ATM - A2 Milk Corporation Limited

[JeremyALD]

Hi mate,
I normally listen closely to what you have to say on here but on this occasion my view is that adjusting for losses in countries in which the company is trying to achieve growth and eventually achieve critical mass is a pretty creative way to assess a growth company's forward earnings, especially if much of that growth that's hopefully forthcoming is in lower margin milk sales. On one hand the company is projecting growth and on the other you're adding back the cost of getting that growth, that's pretty creative accounting. Why stop there ? Add back all their marketing spend as well and then you could make the case its really cheap for a growth company...ahem...but remind me again, how are they going to achieve that growth without that spend ?

No argument from me that the market overall is VERY fully priced, but I would argue ATM included for its future more modest growth rate.

I agree its a bit creative, but I'm happy to take into account their extremely large pile of cash. They did exit the UK market, so if they find USA is not attractive after a few more years they could exit that also and not incur future losses. I personally think the USA presents some opportunity, but clearly China is the key growth driver, with Australia at a maturity stage.

There's not many places to put money at the moment. Looking objectively across the NZX I have HLG as my main yield stock and ATM as my main growth stock. Happy to reassess that in 6-12 months, but I don't see a lot of downside at the current SP. I also don't see many other great opportunities to put cash, aside from property!!

I think there is also opportunity for a2 to get into new verticals, although I have been a bit disappointed with how slow or non-existent the partnership with Fonterra has been.

[couta1]

Interestingly those insto's that own the majority of ATM stock constantly sending out their hyenas for short raids with their BORROWED computer assisted algorithm trading. Taking the largest feast once the tree shake damage is done the goal to "keep increasing that pot-of-gold" All part of the a2 cycle now for years with brokers using low ball valuations or fake news to create doubt among holders as without them they have nothing.

Normally flick a few shares out yearly but this time decided to hold.

Are you sure they are not sending out Beagles and Bulls. Lol

[Snoopy]

After adjusting for cash and US losses, the PE for A2 milk is sitting well below 30.

Jeremy, a company can choose its equity structure (the balance between equity and debt) and choose what markets it operates in. The equity structure is what the operational business is built on. The operational business in the case of A2 milk consists of both fresh milk and value added product, of which infant formula is the headline high value add item.

You could 'adjust for cash' if the company had committed you to paying out the cash as a special dividend. But A2 has not done that. AFAIK A2 milk plan to use the cash to develop their markets and supply chain. So if you 'adjust for cash' you are also taking out the future business development that the cash is ear-marked to fund. You may think the company can run on less cash. But the company has chosen to retain a significant cash balance for reasons that you or I may not fully appreciate, and we have to accept that this is how management has chosen to run the business. Put this way and in this circumstance, I hope you can see that 'adjusting for cash' in these circumstances is not an acceptable valuation technique, because the company will be unable to execute their growth strategy if you do this.

Now on the subject of geographic market losses. A2 has pulled out of the U.K. So it would be legitimate and desirable when making an earnings comparison with a previously comparable period and constructing an historical earnings profile to remove any UK market losses from the company earnings history. However, in the USA as I understand it A2 are doubling down on their investment and pushing hard to getting critical mass and earnings momentum. There is the cost of establishing in new markets. All successful growth companies will make a loss when first establishing in a new market. Losses in the establishment phase cannot be avoided. I put it to you that by excluding US market losses in your valuation you are modelling the A2 business in a way that is not real. Doing that will likely lead to poor investment decisions, and relatively poor outcomes for you as a shareholder. If the US was a zombie market that A2 were in the process of withdrawing from then your approach would be fine. But the truth is quite the opposite. The US is still down as a major growth engine for A2 into the future.

SNOOPY

[dreamcatcher]

I would like to think that progress for IF for the USA may be close...........

[jimdog31]

Interestingly those insto's that own the majority of ATM stock constantly sending out their hyenas for short raids with their BORROWED computer assisted algorithm trading. Taking the largest feast once the tree shake damage is done the goal to "keep increasing that pot-of-gold" All part of the a2 cycle now for years with brokers using low ball valuations or fake news to create doubt among holders as without them they have nothing.

Normally flick a few shares out yearly but this time decided to hold.

Couldnt agree more. If you were to collect all the negative headlines, fake news of the last few years, this company has weathered them all.

Over time the lack of supply/demand of the retail share float kicks in and so the share price has only one direction long term, if the fundamentals remain good.

Once the company is paying dividends , the tightly held register can kick back and watch the money come in year after year with no need to shake the tree as no retail investors left to be shaken.

