ATM - A2 Milk Corporation Limited

[silverblizzard888]

Thanks for your input Silver - I hadn't seen that video yet. The burning question I have is - will you be buying?!
Lets hope a2 were being conservative with their last profit upgrade. Furthermore, lets keep an eye on China, in 9 months there will more likely than not be a flood of new babies - if a2's milk supply is increased....... In the words of Will Smith "tick tick tick tick BOOOM!!"

I do plan to buy if the price is reasonable and when I have available funds, I think I could still justify $2.50 as it still for me offers a margin of safety (big value investor here). For now a lot of my funds are locked up in Australian stocks, and the only NZ stocks I could justify selling for now would be Vmob, but next year that could well be a 3 bagger so won't give that up for ATM which would likely be a 2 bagger for me at this stage. I'm overweight in IQE have bought at the lower end and even now could offer a easy 2 bagger along with possible dividends. I'm all about where the return is highest. I was in ATM for a while and exited during the takeover offer as I was feeling the same frustration as Freedom Foods was, that the company wasn't pulling any strong numbers in especially when I saw other dairy companies outpacing them, but wow they sure caught me by surprise, that 100% growth is truly impressive. The next question is if they deliver can they follow it up with similar numbers.

[Ginger_steps_]

I do plan to buy if the price is reasonable and when I have available funds, I think I could still justify $2.50 as it still for me offers a margin of safety (big value investor here). For now a lot of my funds are locked up in Australian stocks, and the only NZ stocks I could justify selling for now would be Vmob, but next year that could well be a 3 bagger so won't give that up for ATM which would likely be a 2 bagger for me at this stage. I'm overweight in IQE have bought at the lower end and even now could offer a easy 2 bagger along with possible dividends. I'm all about where the return is highest. I was in ATM for a while and exited during the takeover offer as I was feeling the same frustration as Freedom Foods was, that the company wasn't pulling any strong numbers in especially when I saw other dairy companies outpacing them, but wow they sure caught me by surprise, that 100% growth is truly impressive. The next question is if they deliver can they follow it up with similar numbers.

Thanks for your response Silver. Yes lets hope they can keep rolling with the growth - a2's management have not let me down thus far.

[skid]

That big upgrade was a direct result of the management led by the old CEO--It will be interesting to see how the new CEO carries the torch.
Obviously alot of groundwork has already been laid,but the next few results will reflect how the new captain of the ship is doing.
In terms of the SP--its been a fascinating study of human behavior.
When I was invested in NAN there was a similar scenario.

[silverblizzard888]

Mr Markets been a bit bi-polar the last two days. Looks like institutions have been offloading to balance the books for the year to keep weightings in place. Market has had a big profit taking day, looks like this is where it holds for 2015. As Warren Buffett says in the short run the market is voting system and in the long run it is a weighting system, let 2016 roll in and seem where this can go.

[skid]

These kind of stampedes almost always overshoot--I think most who have been around knew it was getting crazy.
Its hard to value a company on that sort of behavior.
It will be interesting to see if the euphoria turns to trash talk on HC--I think the dust still needs to settle a bit.
If it had gone up a bit slower to where it is now ,everyone would be drooling,but now that momentum has changed there still may be some adjustment to come(sell and buy lower?)---Aside from those who bought at the top ,there still should be some happy campers though.
Some will come back from their break-turn on their computers and celebrate,maybe not even realizing at first where it went up to.

[Snoopy]

Dude. I did say "forward looking", I mean next year's guidance based on today's SP.

Actually it should be 39 (1.98x723m)/37m.

I think of more interest today was the notice that Geoff Babidge selling a million at 1.68m.

If the CEO is selling, I am thinking about it too...

$37m is the upper bound of the $33m-$37m 'Operating EBITDA' range quoted in the market update of 18th December. Look further down the page on that news release and you will see that 'Operating EBITDA' is a non GAAP measure that equates to EBITDA before non recurring and intercompany charges.

