ATM - A2 Milk Corporation Limited

[winner69]

Please correct me if I am wrong but did they just bought a factory or two?

Operating Cash Flow was negative $10m v last year positive $160m.

That’s day to day stuff and then they spent more on Synlait rights issue and few other investment things

Haven’t spent cash on big factory’s yet

[Dassets]

So ATM now looks like it may drop out of the ASX50. Looks like only 1 indexer fund using that so quite small selling if that happens but still shows the emerging capital markets issues these guys facing.

[alokdhir]

After reading all the posts here ...some emotional ...some rational ...some hopeful ...some spiteful

ATM is in a big downtrend ....no doubt

When it will turn around if it will ? Will it reach past glory if it turns around ?

Very difficult questions to answer with any degree of certainty

So best u can do if u want to invest now or hold is have faith in the story and management

Past bad times have shown me that management is not investor friendly also they are not as savvy as we think them to be ...hopefully new CEO will add some value to already written off team ...mind u ...thats hope not reality as yet

Story is also showing some holes ...as other A2 milk brands are increasing competition in a lucrative market thus making big margins in their business a thing of the past ...Brand strength is only on paper as per me

Keeping above in mind I will prefer to stay away as dont have enough reasons to take a punt here ...

Disclosure : Followed KFL in and then followed them out in early Dec. at a loss

[sb9]

Well done those who picked another downgrade, clearly ATM don't yet have a grip on their sales channels post covid, or expenses supplying their market in current state, or stock levels. Lots of things to fix. Yet. Still, they make a sh1tload of money.

That said, my opening stake is underwater but my second entry today is above, so far. I'm not talking about mortgaging the house or taking leverage on this, but I'm happy to take advantage of price weakness.

ATM aren't going out of business, $1.4b rev forecast, truckloads of cash in the bank and still very profitable with growing ancilliary markets.

Clearly it's not for some, but to use a cliche, "when others are fearful".

GLTAH. Investing is about the future. Just depends on how far into the future you look, and what you're prepared to pay for part of that future.

Yes, not a great report unfortunately. However, its a good opportunity for new CEO to reset long term strategy that is more sustainable which can withstand calamities like COVID and other disasters. If he can steer the ship back to previous levels, there is a big reward for him in the wings.

I said before and say it again "time's is up for Mr Hearn, he needs to go...."

[Nor]

Seems like a crazy business model. People stuffing cans of infant formula in their person luggage or bundling it up and posting it.

[Balance]

Story is also showing some holes ...as other A2 milk brands are increasing competition in a lucrative market thus making big margins in their business a thing of the past ...Brand strength is only on paper as per me

Keeping above in mind I will prefer to stay away as dont have enough reasons to take a punt here ...

Disclosure : Followed KFL in and then followed them out in early Dec. at a loss

KFL did well, getting out when they did - cut their losses while many in the market were still dreamy about the share price going back to $20 one day.

Meanwhile, it is clear from the Craig's update that the writing was on the wall for those who care to read & digest the bad news :

Stephen Ridgewell published and extensive preview overnight in advance of the ATM 1H21 result on Thursday. The result is pre-guided with $181m of EBITDA expected although the key questions for Ridgewell is whether ATM can provide confidence that revenue and margin trends are stabilising sequentially and also whether ATM can diversify its channels to market and defend its brand premium under new CEO David Bortolussi. Clarity on the latter question will take some time, although feedback from our proprietary large daigou contacts suggest that the sequential sales snap back is yet to eventuate. The issues around this important channel are multifaceted but can be best summarised as follows:

· Volumes declining - volume trends have worsened in early 2021 with Jan sales -70% yoy (vs. -55% yoy in the Dec qtr) with a much smaller than normal increase in demand ahead of the Chinese New Year period (chart 1)

· ATM’s daigou market share has eased – ATM has gone from market share gainer in 2018/19 to holding relative share versus other key daigou brands such as Danone’s Aptamil.

· Eroding Price Premiums – The decline in ATM’s price point benchmarked to 1 January 2020 has been more severe than other major brands which could reflect inventory overstocking but also greater A2 only competition (see Feihe’s A2 launch below).

· Price cuts have struggled to trickle down – ATM alluded to some prices cuts to restore daigou margins although feedback suggests that these have not yet been passed on from wholesale to large daigou.

· Brand spend needs to increase – Feedback suggests that ATM has become much harder to sell with daigou commenting that in addition to price cuts they want ATM to increase brand spend.

ATM’s current challenges reflect a mix of industry headwinds but also ATM specific issues. International brand market share has fallen from 56% to 49% over the past two years, driven by i) food safety concerns with consumers concerned about the risk of catching COVID from imported tins ii) regulations that support domestic brands iii) greater nationalism and iv) increasing competition as domestic brands more aggressively target tier 1 & 2 cities. This however does not explain why ATM’s history of gaining share appears to have halted. Whatever the primary driver, as Ridgewell indicates, ATM’s over-reliance on the daigou channel also means it has been more impacted by its collapse. With this in mind we now expect ATM to deliver FY21e EBITDA of $387m, at the low end of the guidance range ($364m - $450m, midpoint $406m) and with the PER still elevated at 31x we prefer to sit on the side-lines at these levels. Neutral rating retained with an updated TP -9% to $10.63 …"

Everything points towards the glory days of ATM fading rapidly in the face of competition (refer Craig's note above) and gross mismanagement :

- Getting rid of Jayne as the board preferred short term sp performance over long term strategic positioning,

- Appointing a self-acknowledged 'been there, done that and need someone else for the job' ex CEO,

- Losing key marketing & promotional executives,

- Chairman directing the board & management of a multi-billion dollar company from outside the company's three principal hubs of activities - NZ, Australia & China.

A company with management who have no clue about how its single biggest market (daigou) is performing - massive inventory pileup (& writing off $22m of expired inventory), loss of market share, having to discount and provide additional financial support - what does that say to you about the state of this company?

Cash rich (for sure) but fat, lazy & grossly mismanaged with executives gouging on benefits and share sales - it has all been too easy.

[Entrep]

Seems like a crazy business model. People stuffing cans of infant formula in their person luggage or bundling it up and posting it.

hahah yeah I have been thinking the same thing

[Akane]

I'm calling it now, it's going to go sideways for a VERY LONG TIME with blips downwards every now and then. I stand by my original value of $8, possibly dipping to $6.
I'm holding this till it withers away, hope this is a good daily reminder of how I screwed up buying on hype.

[Balance]

I'm calling it now, it's going to go sideways for a VERY LONG TIME with blips downwards every now and then. I stand by my original value of $8, possibly dipping to $6.
I'm holding this till it withers away, hope this is a good daily reminder of how I screwed up buying on hype.

Nothing wrong with the business model - except that ATM did not move fast enough (as Jayne wanted) to diversify distribution channels & leverage successfully off the huge market established via the daigou.

Have a read of how Comvita has repositioned their sales reliance on daigou successfully.

[Biscuit]

....... massive inventory pileup (& writing off $22m of expired inventory), loss of market share, having to discount and provide additional financial support -.......

So the profit margin is down - does that take into account the write down on expired inventory? Does it take into account the unsold inventory? Serious question. Are we looking a falling sales margins or just falling profit margins?