ATM - A2 Milk Corporation Limited

[Beagle]

Yes I think the upcoming ski trip will involve more slope time along with end of day drinks rather than day base market time the way things are looking, probably a good thing.

Still got to get you to trade shares in the cafeteria at Coronet ski field, on the chairlift going up, (nothing new so far) but also while skiing downhill on the M1 lol...I have to see this trade while skiing happen and am offering my guide dog services for free to ensure it does

[RupertBear]

Yes I think the upcoming ski trip will involve more slope time along with end of day drinks rather than day base market time the way things are looking, probably a good thing.

Spent the day skiing at the Snow Farm in Wanaka today. Bucket loads of fresh untracked dry powder! It was truely horrible Spent a late lunch in the cafe on my ipad buying more ATM shares The snow should be great for your ski trip

[Balance]

Tomorrow will be when the official downgrades are released by the analysts and brokers - recommendations based upon revised lower forecasts & valuations will drive the sp over the short term.

A quick calculation shows the impact of lower EBITDA margin (-3.4%) of $56m on F20 forecast revenues of $1.66 billion. That will translate to an adverse NPAT impact of around 11% in F20.

Can see why the market shaved 12% off the sp today.

Then there's the increased marketing spend flagged for F20 (from 10.4% of sales to 12% of sales) = $26m increased cost. The unknown is whether this is to maintain or accelerate current sales trajectory.

Anyway, we will see tomorrow - can imagine the analysts furiously reworking their numbers (after being very positive) to less lofty numbers after discussions with the company.

https://www.moneymorning.com.au/2019...ions-asxu.html

"A2 Milk expects FY20 EBITDA as a percentage of sales to largely align with their 2H19 EBIDTA margin of 28.2%. And The Australian Financial Review reports that the EBITDA margin outlook consensus was 31.6%. Consequently, with downgrades potentially in the offing, the A2 Milk outlook section of the results presentation played a big part in today’s fall."

[couta1]

Balance you talk as if the market is rational and knows what it's doing, I'll let you in on a little secret, most of the time it doesnt. PS-Watch the big game players like UBS/Goldman lower their targets to mop up as many cheap shares as they can and extract mega fees from the shorters at the same time. Lol

[Balance]

Balance you talk as if the market is rational and knows what it's doing, I'll let you in on a little secret, most of the time it doesnt. PS-Watch the big game players like UBS/Goldman lower their targets to mop up as many cheap shares as they can and extract mega fees from the shorters at the same time. Lol

The market reacts short term to what the brokers and analysts say - recall how we were all rejoicing at the sp going ever higher a month ago as one broker after another issued upgraded valuations?

We are going to see the opposite from the brokers tomorrow so bracing oneself for the ride is simply prudent - irrespective of whether the market is rational or irrational.

[Baa_Baa]

Brokers/analysts upgrade ramp it selling into the rise. Same downgrade buying into the weakness. Rinse and repeat.

If you know their game and are prepared to either trade it just like they do, or ignore it completely, you’ll be winning. Fight it and feel the pain.

Very little changed today for ATM, still an outstanding company on a incredible growth trajectory.

[Balance]

Brokers/analysts upgrade ramp it selling into the rise. Same downgrade buying into the weakness. Rinse and repeat.

If you know their game and are prepared to either trade it just like they do, or ignore it completely, you’ll be winning. Fight it and feel the pain.

Very little changed today for ATM, still an outstanding company on a incredible growth trajectory.

No disagreement with you there.

[Beagle]

"A2 Milk expects FY20 EBITDA as a percentage of sales to largely align with their 2H19 EBIDTA margin of 28.2%. And The Australian Financial Review reports that the EBITDA margin outlook consensus was 31.6%. Consequently, with downgrades potentially in the offing, the A2 Milk outlook section of the results presentation played a big part in today’s fall."[/I]

Was quite busy doing real work today so here is my belated detailed analysis and thoughts.

For my money Balance has a good point. Herdlicka is spending money on staff and marketing with little or no restraint and it will obviously materially affect the EBITDA margin. Only time will tell if this is a better way to grow the company than Geoffrey Babbage's more conservative approach. The considerable inventory build suggests they could have sold more if the demand was there but it wasn't. In fact demand was short of production capability by quite a bit and that's a first to the best of my recollection. Maybe that's why marketing is being seriously ramped up ?

The other thing to keep in mind is sales and profit growth, (despite all the extra staff and marketing spend in FY19) has slowed quite considerably compared to last year. Net profit after tax grew 116% last year so ~ 47% growth for FY19 is clearly not nearly as impressive.
Likewise sales growth last year was 68%, just 41% for FY19 and that with heaps more marketing and headcount.

When we look at the 1H FY 19 v 2H FY19 split we see 1H sales of $613m generating $152.7m net profit and 2H sales of $691m generating just $135m net profit and its the margins in 2H shareholders get to "enjoy" going forward.
Its looks to me like Herdlicka is throwing a heck of a lot of money at the operation and growth is slowing quite materially whereas Geoffrey Babbage's approach was far more successful. Don't suppose he can be coaxed out of retirement ? Could be a rough few days ahead as analysts seriously revise their numbers.

Cash on hand amounts to 63.2 cps.

https://www.marketscreener.com/A2-MI...22/financials/
Prior to this announcement average analyst view is for sales of $1,660m next year and 32% EBITDA margin.
Retuning this to the 28.2% EBITDA margin the company is now forecasting and everything else in the above average broker forecast for FY20 staying constant this gives revised NPAT of $326m for FY20, only 13% net profit growth next year on 27% sales growth and all this on vastly higher marketing and human resources costs.

$326m gives 44.4 cps earnings and at a closing price of $14.81 that puts ATM on a forward PE of 33.4. That looks a bit pricey to me for the expected growth rate, (has traded at lower rates in the past with much higher previous eps growth rates) and caution appears to be warranted.
Finally, no analysis is complete without a look at TA. Very clear break down through the 100 day MA today and the bounce this afternoon was fairly muted in comparison to the initial drop and did not recover above the 100 day MA.

Hmmmmm. Some real caution appears to be warranted here. All the numbers I am looking at tell me very clearly that profit growth is slowing down at quite a worrisome rate !

Disc Not holding and not intending to directly hold. Hold Kingfish and they hold heaps of ATM.

[JeremyALD]

Solid result, what other company with over 1b revenue is growing at 40% p.a. with 400m cash and no debt.

What ever did happen with the Fonterra partnership? Was such a huge announcement more than a year ago and now it's hardly ever talked about.

[Balance]

https://www.afr.com/companies/retail...0190820-p52ix4

"The a2 Milk Company boss Jayne Hrdlicka says the easy revenue gains made in Australia and via daigou personal shoppers are a thing of the past and the milk and baby formula maker is building capacity for the long haul in China."

Game is changing and ATM is positioning itself with increased marketing and promotional spend in China (& Australia) to maintain growth momentum.

Let's hope the increased spend will result in significantly higher sales to offset the reduced margins.