ATM - A2 Milk Corporation Limited

[Beagle]

Thanks for sharing your thoughts whome. The reminder that no company is immune to long term competitive pressure is both timely and appropriate.
What will be fascinating to watch is how Fonterra go about managing the process of moving towards encouraging, (assuming any farmer needs it) their farmers to transition to A1 free herds without in any way wanting to besmirch the veracity of their long promoted health benefits of A1 protein.

Any way you slice and dice this thing though, this is a really major flip-flop by Fonterra and underscores the value of the science behind and I.P. of the A2 brand and ATM are the beneficiary of that.

Disc: Also a very happy ATM holder.

[Nasi Goreng]

awesome post whome.

I was thinking about how much of A2's value is based on IP and how much longer it is until patents run out and other companies start to supply A2 or A1 free milk. It's not really an if but when. A concern is that up until now, A2 have used contract manufacturers to produce their products which has allowed them to keep capital costs to a minimum. As these patents fall off, you have to wonder where the negotiating power will go with agreements with likes of SML / Fonterra etc who could potentially re-brand the product as their own. As well as that, all the other dairy players are going to want a part of the action.

A2 is generating a mountain of cash right now yet NTA is only $0.51 per share. Once the party is over, what will keep the growth engine going from here? and does this justify high PE.

[Sideshow Bob]

awesome post whome.

I was thinking about how much of A2's value is based on IP and how much longer it is until patents run out and other companies start to supply A2 or A1 free milk. It's not really an if but when. A concern is that up until now, A2 have used contract manufacturers to produce their products which has allowed them to keep capital costs to a minimum. As these patents fall off, you have to wonder where the negotiating power will go with agreements with likes of SML / Fonterra etc who could potentially re-brand the product as their own. As well as that, all the other dairy players are going to want a part of the action.

A2 is generating a mountain of cash right now yet NTA is only $0.51 per share. Once the party is over, what will keep the growth engine going from here? and does this justify high PE.

Patents is definitely one aspect to it, but also brand is the other. Would be interesting when have a product that would have another companies name on it.....unless they said "Free of A1 Protein" or something similarly obtuse. If others then promote that selling point, they are also broadening the market and bring attention to the genuine article.

Must admit, I always like a good solid asset backing. But can also look at it alternatively that in the meantime, generating growing profits and sales from minimal tangible assets, which is great for investors in that the company does not have a large amount of capital tied up in stainless steel and processing plants.

[Nasi Goreng]

Patents is definitely one aspect to it, but also brand is the other. Would be interesting when have a product that would have another companies name on it.....unless they said "Free of A1 Protein" or something similarly obtuse. If others then promote that selling point, they are also broadening the market and bring attention to the genuine article.

Must admit, I always like a good solid asset backing. But can also look at it alternatively that in the meantime, generating growing profits and sales from minimal tangible assets, which is great for investors in that the company does not have a large amount of capital tied up in stainless steel and processing plants.

I agree. But remember, this is milk we are talking about here. In the oil industry, its the guys with the wells in the ground which make the money.

[couta1]

I think I'll start worrying about these technicalities after the SP goes over $20, until then I'll just enjoy the rollercoaster.

[minimoke]

Patents is definitely one aspect to it, but also brand is the other. Would be interesting when have a product that would have another companies name on it.....unless they said "Free of A1 Protein" or something similarly obtuse.

"gluten Free". "Sugar Free" "A1 Free" all pretty much of a muchness

[dobby41]

If others then promote that selling point, they are also broadening the market and bring attention to the genuine article.

You imply that only product from ATM would be genuine when other market milk with only the A2 protein.
Can't see how that would stack up - easily copied when you are allowed to.
Probably also easy to get around with marketing - what is stopping other (in the world) from making A2 milk (apart from getting the cows which isn't that hard as discussed)?

[Beagle]

I think I'll start worrying about these technicalities after the SP goes over $20, until then I'll just enjoy the rollercoaster.

Company has a great track record of positively surprising the market AND updating guidance that significantly exceeds previous guidance and I note they said they were happy with January's trading.
Considering Synlait have only just been able to start doubling their canning and drying capacity I think the market is in for a BIG surprise with 2H results and I think the research I posted recently from Bell Potter $A13 valuation which contained therein an earnings estimate for FY18 of just 30 cents per share $N.Z. is likely to be very conservative, notwithstanding the significant extra marketing spend in the U.S. in this second half to set the company up for more growth in FY19 and beyond. Odds on favorite to hit $20 sometime in the next few years, possibly much earlier than anyone on here might imagine.

[hardt]

You imply that only product from ATM would be genuine when other market milk with only the A2 protein.
Can't see how that would stack up - easily copied when you are allowed to.
Probably also easy to get around with marketing - what is stopping other (in the world) from making A2 milk (apart from getting the cows which isn't that hard as discussed)?

In biopharma for instance.

Often times when 1 company has the only treatment for a small and misunderstood illness, there is an untapped portion of the public (and the professionals that diagnose them) who 1) aren't aware of an illnesses existence - 2) the treatment available on the market and 3) those who are misdiagnosed that know they are not getting any better.

Sales teams in orphan drug companies have a better understanding of the illness their drug treats than any medical professional out there.

Competitors come into the space and pump funds into developing understanding and awareness of what is on offer to patients and doctors, this expands the base of demand of all products in the space as more people are diagnosed... this benefits both the original sole treatment and competitors moving into the space.

[couta1]

Will be interesting to see how the price holds up over the next few months before the full year result. Depends on Insto game playing trying to scare retail holders out of their shares plus of course those pesky shorters, another thing might be Mr Babidge selling a good number of his shares before he steps down, that will scare a few noobs to cough up their holdings.