ATM - A2 Milk Corporation Limited

[NT001]

I'm pleased to see some people who know a lot more than I do about how the market works seem to share my suspicions now. The descriptions of shorting do seem to fit in with the way ATM shares have been dribbled into the market, rather than offered as a substantial block. You wouldn't need to deploy very many shares to use this method, and probably wouldn't even have to borrow from a big holder. As I suggested some weeks ago, it still seems to point to a takeover. However at this stage I'm somewhat comforted by Snapiti's advice that "as an investor in ATM I am not concerned at all about this...... I have watched many stocks have their share price manipulated by big players. Experience says no need to worry or panic."

[Harrie]

I think you should do your homework on how shorting works.......
Shorting happens all day every day (not so much on the NZX).
Stocks are shorted to make a profit and not for takeover purposes(although I am sure this does happen).
Some US stocks have 30% of their shares in short plays.
ATM is a perfect stock to short as it has difficult fundamentals to value therefore putting a floor under the share price.
The trading pattern most certainly indicates someone has shorted the stock and is doing a good job of driving the price down. Annoying as it is large players are constantly using their position to sniff out opportunities like this. I am a little jealous.
As an investor in ATM I am not concerned at all about this...... I have watch many stocks have there share price manipulated by big players. Experience says no need to worry or panic.

I agree with you KW it would be nice to have the shorts openly reported like they do on overseas markets.

I'm not sure how you have interpreted what I have said in response to KW as not understanding how "shorting the market" works. It would be fair to say that having worked in the futures market some time ago, I think I would qualify as having some experience around the topic.
My response to KW was to use his terminology as one way in which a "short" could possibly work, and on the scenario KW set out I doubted that any one would undertake that high risk strategy. I'm not sure that I have heard of shares being "borrowed" but I could see a strategy where a contract could be arranged whereby shares were allocated to a buyer on the basis that they were returned at a higher price. Useful for a fund Manager because they could immediately book a locked in "spread"
Having said this , a strategy such as this is possible but I'm not aware of this practise because the only reason that anyone would do this as I have said is to manipulate the share price down and hope that what is lost is more than made up on the takeover bid.
There is off course, if we want to get into all the machinations of strategy, the possibility that the borrower could adopt the above strategy at the same time as writing a "put" option with another party as a hedge........another one for you to explain snapiti?


I'm not sure if any of the above strategies are legal in NZ anyway, and I don't really think ATM is big enough. To be honest I agree with the others that none of this is really relevant to long term holders, but it does provide some intrigue of what may be going on behind ATM's shareholding irregularities.

[Hoop]

I think that with the volume of shares that have traded in the past 4 odd months we can safely say there is no single seller reducing their shareholding. I also think that if the buyer and seller were the same person the actions would largely offset themselves.

Ummm...you have lost me with your logic Fisherking ..
4 months ago ATM was 79c now 59c

[nextbigthing]

Thanks KW some great info there.

I've emailed the company to see if they would like to comment however as of yet no reply, I think I read somewhere that getting back to people isn't their best attribute. I shall let you all know if I get a reply.

A few weeks ago I had a terrible case of man flu and whilst bedridden narrowly avoiding death was able to watch the volume closely. It was a very consistent pattern of selling, 3-9 sell orders for about 150-250 thousand shares reloaded each time after it got taken out and dropping a cent each day or so. That same pattern is still continuing more or less. That to me suggests the same broker/seller. With decent volume and no SSH then to me that really suggests what KW is saying, shorting.

Why short it? Well it could be just to make money in which case we don't have to fret as ride it out and it will return to a fair value. But as someone else has suggested, what's all this IP worth to the like of Nestle or one of the really big food companies? More than the market cap of ATM nowadays? Probably IMHO. Especially if you knock a huge whack off that mcap by shorting.

Please understand I'm just hypothesizing here. Don't take it as gospel.

[winner69]

Thanks KW some great info there.

I've emailed the company to see if they would like to comment however as of yet no reply, I think I read somewhere that getting back to people isn't their best attribute. I shall let you all know if I get a reply.

