ATM - A2 Milk Corporation Limited

[Snow Leopard]

Morningstar's number for freedom looks like they exclude inter company revenues. With this included the price sales or the revenue multiple is more like 3.5 times...

Always eliminate from the numbers inter-company revenues (where one part of the organisation sells to another part of the same organisation).

So Freedom Foods quote a none proper sales value in their FY2014 report:
$122M7 of Gross Sales Revenues ("includes revenues from the group associate entity The a2 Milk Company. It also includes intercompany revenue").

If you actually look you will also find in the report such pukka values as:
$87M9 Net Sales Revenues and
$16M8 Intercompany Sales Elimination.

So you can take the the $16M8 from the $122M7 and get
$105M9 as combined sales for Freedom Foods and 17.7% of A2Milk net sales (cos Freedom own 17.7% of a2).

Use That.

Best Wishes
Paper Tiger

[MAC]

For the newies, for whom I feel genuinely sorry for in this misguided debate,

Price sales ratios are not a method of valuation, they are merely just one of several metrics available on any particular company. They look down the income statement only as far as the top line and it is a forward assessment of bottom line estimates that determines a company valuation.

If two growth companies have exactly the same price sales ratio it does not mean that they have the same relative valuation. Consideration of gross and net margins is essential in valuing companies.

If one of those two growth companies will mature with a gross margin of 20% and a net margin of 2%, and the other will mature with a gross margin of 80% and a net margin of 15%.

Then, the latter will have much greater long run free cash flows, will be significantly more profitable in the long run, will have a much higher valuation, and will likely have a much higher market capitalisation as investors and the market tend to price in those cash flows ahead of time on a risk/reward basis.

Thus, it is the long run free cashflows that value a company, not individual metrics alone, and that is why professional analysts defer to DCF as a primary tool in assessing forward valuation and in evaluating sensitivity analysis.

Those whom may say that you can tweak a DCF to tell you anything are mostly the ones who have not the applied business experience, or are simply not doing it right, or are not forming a sensible base case, or are generally the manipulative on this forum.

Apologies if this sounds like valuation 101.

Kind regards, Mac

[Harrie]

That's all good PT but even using your numbers above and adding effectively $20m of revenue from a2mc and a market cap of $462m you are still looking at a sales multiple for freedom of ~3.70. Bit different from the 5 quoted above. Admittedly still traditionally high but you expect that from a growth company.
I'll stick to my range and hope that similar multiples will drive the price higher when A2M lists on the ASX. P/E's are not relevant for growth companies, however they would be for ATM if their foray into intl markets came to a halt for whatever reason and they scaled back to Aussie. If I believed that would happen I wouldn't be there. All is on track and early signs look encouraging IMO

[MAC]

Fair enough, but what you cannot see may well make you a poorer investor for it.

The intrinsic value within a company does not alter unless the fundamentals change, certainly not due to short term technical moves, or sentiment or AMP investment policy changes.

And you said exactly the same thing about my $5.80 DCF valuation on DIL when the share price was circa $3.50 if I recall, which is up 65% oddly enough since then, and oh what is the DIL share price as we type today.

And, just for correctness, $1.30 is not my valuation on PEB, that would be roughly Forsyth Barr's valuation at $1.25 with a BUY rating, my base case on PEB is $1.85, which I consider to be conservative.

DYOR & DYOA.

[winner69]

No golf today ....bugger

Probably thought I will fool those buggers this week

[blobbles]

lets not forget that MAC's metric's and his truth & reasoning give's him a valuation of $1.10 on ATM shares and $1.30 on PEB both double what they are currently trading at.....for the life of me I can not see much truth and reason in those valuations.

Then again, you must be able to see that ATM's case is much stronger for such a valuation rather than PEB's. ATM is a $150m company with a proven product and entering into new markets with a strong proposition of success. PEB... well... its all up in the air until they get some runs on the board...

[MAC]

But then PEB's molecular RNA diagnostic kindred company EXAS, progressing more or less in parallel, are about awaiting some first runs as you put it too, but that’s a discussion for another thread really;

EXAS.jpg

[Tsuba]

http://www.perishablenews.com/index.php?article=0043180

[see weed]

YES totally agree.
Thought we would see some more large purchasing of ATM shares at these levels.

Me back in again, bought some more on Fri. Have put aside funds for the bottom of the cycle where ever that may be.

[MAC]

Geoff always just looks so content with a glass of a2 in his hand, it’s always more than half full too.

Some interesting psychology of marketing as a weekend idle read here.

http://www.dailytelegraph.com.au/bus...-1227265031916