ATM - A2 Milk Corporation Limited

[Beagle]

What is the compelling reason to invest in ATM at the present times?

I just visited our local Pak n Save - Karicare A2 is on special at $26.95 vs A2 at $44.00 - 40% cheaper!

ATM is taking a high risk strategy of writing off expiring stock and exchanging new stock for expiring stock with its key retailers to avoid discounting and maintain its premium price position.

I do not see that as a sound strategy & wise spend of funds - now that the A2 spell (moat) has been broken and there are other A2 brands available at hugely lower prices.

ATM has buggered up its all important and crucial daigou market - that now is clear from the commentary coming out from various sources. Biting the hand that feeds A2 capital light strategy was not a smart move.

I couldn't agree more ! The MVM acquisition looks like a white elephant given the rapidly changing demand situation and talk about an "own goal" undermining Synlait's business !
The best aspect of ATM's current business plan is their strong cash position, (over $1 a share) and capital light model and they're rapidly proceeding towards shooting themselves in both feet on those fronts while they try and convince customers their product is still worth a significant price premium.

Mothers who can't get reliable supplies of A2 product have moved on already to other brands and if baby is doing well on that other brand they're not going to change just because fresh ATM IF at premium prices suddenly becomes available are they ! Rebuilding growth, if possible at all, is going to be a VERY long, slow and VERY expensive exercise.

The P is one thing and should probably come down into the value range, (mid to late teens) until they can prove they can start growing again, but the real question is what is the E ?

[BlackPeter]

What's a PE of 10-12? About $2-$3?

Jeez - don't ramp it :

PE 10 at this years earnings as per May 10 forecast would be $1.20 ;

Just saying.

[Balance]

Jeez - don't ramp it :

PE 10 at this years earnings as per May 10 forecast would be $1.20 ;

Just saying.

Wouldn’t be priced on this year’s profit but a PER of 16 times next year’s profit would be realistic.

But what is next year’s profit? Company is not giving any guidance but even if it does, it’s credibility is pretty much zip given the 4 downgrades in 8 months!

[Beagle]

Wouldn’t be priced on this year’s profit but a PER of 16 times next year’s profit would be realistic.

But what is next year’s profit? Company is not giving any guidance but even if it does, it’s credibility is pretty much zip given the 4 downgrades in 8 months!

What if, as Forest suggested, there is no profit in FY22, how do you price it fairly then ? I am sitting on my paws indefinitely until there is a clear break up through through the 100 day moving average line, (if this actually happens at some point in the future). TA has been an infinitely more accurate forecaster than company management !!

[allfromacell]

A2 was originally heavily crisitised for being so reliant on the 'grey market' channel and pretty much everyone was screaming how they needed to diversify and go direct to the consumer, doing this whilst maintaining daigou relationships who could continue to promote their brand was not an easy task. Up until just about a year ago pretty much everyone was in agreement that management were balancing this superbly, maintaining margins and growing revenue at such a clip it seemed they were unstoppable.

So what changed? Covid initially appeared to be a tailwind as pantry stocking ramped up and revenue had a significant kick however this quickly turned south with excess stock held by everyone, consumer's, daigou, supermarkets and other retails all seemed to have way too much stock. This all from a company that used to hold back stock in order to give a premium product illusion, it seems they got greedy?

Lowering birth rates, increased local brand loyalty and competition all added to the pain but I think it was this overstocking that has really taken the wind out of the brands image. Recovering from this will be tricky, obviously they're in good financial health but getting that growth rate back is a big ask. Remember this is the product people literally got into fights in the supermarket over, I doubt we'll ever see those days again just as I doubt we'll see a2 with a PE ratio above 30 or a SP above $20..

I wish the new CEO and shareholders luck! A one market one product company is always a risky bet. Anyone who's studied this company knows that's all this company really is.

[flyinglizard]

Let's back to Aug 2020.

https://www.fool.com.au/2020/08/28/a...ons-of-shares/

According to a change of director’s interests notice, the company’s Chair and Non-Executive Director David Hearn has offloaded a large number of shares this week.
The notice reveals that Mr Hearn sold 250,000 of the company’s New Zealand listed shares through an on market trade on 24 August for an average of NZ$20.31 per share (~A$18.57). This represents a total consideration of NZ$5,077,500 or approximately A$4,642,500.


Mr Hearn isn’t the only seller of shares. In a series of other notices filed with the NZX, and not the ASX, it was revealed that the company’s chief executive has been selling shares as well. Geoffrey Babidge sold 100,000 shares on market on 24 August.
But the biggest seller of all has been the Asia Pacific chief executive, Peter Nathan. After exercising 800,000 options at NZ$0.63 per option on 19 August, he swiftly sold 750,000 shares between 24 August and 26 August for an average of NZ$20.12 or a total consideration of almost NZ$15.1 million. He is left owning 100,000 shares.
Joining the selling was Chief Growth and Brand Officer Susan Massasso and Chief Operations Officer Shareef Khan.
Massasso offloaded 541,391 shares through on market trades. Whereas Khan exercised 400,000 options for NZ$0.63 and then promptly sold 200,000 shares for NZ$19.87 per share.
No explanation was given for the share sales, which is disappointing given the magnitude of these transactions.