A few weeks ago I had a terrible case of man flu and whilst bedridden narrowly avoiding death was able to watch the volume closely. It was a very consistent pattern of selling, 3-9 sell orders for about 150-250 thousand shares reloaded each time after it got taken out and dropping a cent each day or so. That same pattern is still continuing more or less. That to me suggests the same broker/seller. With decent volume and no SSH then to me that really suggests what KW is saying, shorting.

Why short it? Well it could be just to make money in which case we don't have to fret as ride it out and it will return to a fair value. But as someone else has suggested, what's all this IP worth to the like of Nestle or one of the really big food companies? More than the market cap of ATM nowadays? Probably IMHO. Especially if you knock a huge whack off that mcap by shorting.

Please understand I'm just hypothesizing here. Don't take it as gospel.

If the shorting being done to make money (not setting up an acquisition) then this headline would be very bad news for the shorters

Nestle make bid for A2 Milk at $2 a share

[MAC]

They have been very quiet of late too, they could have announced the Synlait registration especially after having said this in the FY14 report;

“there have been changes to access arrangements for imported infant formula including a requirement for manufacturing companies and brands to achieve a new form of registration from May 2014. Whilst we believe this approach should ultimately be positive for quality producers, the short term impact of these changes has brought uncertainty into the market which has impacted many participants including a2MC”

It would also have been a positive matter to have announced the magnitude of the fledgling fresh milk airfreight market into Asia which could be substantial, as big as infant formula, yet nothing but silence, well aside from a slip of back door outlook information to the press.

Why should they have suddenly become shrinking violets, not like ATM at all ?

[Jasemc]

Not sure they have suddenly become shrinking violets. They seem to release very little warm fuzzy news. If you want to punt assume at the agm they will announce USA and other great news. So buy 40million shares and sell after agm and retire.

[NT001]

They have been very quiet of late too, they could have announced the Synlait registration. ... Why should they have suddenly become shrinking violets, not like ATM at all ?

I agree MAC, the company and its top shareholders seem surprisingly unperturbed by the manipulated fall in share price, and could have done more about it. From what I've been reading, shorting can be hazardous, especially if a big buyer enters the market to scoop up the shares when they've become depressed and starts pushing them up again, or if good news is announced that pushes demand for the shares up. The latter could easily have happened but hasn't. Mountain Road and Freedom Foods which control the company own almost 30% of the shares so they have a lot at stake, and presumably know more about what's going on than we do.

That said, A2MC's PR has never been nearly as active and informative as it could/should be, which I find strange and somewhat worrying. For example it does not reply to blatantly misleading statements by mainstream dairy or by self-proclaimed experts. The company's overall strategy has been to not antagonise mainstream dairy and the health-claims regulators too much, which may have been sensible in the past. But I think the anecdotal and scientific evidence in favour of A2 (and against A1) is now so strong that the company should get a bit bolder and more proactive in educating the public, bearing in mind that its patents don't last for ever.

[stoploss]

In order to short a stock, that is selling a share you do not own, you have to "borrow" the shares from someone who does own them, so that you can deliver them to the buyer. EVERY SHORT SELLER MUST BORROW THE SHARES. This is called a Covered Short, and is the only way you can short stocks since the post GFC regulations made Naked Shorts (selling a share and buying it back before delivery of the original sold shares can be made) illegal.
It is of course legal everywhere since it is a basic part of the market mechanics.

the shares are not returned to the lender at a higher price, the lender simply gets interest on the value of the shares loaned for so long as the short seller of them takes before buying them back and returning them. This is usually a short period of time, as if the share price is falling, you pay back the "loan" and borrow them again at the cheaper market price.

I can make the shares i own available through my broker to cover short sellers. Its not just fund managers who can do it, anyone can. If one were planning on holding shares through a correction, its an easy way to make money (assuming that the share price will eventually recover and you arent contributing to your own loss of capital)

"Easy way to make money " That's what the clients of OPUS prime thought over the GFC...........

[MAC]

It was more perhaps a question to others as to whether companies in general go quiet when in discussion with large investing interests ?.

I’ve booked flights for the AGM , it’s typically my only annual reason to have to go Auckland, would prefer they had the AGM’s in Sydney actually, perhaps though we’ll find out more from chit chat over the usual ubiquitous plastic cup of fresh a2.