ATM - A2 Milk Corporation Limited

[Maverick]

My view of ATM, is that I see it as a sunset company.
Let me explain my thinking with an example..... Back in mid 1970’s, “black/white“and “colour” TV sets available were about 50/50.(swap out here A1/A2). If LV Martin’s only point of difference was they sold TVs which were colour then we can guess how that would have ultimately worked out.


Fast forward to now...If A2milk continues to be more desirable than A1, then in a few years every dairy farmer will convert his herd for all A2. We are already seeing ever increasing numbers of participants. Then the commodity of milk will become bog standard A2. No premiums, no point of difference. No point in even keeping the brand A2…. just like promoting your plasma TV on trademe because it's a “colour”.


Ok Boomers… what am I missing here?

[carrom74]

My view of ATM, is that I see it as a sunset company.
Let me explain my thinking with an example..... Back in mid 1970’s, “black/white“and “colour” TV sets available were about 50/50.(swap out here A1/A2). If LV Martin’s only point of difference was they sold TVs which were colour then we can guess how that would have ultimately worked out.


Fast forward to now...If A2milk continues to be more desirable than A1, then in a few years every dairy farmer will convert his herd for all A2. We are already seeing ever increasing numbers of participants. Then the commodity of milk will become bog standard A2. No premiums, no point of difference. No point in even keeping the brand A2…. just like promoting your plasma TV on trademe because it's a “colour”.


Ok Boomers… what am I missing here?

Though I am not a boomer this article published last year will give us insights on how difficult changing herds are and the reasons why Fonterra chose to go with A2
https://www.interest.co.nz/rural-new...will%C2%A0take

[couta1]

My view of ATM, is that I see it as a sunset company.
Let me explain my thinking with an example..... Back in mid 1970’s, “black/white“and “colour” TV sets available were about 50/50.(swap out here A1/A2). If LV Martin’s only point of difference was they sold TVs which were colour then we can guess how that would have ultimately worked out.


Fast forward to now...If A2milk continues to be more desirable than A1, then in a few years every dairy farmer will convert his herd for all A2. We are already seeing ever increasing numbers of participants. Then the commodity of milk will become bog standard A2. No premiums, no point of difference. No point in even keeping the brand A2…. just like promoting your plasma TV on trademe because it's a “colour”.


Ok Boomers… what am I missing here?

A2 is the future of milk, eventually all mainstream milk will be A2 but not for quite a while yet so therefore ATM is only in its infancy as the competitors to date have had no impact on the growth of the company. Once A2 becomes the mainstream choice the market will be massive and ATM will become a boring giant of a company with a sp many times it's current one and paying a nice stable dividend to boot unless it becomes a takeover target in the meantime.

[allfromacell]

Also in terms of infant forumla, where most of this companies profits are currently made the average Chinese mother doesn't understand what A2 even means other than it's just a brand from Australia / NZ. This is why even the largest food conglomerate in the world Nestle has tried to copy us and made no material impact on our momentum, there are now several copycat brands around yet we missed out on being the number 1 sold brand on 11/11 by an inch.

Sure the point of different over time will disappear but there is plenty of time left to grow into a large dairy company ourselves, I believe focus on EPS growth and margins in the meantime is short sited as a2 has its sites set on becoming a monster.

[Leftfield]

My view of ATM, is that I see it as a sunset company.

Sorry Maverick I disagree for a host of reasons.

1.) Over the last 5 years ATM's share price has increased 2,600%. At the same time the NZX 50 has increased roughly 100% (25% pa). Sure A2 might not grow so fast in the future, but A2 is likely to outperform NZX50 for a long time yet. This is hardly the behaviour of a dying industry.

2.) While there may be signs that fresh milk is a sunset industry (in some countries) as some consumers switch from dairy milk substitutes to such products (say) as almond milk etc.... what you ignore at your peril is that fresh A2 milk is the fastest growing segment within the huge multi billion $ existing fresh milk industry.

3.) A2 is not only just about fresh milk. Is A2 dairy based IF formula also a sunset industry? Are A2 dairy based yoghurts, cream, ice-cream, chocolate etc also sunset industries??

4.) And then there are a host of A2 diary products and market segments that haven't even been invented or explored yet.... there are exponential future potential growth markets for A2 yet to explore.

Interesting week ahead for A2 holders. I'm away a few months and won't be posting. Good luck holders.

[Balance]

Also in terms of infant forumla, where most of this companies profits are currently made the average Chinese mother doesn't understand what A2 even means other than it's just a brand from Australia / NZ.

Gee!

And you are invested in ATM?

[Maverick]

Thanks Carrom for that link. What I get from that article is converting a herd is “profitably neutral “ but farmers should at least start using the A2 insemination from now on and eventually A2 will be the standard and A1 will possibly be at a discount.
Couta, I understand what you are saying is that A2 ltd is enjoying huge growth and potential growth as it has worked itself to be “johnny on the spot” before the inevitable mainstreaming of the product, albeit some time away.
Left field, thanks for your reply too but I didn't call the industry a sunset one ,so we at least agree there. I called the ATM company ,a sunset company the way I see it.


My 2 main concerns I have as a potential investor:
Firstly, At some point the growing( although slowly from the link above) herd conversions will erode the current A2 premium margins with increasing supply. So it's a timing thing of optimising when to sell up as it naturally transforms from an intellectual property type rating to a seller of a commodity type rating. As I, and probably most here, have no superior global industry knowledge or contacts to get a heads up on when to exit the door first. It is then a blind and nervous position to be in with a lot of finger crossing. Perhaps the optimal time has even already passed?


Secondly, if A2 milk does become normalised to the global market, then surely the A2ltd “brand” (and that's all this company is as I understand it) becomes meaningless as other competitors offer A2 as a standard commodity to at cut throat margins.Therefore A2ltd brand has become irrelevant and its IP worth no more than the brand “NZ”.


I can get why you have a truckload of HLG Couta but ATM seems an outlier to me. It would just cause me sleepless nights.

[mfd]

It will be a real tragedy if ATM is re-rated from it's current PE (~33 not accounting for the pile of cash and Synlait shares) down to those of a boring company like Nestle (PE ratio 31).

[tomm]

Also in terms of infant forumla, where most of this companies profits are currently made the average Chinese mother doesn't understand what A2 even means other than it's just a brand from Australia / NZ. This is why even the largest food conglomerate in the world Nestle has tried to copy us and made no material impact on our momentum, there are now several copycat brands around yet we missed out on being the number 1 sold brand on 11/11 by an inch.

Sure the point of different over time will disappear but there is plenty of time left to grow into a large dairy company ourselves, I believe focus on EPS growth and margins in the meantime is short sited as a2 has its sites set on becoming a monster.

Totally agree as a few of our folk are worry that some A2 copy cats will harm A2MILK ATM.NZ . I was one of them , then I realised that : there is no Karicare A2 or Aptamil A2 or Nestle A2 was even making any top 10 of 1 day sale 11/11,
and infact A2 was almost taking the number 1 spot Aptamil , mean the time A1A2 BECOMES HISTORY is near!

[winner69]

I love it when things not going ‘quite right’ with the A2 share price and doubt about how great A2 are creeps in and many seek self reassurance.

I just sit back and relax and buy some more as A2 share price will be 30 bucks one day