ATM - A2 Milk Corporation Limited

[blobbles]

Running with the earlier post and boring the pants off everybody (and that is despite not listing any assumptions):

Attachment 7148

What the 0.28 (28%) represents is the probability of Success in all three markets.

Success in any two markets has a probability of nearly 47%.
Single market success is nearly 22%
and abject failure across the 3 is 3%.

I expect lots of meaningful discussion based on these figures

Best Wishes
Paper Tiger

Ha haa, yes, well. Besides the mathematical problems of basing guesses on flawed methodology and flawed assumptions... actually the whole idea is too flawed to start with. But I will play your game. WARNING: The following contains a lot of guesses, I haven't done enough research yet. Can anyone tell me ATM's revenue per LITRE?

How do you define "success" in any of the markets? Is success grabbing the same market share as in Australia and anything worse considered failure? Because I can tell you, if you grabbed 1% of the UK market, 0.5% of the Chinese market (in fresh milk/UHT/Baby Powder) and 0.5% of the US fresh milk market... they would probably have ~$600m in revenue from just those markets. Not sure I would consider that failure!

The above is based on:
1% of the UK market and you are looking at 50m L per year (based on milk consumption of 1.5L per week per person, 64m people) = ~$100m revenue
0.5% of the Chinese market probably represents 135m L per year (based on 0.4L per week per person, 1.3b people) = ~$250m revenue
0.5% of the US market probably represents 125m L per year (based on 1.5L per week per person, 318m people) = ~$250m revenue

(By the way, this is by volume, it assumes ATM currently have ~3% of the Aus milk market BY VOLUME, and are receiving $2 per litre)

If you can get only a little bit of market share in these countries you can make a LOT of money. And with a lot of rich people in all of these countries willing to pay a premium for a healthier product... well...

These figures approximate with others?

Anyway, say you are using your flawed methodology, 600m * ~40% probability = 240m revenue. Plus Aus = ~$390 revenue?

What happens if they replicate Australia in the UK though? 3% of the market by volume would represent $300m in revenue in just one market. Jeez.

[dodgy]

Ha haa, yes, well. Besides the mathematical problems of basing guesses on flawed methodology and flawed assumptions... actually the whole idea is too flawed to start with. But I will play your game. WARNING: The following contains a lot of guesses, I haven't done enough research yet. Can anyone tell me ATM's revenue per LITRE?

How do you define "success" in any of the markets? Is success grabbing the same market share as in Australia and anything worse considered failure? Because I can tell you, if you grabbed 1% of the UK market, 0.5% of the Chinese market (in fresh milk/UHT/Baby Powder) and 0.5% of the US fresh milk market... they would probably have ~$600m in revenue from just those markets. Not sure I would consider that failure!

The above is based on:
1% of the UK market and you are looking at 50m L per year (based on milk consumption of 1.5L per week per person, 64m people) = ~$100m revenue
0.5% of the Chinese market probably represents 135m L per year (based on 0.4L per week per person, 1.3b people) = ~$250m revenue
0.5% of the US market probably represents 125m L per year (based on 1.5L per week per person, 318m people) = ~$250m revenue

(By the way, this is by volume, it assumes ATM currently have ~3% of the Aus milk market BY VOLUME, and are receiving $2 per litre)

If you can get only a little bit of market share in these countries you can make a LOT of money. And with a lot of rich people in all of these countries willing to pay a premium for a healthier product... well...

These figures approximate with others?

Anyway, say you are using your flawed methodology, 600m * ~40% probability = 240m revenue. Plus Aus = ~$390 revenue?

What happens if they replicate Australia in the UK though? 3% of the market by volume would represent $300m in revenue in just one market. Jeez.

Hi blobbles,
As you said all is just a guess, a crap shoot, no better than 50% success at best. However one of your assumptions has to be provable fact to lend any credibility to any other assumption. "a healthier product" . Yes? Is this an indisputable fact - back by absolutes?
Please enlighten me - not rumor or implied efficacy.
Thanks in advance.
-dodgy
discl : not holding at present

[Snoopy]

You've not added the Australian arm there. I think you've suggested a share price in the 20s for the Australian business, lets say 25c. $1.28 - 0.25 = 1.03 for rest of the world. Taking your probabilities,

$1.03 * 0.28 = 0.29

0.29 + 0.25 = 0.54 total

Doesn't take much more optimism to justify the current SP.

You are mixing two methods of analysis there mfd. I had not forgotten the Australian arm. I considered it 100% conquered.

So perhaps instead of what I did write, I should have written:

If say the chance of success in Australia is 100% (they have successed already) the chance of success in the UK is 75%, the chance of success in China is 75% and the chance of success in the USA is 50% (after all A2 have had one failed attempt there), then all of these probabilities must be muliplied together to get the chance of overall success.