[Habits]

Let's back to Aug 2020.

https://www.fool.com.au/2020/08/28/a...ons-of-shares/

According to a change of director’s interests notice, the company’s Chair and Non-Executive Director David Hearn has offloaded a large number of shares this week.
The notice reveals that Mr Hearn sold 250,000 of the company’s New Zealand listed shares through an on market trade on 24 August for an average of NZ$20.31 per share (~A$18.57). This represents a total consideration of NZ$5,077,500 or approximately A$4,642,500.


Mr Hearn isn’t the only seller of shares. In a series of other notices filed with the NZX, and not the ASX, it was revealed that the company’s chief executive has been selling shares as well. Geoffrey Babidge sold 100,000 shares on market on 24 August.
But the biggest seller of all has been the Asia Pacific chief executive, Peter Nathan. After exercising 800,000 options at NZ$0.63 per option on 19 August, he swiftly sold 750,000 shares between 24 August and 26 August for an average of NZ$20.12 or a total consideration of almost NZ$15.1 million. He is left owning 100,000 shares.
Joining the selling was Chief Growth and Brand Officer Susan Massasso and Chief Operations Officer Shareef Khan.
Massasso offloaded 541,391 shares through on market trades. Whereas Khan exercised 400,000 options for NZ$0.63 and then promptly sold 200,000 shares for NZ$19.87 per share.
No explanation was given for the share sales, which is disappointing given the magnitude of these transactions.

Very ironical as it was only Jayne that got exposed and vilified at the time. Sounds pretty disgusting offloading to someone else what they knew was a ticking bomb

[Rawz]

What if, as Forest suggested, there is no profit in FY22, how do you price it fairly then ? I am sitting on my paws indefinitely until there is a clear break up through through the 100 day moving average line, (if this actually happens at some point in the future). TA has been an infinitely more accurate forecaster than company management !!

ATM say "it is estimated that if the one-off charges and sales reductions to reduce inventory in the trade werebacked out for this year, the business would record annual revenues in the order of $1.3 billion with an EBITDAmargin percent in the low to mid-twenties."

EBITDA margin of say 21% would give an underlying NP of $180m ish.

Not that what ATM say carries much weight... but I think no profit fy22 is unrealistic.

[Beagle]

ATM say "it is estimated that if the one-off charges and sales reductions to reduce inventory in the trade werebacked out for this year, the business would record annual revenues in the order of $1.3 billion with an EBITDAmargin percent in the low to mid-twenties."

EBITDA margin of say 21% would give an underlying NP of $180m ish.

Not that what ATM say carries much weight... but I think no profit fy22 is unrealistic.

Second half sales will be only $523m if they make their $1,200m sales forecast for FY21....down heaps on 1H FY21 and down mega on 2H FY20. Its too simplistic and simply window dressing to say if for this or for that we would have achieved the other...such a statement ignores the downtrading sales which exacerbated the inventory situation. Apart from that management have indicated more stock write-downs for FY22 and increased marketing spend.

With this company management, they now have a well established track record or making very light of the size of any problem and the reality is usually much worse. I expect the old stock issue to materially undermine margins in FY22 and they will need to spend up really large to try and stop the brand losing market share going forward. Break even is one possible and quite plausible result in my opinion. (Remember they are forecast to lose ~ $30m in 2H FY21 !). I will simply follow the TA and look for an entry point when it breaks up through the 100 day MA.

[flyinglizard]

Second half sales will be only $523m if they make their $1,200m sales forecast for FY21....down heaps on 1H FY21 and down mega on 2H FY20. Its too simplistic and simply window dressing to say if for this or for that we would have achieved the other...such a statement ignores the downtrading sales which exacerbated the inventory situation. Apart from that management have indicated more stock write-downs for FY22 and increased marketing spend.

With this company management, they now have a well established track record or making very light of the size of any problem and the reality is usually much worse. I expect the old stock issue to materially undermine margins in FY22 and they will need to spend up really large to try and stop the brand losing market share going forward. Break even is one possible and quite plausible result in my opinion. (Remember they are forecast to lose ~ $30m in 2H FY21 !). I will simply follow the TA and look for an entry point when it breaks up through the 100 day MA.

Mr.B. ATM holds 20% of SML if I am right. The loss of investment for FY22 would be calculated? They need huge marketing budget for the Chinese Label and pay tax and employment expense in China now. I suspect that the inventory swap policy is the condition raised from the CBEC channels. Maybe more other conditions, like extended credit term (6 months or 12 months?) The pages are only half open, we cannot see the whole picture so far.