The $33m-$37m figure appears to be the 'Operating EBITDA' for the entire company for FY2016. I can't find an equivalent figure in AR2015 for FY2015. So how much of an improvement this 'Operating EBITDA' represents over FY2015, I am not sure. The gist of the update is that the profit upgrade has come from higher than expected 'A2 platinum' infant formula sales in China. Last year 'China and Asia' contributed EBITDA of $1.774m ( AR2015 p100). But that figure is I think 'after intercompany charges', so the direct year on year comparison is obfuscated.

Now, I agree that non-recurring one off effects ( $1.681m - relating to the restructuring of A2 milk UK, Note 12 ) should not be included in EBITDA when judging operational performance. But intercompany charges? These I believe represent the intellectual property on the books and relate to expenses already incurred by the parent company. You can manipulate the operational performance of your divisions, depending on how these costs are allocated. But I don't believe these costs can be ignored.

Look at p17 of the FY2015 annual report. 'Operating EBITDA' for Australia and New Zealand was $30m over FY2015. Now go to page 100 of AR2015 and you will see that EBITDA for Australia and New Zealand was only $5.724m. $5.724m was the real divisional EBITDA result for ANZ, hugely less than the $30m hyped figure earlier in the report text.

Interest costs are likely to be minimal (the 'I' bit), as the company has no term debt. But depreciation and amortisation (the DA bit) over the whole company are listed as $1.949m for FY2015. As a first guess you could assume that figure is similar for FY2016. And you need to subtract that from your EBITDA figure to get an estimated FY2016 net profit.

The definite thing we have been told is that overall 'Operating EBITDA' is forecast to go from $22m to $33-$37m. But what does that say for 'EBITDA' and 'Net Profit'? I am not sure that A2 have given shareholders enough information to get a meaningful answer. But I am almost certain the projected PE for FY2016 is very much larger than your '39' Bobbles.

SNOOPY

[percy]

According to ANZ Securities there are 723,300,065 shares on issue.At a share price of $1.90 the market capitalisation works out at
$1,374,270,124.
That market cap is only $20mil less than all the following put together;CVT,STU,SKL,SCL,TIL and SEK.

[skid]

According to ANZ Securities there are 723,300,065 shares on issue.At a share price of $1.90 the market capitalisation works out at
$1,374,270,124.
That market cap is only $20mil less than all the following put together;CVT,STU,SKL,SCL,TIL and SEK.

Translation= its a popular share atm and people have been throwing lots of cash at it--(whoops $1.86--add another 29mil less)--a few days before and it would have easily beat them all (market cap)

I find when momentum shifts that often a few days break has a stabilizing affect though.

[blobbles]

Have been researching ATM a bit more over the break....

Clearly there is huge demand coming from China with demand currently outstripping supply, this means the current 100% growth rate could be exceeded next year too. Remember that there will be a large boom of milk powder demand in the latter half of next year for the following 2 years from China. With ATM positioned at the top of the market there, this should provide a massive boost for ATM which we are only beginning to see.

My feeling here is if we start valuing ATM as a growth company, we can start using revenue multiples. Clearly they are pumping free money into new markets, which means they would likely be hitting 50m EBITDA this year.

My current pick is 8x revenue, $2.4 billion company, around $3.30 SP. Would be good to see Miners FCFF analysis. But with potentially doubling of revenue next year and maybe even the year after, we would have a billion dollar plus revenue company in 2 years only based on demand for milk powder in China and current fresh milk sales. If the other markets (US in particular) begin gaining traction, we could be looking at more. Likely that could mean a conservative $100m EBITDA company in 2 years. That's 10c dividends, with high growth.

One thing is clear now - a year ago we were worried that ATM would not be able to replicate their Australian success in another market. They just proved they can do it twice. This makes it far more compelling that they can do it again.

At roughly $2 or less, I am now keen on ATM long term and will be buying more on dips.

High growth, massive potential. These are the sort of investments I love!

[Joshuatree]

Me too but is there a bottleneck coming up where supply of A2 can't meet demand?