ATM - A2 Milk Corporation Limited

[Biscuit]

Being a B team member means being able to smell the B.S. from a considerable distance. Management have been full of it for months, called from the B team and been consistently right.
Wait for the next downgrade and come back and tell me how Chinese mothers will pay big money for the brands they trust. In the meantime let me define the term "inextricably linked" for Synlait shareholders with this image of how Synlait and ATM have performed in the last 6 months Attachment 12363

Chart keeps getting extrapolated in the same direction for the foreseeable future, for both.

None of that means anything at all. Come back to me when A2 are selling their IF at the same price as the competition and you will be right that they have lost the brand competition.

[Balance]

None of that means anything at all. Come back to me when A2 are selling their IF at the same price as the competition and you will be right that they have lost the brand competition.

Which is what ATM is effectively doing now - providing subsidies & incentives to its channels to compete with its competitors.

Problem is that the channels are pocketing the subsidies & incentives rather than pass it all onto end consumers - hence the huge drop off in revenues and the drop in EBITDA margins.

This was alerted to by the Craig’s update before the third downgrade.

[Biscuit]

Which is what ATM is effectively doing now - providing subsidies & incentives to its channels to compete with its competitors.

Problem is that the channels are pocketing the subsidies & incentives rather than pass it all onto end consumers - hence the huge drop off in revenues and the drop in EBITDA margins.

This was alerted to by the Craig’s update before the third downgrade.

A2 have seen a major part of their marketing strategy into China implode. Reliance on that channel was not a very sound long term strategy at any rate as they well knew. It is certainly true that they need to re-strategize in China and speed up the changes they were already making. That does not equate to brand damage if they can successfully do that quickly and I think the jury is still out on that. To me the "news" and opinions that are flowing thick and fast at the moment are just noise and are largely just an amplification of what we can all see in the falling share price and profit downgrades.

[Akane]

I think this thread has become overly pessimistic about A2 if I'm honest.

A2 have been a disappointment in the last year or two, but maybe this is the wake up call they needed. They still have a significant amount of cash and a very strong brand, with healthy metrics continually reported. They can easily navigate uncertainty with their balance sheet, and have the ability to reposition their business if needed. They are in as good a position as any company facing significant headwinds.

They have undoubtedly had factors occur within and outside of their control since Covid, and I believe the latter will fade over time, and the former can be fixed in time. We will see more management changes soon I'm sure, with shareholders having more of a say over selection.

I still am of the view there is a bright future for a2. It might take a few years for them to sort it out and mature into a leading global company, and lessen their reliance on China.

In the meantime they are still very profitable. Let's remember that despite a shocking year they are still going to make a significant profit and $1.3b - $1.4b in revenue is nothing to scoff at.

The virus has been around for a year now, actually more than a year since it came out of China, you're telling me management will FINALLY do something about pivoting their sales channels to counter the negative effects of COVID... in due time?

I'm sorry bud but we're already 9 months behind on doing anything to mitigate the effects of COVID, the snowball has already gained momentum, A2 have been left behind already as other companies adapted to changes and keep sodiering on.

[winner69]

The virus has been around for a year now, actually more than a year since it came out of China, you're telling me management will FINALLY do something about pivoting their sales channels to counter the negative effects of COVID... in due time?

I'm sorry bud but we're already 9 months behind on doing anything to mitigate the effects of COVID, the snowball has already gained momentum, A2 have been left behind already as other companies adapted to changes and keep sodiering on.

Caretaker CEO who didn't really want to get involved and a Chairman nowhere to be seen .....totally expected

[Balance]

The virus has been around for a year now, actually more than a year since it came out of China, you're telling me management will FINALLY do something about pivoting their sales channels to counter the negative effects of COVID... in due time?

I'm sorry bud but we're already 9 months behind on doing anything to mitigate the effects of COVID, the snowball has already gained momentum, A2 have been left behind already as other companies adapted to changes and keep sodiering on.

ATM could learn a thing or two from Comvita about pivoting sales channel to be less dependent on daigou.

[Beagle]

I think this thread has become overly pessimistic about A2 if I'm honest.

A2 have been a disappointment in the last year or two, but maybe this is the wake up call they needed. They still have a significant amount of cash and a very strong brand, with healthy metrics continually reported. They can easily navigate uncertainty with their balance sheet, and have the ability to reposition their business if needed. They are in as good a position as any company facing significant headwinds.