1.0 x 0.75 x 0.75 x 0.5 = 0.28

Same result.

SNOOPY

PS That 22.5c (my post 3070) I quoted for Australia only was assuming they abandoned their expansion plans in China, USA and UK. Yoou can think of it as a 'lower bound' valuation, should all the overseas markets turn to custard.

[Snoopy]

Pretty confident that multiplying those probabilities together is not valid there Snoopy.
A more sensible approach would be to take some sort of weighted average of the three numbers.

Yeah multiplying those probabilities is so wrong. Could not work out what Snoopy is thinking there. The markets are mutually exclusive and each has their own probability of success.

I think you guys need to do some more thinking. The US, UK and China markets may be independent. But the ATM business plan to get into those markets is not country market independent.

The ATM business model is to use the cash generated by one market to conquer the next. A2 have zero earnings (by design) and their asset base is rapidly dimiinishing. That means ATM has no borrowing capacity. Every step of the business plan needs the previous step to succeed. If the Australian market fell over tomorrow (not that I think it will), then ATM as a company (not A2 milk as a product, a different thing) is finished. Doesn't matter how well China, the UK and the USA are going. Shareholders lose all their money. IOW my quick and dirty analysis, multiplying those three market success probabilities together, is correct.

'some sort of weighted average of the three numbers' might work if ATM had the capital to support an attack on three markets simultaneosly. But they don't. Expansion is entirely dependent on cashflow form the Australian market and, for the next stage, cashflow from the UK market (if that ever gets positive).

SNOOPY

[babymonster]

i think the multiplying is correct. In risk management, it is common to do that (multiplying individual risk) to get an overall risk level.

[Leftfield]

Can't help thinking there are parallels between XRO and ATM. XRO established and market leader in Australia, Strong gains in UK and now launching into USA with so far questionable results yet great prospects. ATM also strong in Aus and UK, and about to launch into USA (again) and also China. It's going to be an interesting year for holders of ATM and maybe (like XRO) there will be a bit of turbulence in the SP until we see some good progress.

Disc; small holder, like the product, yet consider it a risky part of my portfolio.

[Baa_Baa]

... XRO established and market leader in Australia ...

Would you bring that over the XRO thread with some evidence?

[MAC]

I'll have a go,

It's a discussion that’s been had many times on the thread already actually Dodgy if you have time and patience for a look back, I'll take it straight to the end game for you.

a2mc have over 100 studies demonstrating the benefits of a2 milk, some nutritionists and healthcare folk refute some of that evidence, fair enough, although last year a2mc did successfully complete a double blind human trial and have further human trials planned.

But, all that is much less important than the existence of the debate itself.

It's a debate that's been going on for 10 years thus far and may well have another 10 years to go, long may it continue.

The more debate, the more awareness, the more profile it gets by wellness and health interests, the more folk that are prepared to say, I'll give that a2 milk a go for myself.

Debate --> Awareness --> Sales

It's an equation that has seen revenues growing at an average of 40% pa for the last four years, and there are a lot more markets yet to open and products yet to launch.

It’s not the purpose of a2mc to replace a1 milk, they market and sell into a value added premium milk market.

Achieving close to 10% of all fresh milk sales in Australia, and that’s not 10% of the premium market, that’s 10% of the entire milk market, demonstrates that although all international markets are slightly different, their prospects in the very similar UK and US markets is very promising to say the least.

a2mc have competent marketing folk if you should you check their credentials, an entry into the US market will have been predicated with a lot of on the ground market research and discussion with the three retail supermarket chains they have already contracted with.

[MAC]

I reckon that Californian’s, whom are generally labelled as being open minded wellness and health conscious folk, have the potential to take to a2 milk as readily or possibly even more so than Australia did;

http://www.foodnavigator-usa.com/Man...ornia-in-April

California itself alone is roughly the same market size as Australia, with yet another Australian size market within the immediate bordering states.

The US price points offer similar margins over ‘home brand milk’ to that in Australia, and they are entering with four fresh milk products, not something they achieved in Australia until quite recently, geographically, there should be lower distribution costs than Australia also.

On a risk/reward basis, this may well prove to be a damn fine investment for just NZ$20M. That investment spread over three years suggests a2mc anticipate US segment profitability as soon as FY18.

Success doesn’t happen through random probabilities, it happens through good management, researched on the ground market analysis, competitive advantage, and applied business strategies.

AUSTRALIA:
Population: 23.1M
Annual drinking milk consumption: 2.541 billion litres

CALIFORNIA:
Population: 38.8M
Annual drinking milk consumption: 2.952 billion litres

SURROUNDING STATES:
Population: 30.4M
Annual drinking milk consumption: 2.345 billion litres

[see weed]

Another million gone through, up 2c.