ATM - A2 Milk Corporation Limited

[sb9]

Yeah reckon its gonna be very action packed day today...

[see weed]

Me make big boo boo, sold 45,000 on Monday @ >74c and buy back half of them today for .82c, hoping that the new low might be around 79c to 80c. What do ya think...good move?

[zymwh]

http://www.nbr.co.nz/article/analyst...er-jr-p-176059

Analysts optimistic about an eventual A2 Milk takeover offer

Jenny Ruth Friday July 24, 2015


Analysts are optimistic it’s just a matter of time before an acceptable takeover bid for A2 Milk [NZX: ATM] emerges.

That’s possibly why its share price weakness was so short-lived after A2 said the bid from known suitor, major shareholder Freedom Foods and US-based Dean Foods, wasn’t acceptable but the parties are still talking and it has received other approaches.

Three analysts covering the stock have target prices of $1 and more, compared with yesterday’s market closing price at 80c, and all have buy or out-perform recommendations.

Forsyth Barr analyst James Bascand, the most conservative with a target price bang on $1, gives a successful bid a 50% chance.

“We believe A2 is more valuable under ownership that can provide distribution across global markets and access to processing assets than in its current form,” Mr Bascand says.

His discounted cashflow valuation absent a takeover is 82c but $1.18 with a bid.

UBS analyst Jordan Rogers says while he doesn’t know what level the Freedom/Dean bid and other expressions of interest are pitched at, “we believe that any takeover offer for A2 would likely have to be in the low $1.00s or higher to have a chance.”

Mr Jordan’s current target price is $1.05, up 10 cents on the back of A2’s latest guidance, although his discounted cashflow valuation is $1.21.

First NZ Capital analyst Kar Yue Yeo says the company is worth more to larger operators than it is on its own.

“The potential margin upside gained from operating leverage through a higher processing utilisation rate and pre-established supply-chain logistics of larger operators …. could be very significant,” Mr Yeo says.

He’s the most optimistic with a $1.17 target price and his valuation ranges from just 88c through to $2.24, depending largely on how A2’s rollout in the US pans out.


Highest-value owner

The top end of his valuation is what he thinks the stock might be worth to “a highest-value owner,” not what a bidder might offer.

“We think the current risk-reward in A2 remains compelling,” Mr Yeo says. He also rates the chance of a successful takeover at about 50%.

Freedom Foods, which owns 19.1% of A2, is well-known to New Zealand investors as A2’s previous joint-venture partner in Australia, its most successful market to date and where it commands a 9.3% share of the grocery market for fresh milk.

Mr Yeo has had a close look at Dean Foods. Focused solely on standard dairy milk, it claims about 40% of the US fluid milk market, has more than 50 regional and national brands and is the only producer with a national footprint.

With about 17,000 staff and 70 plants across the US, it delivers to more than 150,000 locations daily.

But since it hived off a number of businesses, including the spin-off of consumer foods company WhiteWave Foods over 2012/13, Dean’s market is in structural decline as its customers age and buy less standard milk.

It’s losing market share to both “organic” and non-dairy specialty milks.

Mr Yeo says organics account for about 10% of the dairy milk market and other specialty milks for a similar level.

He notes A2’s joint-venture partner in the UK, Robert Wiseman, is a Dean director, suggesting he may have been the catalyst for the US company’s interest in A2.

WhiteWave Foods is another potential suitor, Mr Yeo says. Dairy products accounted for about 20% of WhiteWave’s revenue in calendar 2014 and its Horizon Organic brand is the leading organic brand in the US.

Hain Celestial Group, which markets natural and organic food and personal care products in the US, the UK and continental Europe, is another potential suitor.

Hain’s exposure to the dairy market currently is solely through its Greek Goods Yoghurt brand.

[Harrie]

Thanks Zymwh, for sharing that.
Its all looking very positive, but someone could be talking up their own book here. Nevertheless its all good news at the moment and analysts lower range valuations over $1.00 set a pretty impressive target.

[Kees]

Me make big boo boo, sold 45,000 on Monday @ >74c and buy back half of them today for .82c, hoping that the new low might be around 79c to 80c. What do ya think...good move?

I sold at 74 as well happy with the profit but you can bet if I buy back in the price will collapse so will leave it alone and watch the action on the side line.

[Harrie]

That's the problem with trying to be a trader see weed, if you are 51% right all the time, then you are a genius.
Buy the story, and hold for the long term and save yourself a heap of brokerage. At the mo a move below 0.80 now seems a bit remote, but I'm not a trader so anything is possible!

[sb9]

I'm with Harrie here, gotta be careful if you're a trader in this scenario as the story changes with bit of news. I'm sticking with my original parcel bought at 58c and happy to play till the end. All I can say is based on recent trading update, the potential for this one is huge and would like to be part of it.

[Ginger_steps_]

"He’s the most optimistic with a $1.17 target price and his valuation ranges from just 88c through to $2.24, depending largely on how A2’s rollout in the US pans out."

Dear a2,

Please tell the bidders to get lost for 18 months, and continue your great work in the US - In 18 months time I will gladly accept $2.24 for my shares.

Sincerely,
Ginger

[Ginger_steps_]

How about we leave it alone so that it can become an industry giant in its own right, rather than selling it to an industry giant. Why does NZ want to sell one of the few agricultural value-add companies we have, when we are in a world where dairy is a basic commodity being sold for lower and lower prices. We keep talking about the need to add value to our commodities, but when we do, someone comes along and takes off with the business as soon as it looks like there might be some real money in it.

At this point, I hope Fonterra makes an offer. At least we keep it in the country, so that future New Zealanders get to benefit from it.

I agree with you completely KW. However human nature tends towards impatience and greed - hence my willingness to sell for 2.24 in 18 months, and be mortgage free. Although along your train of thought - i could have a few homes mortgage free/travel the world full time in a few more years i guess, IF they become and "industry giant" that is.

[see weed]

I sold at 74 as well happy with the profit but you can bet if I buy back in the price will collapse so will leave it alone and watch the action on the side line.

Sold my air shares a couple of years ago for a $1 after buying in at mid 80s and 90s. Big boo boo then, so bought them back again at $1.04 the next day seeing which way they were heading. Feel like have done the same with a2.