They have undoubtedly had factors occur within and outside of their control since Covid, and I believe the latter will fade over time, and the former can be fixed in time. We will see more management changes soon I'm sure, with shareholders having more of a say over selection.

I still am of the view there is a bright future for a2. It might take a few years for them to sort it out and mature into a leading global company, and lessen their reliance on China.

In the meantime they are still very profitable. Let's remember that despite a shocking year they are still going to make a significant profit and $1.3b - $1.4b in revenue is nothing to scoff at.

I enjoy your posts Jeremy and I am not surprised at all to see you near the top of the share competition as the vast majority of the time you share some great insights but I believe you're off the mark here by quite some margin. Others will point to longer timeframes and that's okay but to me the strong growth stopped 3 years ago and they've faced issues well before Covid that slowed them down.
I could debate your post line by line, (I really am tempted too) but rather than do that I think I will sum my sense up with this simple statement, first mover advantage only lasts so long...and then its gone.
I think their brand value is on the decline. I sold 3 years ago at ~ $13. Here's a chart showing ATM's share price relative to the NZX50 since I sold.
The famous KW said, never buy shares in a downtrend. By extension, I never hold shares in a confirmed downtrend. The widespread proliferation of other A2 brand alternatives are eating away and diminishing their first mover advantage. Management now have a very serious credibility problem in my opinion. I don't think they know how to try and regain their premium brand growth trajectory and I wonder if this is even possible. I know a lot of money has been made in ATM in the past and that's probably why it has "cult like" (not unlike Tesla in the U.S.) status here but down 20% in the last 3 years when the market is up 90% is a serious problem for the newcomers and the huge gains of the past are well and truly now ancient history and of little relevance to investors decisions today. Picture says a thousand words... Good luck with it buddy, I think you're in for an "interesting" time with it for at least the rest of 2021.
ATMVNZX3.jpg

Much is made of their so called "cash mountain" I'm not impressed they have never paid a dividend over all these years and they have what amounts to just $1.10 per share in cash in the bank. So they've been miserable with dividends and have some cash as a result of that...

[Ruby]

Excerpts from NZ Herald today;


"...While a2 Milk has taken a battering, fund managers, noting the company's enviable earnings record, lack of debt and its $774 million cash mountain, have in no way written the company off..."

"..."It is still an amazing brand," said Mark Brown, chief investment officer at Devon Funds, who noted the company's very strong balance sheet...."

"...At the same time, China is aware that it can't be totally self-sufficient because it does not have the land, water or climate.And it costs more to feed and milk a Chinese cow than it does a New Zealand, Australian or Irish cow," Mahon said...."

"...In the 11 coastal provinces where most of China's 400 million middle class citizens reside, customers seek out imported infant formula on the basis that its food safely is more reliable..."

"..."They have diversified and they have done well particularly in the offline channel in China, but the business is obviously still exposed to daigou..."

"...the central theme is that the daigou traders just want to get back into business.
"They want to get going again, but while borders are closed it remains difficult for them.
"There are many different types of daigou - some are quite large and sophisticated..."

[dobby41]

Excerpts from NZ Herald today;


"...While a2 Milk has taken a battering, fund managers, noting the company's enviable earnings record, lack of debt and its $774 million cash mountain, have in no way written the company off..."

"..."It is still an amazing brand," said Mark Brown, chief investment officer at Devon Funds, who noted the company's very strong balance sheet...."

"...At the same time, China is aware that it can't be totally self-sufficient because it does not have the land, water or climate.And it costs more to feed and milk a Chinese cow than it does a New Zealand, Australian or Irish cow," Mahon said...."

"...In the 11 coastal provinces where most of China's 400 million middle class citizens reside, customers seek out imported infant formula on the basis that its food safely is more reliable..."

"..."They have diversified and they have done well particularly in the offline channel in China, but the business is obviously still exposed to daigou..."

"...the central theme is that the daigou traders just want to get back into business.
"They want to get going again, but while borders are closed it remains difficult for them.
"There are many different types of daigou - some are quite large and sophisticated..."

Food for thought - thanks.

[Habits]

Now below 10 bucks again and forming a similar pattern to after the second downgrade. Drop... bounce... drop