ATM - A2 Milk Corporation Limited

[bull....]

made a retest of the break down at around 14 just under , pulling back now which is usually bearish in my opinion as support has now become resistance. only means one thing hammer time

[Bobdn]

Apologies if this is old news, this just popped up on the SMH's markets live as I was trying to find out why my South 32 shares are doing so badly:

A2 Milk is a sell, says analysts at Citi.
“We consider consensus EBITDA margin expansion in FY21 and FY22 as too optimistic given the increased investment required to pursue growth in China and the US,” Citi equity analyst Sam Teeger said in a note released late Monday.
Having switched its rating from neutral to sell, Citi has also downgraded its price target for the company from $15.15 to $12.20.
“Our target price now implies an 18 per cent lower FY20e PE multiple of 26x as we have cut our EBITDA margins," Mr Teeger said. "The daigou channel is no longer reliable to drive growth and competition is increasing."
Shares in A2M are down 2 per cent to $12.375 on Tuesday.

https://www.smh.com.au/business/mark...24-p52u9m.html

[ratkin]

Hasnt gone below my bottom call from last week yet, today's sell off courtesy of a Citi downgrade to $12.20 AU. PS-Thats a strong buy signal as they are notorious game players.

If that is a strong buy signal I would hate to see what a strong sell signal looked like

[Beagle]

Citi's view - Heck that's about the same as I see it, but something I clearly articulated about a month ago. $A12.20 price target 12 months from now, (assuming people expect a minimum 12% return for risk capital in the market), is almost bang on where I see fair value at present of $N.Z.11.50 now. PE multiple they use is almost identical to where I see it and I also agree that EBITDA margin expansion in FY21, FY22 and beyond is too optimistic. I would expect Jayne will continue with her extremely heavy handed approach to marketing spend and staff recruitment. This isn't even a hold as far as I am concerned at the current price and technically the chart is looking very ominous. I don't think some people have got it that once the low hanging fruit has been picked the game has fundamentally changed.

Kingfish adding to their holding in this and Vista when the game has clearly changed for both is disappointing and I am not surprised they have started to underperform the market, (actually quite sharply in August and a repeat appears to be on the cards for Sept). My faith in their stock picking ability is being sorely tested.

[couta1]

Take absolutely no notice whatsoever of Sam Teeger or Citi, they have played this old trick before with A2, issue a downgrade then mop up as many cheap shares as they want for their clients and to lend to shorters and then a few weeks or so later they issue an upgrade. PS-See you at $20.

[Beagle]

Posted on 21 August 2019 when the share price was $14.81. The cautionary note was intended for my friends to consider carefully.

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.

Took Citi over a month to work out what it took me to do in a couple of hours when time allowed. I think they've finally seen the situation for what it really is.
I doubt some will read or even briefly try and think about another perspective...

[Ggcc]

Take abousolutely no notice whatsoever of Sam Teeger or Citi, they have played this old trick before with A2, issue a downgrade then mop up as many cheap shares as they want for their clients and to lend to shorters and then a few weeks or so later they issue an upgrade. PS-See you at $20.

I agree but I am thinking $20 will take a while. Maybe over a year

[couta1]

I agree but I am thinking $20 will take a while. Maybe over a year

Yep bit over a year I reckon ,will hit $18 sometime next year at least IMO.

[Baa_Baa]

Take abousolutely no notice whatsoever of Sam Teeger or Citi, they have played this old trick before with A2, issue a downgrade then mop up as many cheap shares as they want for their clients and to lend to shorters and then a few weeks or so later they issue an upgrade. PS-See you at $20.

Perhaps those who are not familiar with the ASX and the incredible market manipulation by very large deep pocketed insto's and brokers will find it difficult to comprehend the games and whipsawing share prices, or the motivations, let alone the methods. The so called 'analysts' reports are just front running their companies buy or sell strategy at the time, always remember they want your money. It's an eye opener for sure.

Best thing a minnow can do with a stock like A2M imho is wait patiently for a low price reversal, get in and just don't sell or react to the games. Accumulate on low price reversals which will come, look at the volatility! Traders might work both sides and sell high price reversals.

In any event, listening to brokers, insto analysts and 'discussion groups' is a mugs game, it inevitably messes with your mind and you do things you wouldn't otherwise do if you had just ignored the whole lot of them and worked your own book.

A2M and ATM are in or entering the sweet spot buy zone, it's massively derisked (capital basis) and has a bright future. Now's the time people might want to consider progressively easing in, certainly not the time to freak out and sell!

But I'm just a 'discussion group' guy, so don't listen to me ... LOL.

[couta1]

Perhaps those who are not familiar with the ASX and the incredible market manipulation by very large deep pocketed insto's and brokers will find it difficult to comprehend the games and whipsawing share prices, or the motivations, let alone the methods. The so called 'analysts' reports are just front running their companies buy or sell strategy at the time, always remember they want your money. It's an eye opener for sure.

Best thing a minnow can do with a stock like A2M imho is wait patiently for a low price reversal, get in and just don't sell or react to the games. Accumulate on low price reversals which will come, look at the volatility! Traders might work both sides and sell high price reversals.

In any event, listening to brokers, insto analysts and 'discussion groups' is a mugs game, it inevitably messes with your mind and you do things you wouldn't otherwise do if you had just ignored the whole lot of them and worked your own book.

A2M and ATM are in or entering the sweet spot buy zone, it's massively derisked (capital basis) and has a bright future. Now's the time people might want to consider progressively easing in, certainly not the time to freak out and sell!

But I'm just a 'discussion group' guy, so don't listen to me ... LOL.

Good post and reminder to what's going on behind the scenes to cause the hard to understand movements of this stock. As you say work your own book or in my words follow your Gutometer and ignore all the barking coming from different directions instead be downright dogmatic in your conviction and vision for this great company and you will be rewarded for a long while yet.