[Beagle]

Are you sure they are not sending out Beagles and Bulls. Lol

Jeremy, a company can choose its equity structure (the balance between equity and debt) and choose what markets it operates in. The equity structure is what the operational business is built on. The operational business in the case of A2 milk consists of both fresh milk and value added product, of which infant formula is the headline high value add item.

You could 'adjust for cash' if the company had committed you to paying out the cash as a special dividend. But A2 has not done that. AFAIK A2 milk plan to use the cash to develop their markets and supply chain. So if you 'adjust for cash' you are also taking out the future business development that the cash is ear-marked to fund. You may think the company can run on less cash. But the company has chosen to retain a significant cash balance for reasons that you or I may not fully appreciate, and we have to accept that this is how management has chosen to run the business. Put this way and in this circumstance, I hope you can see that 'adjusting for cash' in these circumstances is not an acceptable valuation technique, because the company will be unable to execute their growth strategy if you do this.

Now on the subject of geographic market losses. A2 has pulled out of the U.K. So it would be legitimate and desirable when making an earnings comparison with a previously comparable period and constructing an historical earnings profile to remove any UK market losses from the company earnings history. However, in the USA as I understand it A2 are doubling down on their investment and pushing hard to getting critical mass and earnings momentum. There is the cost of establishing in new markets. All successful growth companies will make a loss when first establishing in a new market. Losses in the establishment phase cannot be avoided. I put it to you that by excluding US market losses in your valuation you are modelling the A2 business in a way that is not real. Doing that will likely lead to poor investment decisions, and relatively poor outcomes for you as a shareholder. If the US was a zombie market that A2 were in the process of withdrawing from then your approach would be fine. But the truth is quite the opposite. The US is still down as a major growth engine for A2 into the future.

SNOOPY

You better watch out now Couta1, the Beagle's are launching a pack attack and a Moose has joined in support Go hard or go home...maybe its time to go home

Well said Snoopy.

[Snow Leopard]

Yeah...I finally got a well thought through response, (by email from a former member) to the question I posed - Has the growth rate slowed....

Your day attempting to troll this thread has ended pretty pathetically when you are reduced to claiming that something from the Moose is 'well thought through'.

Really?

[JeremyALD]

Jeremy, a company can choose its equity structure (the balance between equity and debt) and choose what markets it operates in. The equity structure is what the operational business is built on. The operational business in the case of A2 milk consists of both fresh milk and value added product, of which infant formula is the headline high value add item.

You could 'adjust for cash' if the company had committed you to paying out the cash as a special dividend. But A2 has not done that. AFAIK A2 milk plan to use the cash to develop their markets and supply chain. So if you 'adjust for cash' you are also taking out the future business development that the cash is ear-marked to fund. You may think the company can run on less cash. But the company has chosen to retain a significant cash balance for reasons that you or I may not fully appreciate, and we have to accept that this is how management has chosen to run the business. Put this way and in this circumstance, I hope you can see that 'adjusting for cash' in these circumstances is not an acceptable valuation technique, because the company will be unable to execute their growth strategy if you do this.

Now on the subject of geographic market losses. A2 has pulled out of the U.K. So it would be legitimate and desirable when making an earnings comparison with a previously comparable period and constructing an historical earnings profile to remove any UK market losses from the company earnings history. However, in the USA as I understand it A2 are doubling down on their investment and pushing hard to getting critical mass and earnings momentum. There is the cost of establishing in new markets. All successful growth companies will make a loss when first establishing in a new market. Losses in the establishment phase cannot be avoided. I put it to you that by excluding US market losses in your valuation you are modelling the A2 business in a way that is not real. Doing that will likely lead to poor investment decisions, and relatively poor outcomes for you as a shareholder. If the US was a zombie market that A2 were in the process of withdrawing from then your approach would be fine. But the truth is quite the opposite. The US is still down as a major growth engine for A2 into the future.

SNOOPY

Thanks Snoopy, but I was just pointing out where I see value and the fact that A2 milk has a substantial amount of cash to me, makes it more attractive that if the business had no cash and was using debt to fund their growth. It also opens up new opportunities for further acquisitions.

Loss making businesses chasing growth are often given higher valuations so there is also some merit in separating US losses IMO, however I agree it's obviously not a great way to valuate a company.

Aside from all that, even at the curent MC the PE is 34 which in the context of the New Zealand Market and growth rates can hardly be considered expensive?

[Beagle]

Your day attempting to troll this thread has ended pretty pathetically when you are reduced to claiming that something from the Moose is 'well thought through'.

Really?

Here's an idea just for a refreshing change. What about actually posting a meaningful rebuttal rather than your usual pithy meow.

[Hello123]

Here's an idea just for a refreshing change. What about actually posting a meaningful rebuttal rather than your usual pithy meow.