 12% to only keep selling the same number of tins they sold last year."

China's births dropped 3.5% in 2017 but ATM sales charged ahead and more than doubled in 2017 and 2018. There is no correlation between China's births and A2M sales. I have already referred to the changing dyanmics of the China market as the incomes of the middle classes rise.

I used the numbers supplied by 777m which imply a 12% drop in 2018. didn't check his source, but if this is correct than the birthrates seem to drop quite fast (you said only 3.5% in 2017). Frightening if you need babys to run your business.

And yes, we all know that A2 managed to grow their Chinese sales in 2017 as well as in 2018 despite the reductions in the birth rates. They just increased their market share faster than the birthrate dropped. However - this is not a sustainable strategy.

You wrote : "at the end they only sell a commodity which can't be protected. Give it a handful more years and every competitor will offer the same product."

You could say the same about soft drinks, fruits, beers and airlines - yet there are companies which shine well above the others in those products and services - why?

Sure - Coca Cola did pretty well. Whether it is possible to repeat this success with a product without a secret recipee is a different question. I hear you, but I notice that you are comparing coke with milk ... (worse than apples with oranges?)

The melamine scandal is actually the making of NZ's fantastic food integrity and quality reputation in China - talk to any exporter and they will tell you that. Why? Because NZ was prepared to blow the whistle on the scandal and risked losing hundreds of millions of dollars in investments, and potential flow on sales of NZ produce - while the China government and authorities tried to cover up.

Maybe - but don't think that this scandal brushed up very positively on Fonterra. If your argument is right, than it should be Fonterra making the big dollars in China ...