ATM - A2 Milk Corporation Limited

[Ginger_steps_]

a2 has gained more shelf space, and a more favourable shelf position - for their formula at Coles. My local store has gone from a 2 tin width to a 6 tin width, and from the knee height shelf to eye height. Can't complain with that! Looking forward to seeing how a2 goes in NZ once they take back the distribution license.

[Joshuatree]

Thanks Snoopy and may yu have a wealth of health year and may Iron ore and steel prices recover enough for ARI to emerge like shiny metal blue new phoenix.
ATM up 6 to $2.98 and down 8c on ASX to $1.795 i guess readjusting to exchange rates (i haven't looked).

Forgot to add spruikometer today
A2M no 3 297
DSH poor ole Dicky Smith no 2, 333(half a beast
UNS Unilife tops 430

[Leftfield]

Thanks Snoopy for your attempt to put a value on ATM. Methinks until we get some firm figures for the first half year FY16, we will be purely guessing. For me it is much more than the Australian story. How is ATM going in UK? China? USA? What are the plans other markets particularly NZ (when it regains its distribution rights?) Any new products? Yoghurts? New licenses?

Another thing very hard to value is the IP wrapped around this company. I suspect it is extremely under valued.

That said, can ATM have another stellar year like last year? It's ssooo hard to say and although I'm holding (and happy) at this stage I've held off picking ATM in the 2016 stock picking comp. Only time will tell is that is wise or stupid! Roll on 2016.

[Snoopy]

Thanks Snoopy for your attempt to put a value on ATM. Methinks until we get some firm figures for the first half year FY16, we will be purely guessing. For me it is much more than the Australian story. How is ATM going in UK? China? USA? What are the plans other markets particularly NZ (when it regains its distribution rights?) Any new products? Yoghurts? New licenses?

Another thing very hard to value is the IP wrapped around this company. I suspect it is extremely under valued.

Left Field, what I did was look at a worst case scenario of never being able to generate a profit outside of Australia. I do not believe this is a likely scenario, but shareholders need to bear in mind that it could happen. The value I calculated is therefore a pessimistic view of what could happen should things outside of Australia go wrong. It is not a 'valuation' in the conventional sense. My calcs do include some contribution from new product lines in Australia.. The PE of 20 I was using is pretty high for a single market food company, so includes a lot of growth domestically in Oz.

What my calcs do show is that a lot of success in markets outside of Australia (all unprofitable as I write this) is already built into the share price. But this has been the case for some time, so is not a new revelation.

I would suggest to you that the company IP has no separate value, outside of ATM's ability to use their own IP to expand into new markets. ATM seems to want to keep the A2 brand in house, not sell the name to someone else to use. And there's nothing wrong with that approach IMO.

SNOOPY

[Leftfield]

Thanks Snoopy. Appreciated. It's a v hard company to value at the moment. I like your realism as it strips away rose tinted views of ATMs prospects. Yesterday's SP level around $NZ1.90 in the face of weak overseas markets (China, Europe, USA) was interesting and the NZ ATM chart trends still look encouraging pending more news.

The unknown to me is the rabid interest shown in Aus as witnessed by Hot Copper forum posts. Watching BAL on the ASX shows that such forums can be anything but rational!.

[Baa_Baa]

Surprising this hasn't been discussed, maybe I've missed it. "A2 Milk's Babidge, other shareholders cash in on high share price" http://www.nbr.co.nz/article/a2-milk...ew%2520Edition

[Minerbarejet]

Surprising this hasn't been discussed, maybe I've missed it. "A2 Milk's Babidge, other shareholders cash in on high share price" http://www.nbr.co.nz/article/a2-milk...ew%2520Edition

Yes, would have thought certain factions would be screaming blue murder by now.

[NT001]

Surprising this hasn't been discussed, maybe I've missed it. "A2 Milk's Babidge, other shareholders cash in on high share price" http://www.nbr.co.nz/article/a2-milk...ew%2520Edition

Some have interpreted this as an indication that Babidge sees the SP as grossly over-valued and is "cashing in" while he can, but I don't necessarily buy that. He has sold only a small portion of his stake and there can be many reasons for this, including the fact he has several million partly paid shares, and may see this as a suitable opportunity in a volatile market to fully pay them off.

[Baa_Baa]

Some have interpreted this as an indication that Babidge sees the SP as grossly over-valued and is "cashing in" while he can, but I don't necessarily buy that. He has sold only a small portion of his stake and there can be many reasons for this, including the fact he has several million partly paid shares, and may see this as a suitable opportunity in a volatile market to fully pay them off.

There's always reasons I guess why a CEO would sell their holdings in a company, I just thought it was strange that the NBR article was almost apologetic and not a mention here, when for other companies the CEO selling would be a red-light. Maybe the red-light has already gone off with the pullback from the recent steep rise to new highs. Still nothing said here, interesting.

[Snoopy]

Still trying to get a real feel for the A2 financials, mainly because I struggle to get any DCF to give me anywhere near 90 cents / $1

Is this slide really meaningful (from annual results preso) - like say for Australia is the intercompany charges and license fees of $14.2m a real cost or just a lot of smoke and mirrors to confuse mere mortals like me. Upon consolidation it probably has no impact and A2 have put this disgram in to try to show how much money is made in each segment.

Reading all this stuff it appears as A2 say that 'investment for growth' was $7.5m - does that imply normalised earnings were about $7.5m pre-tax then?

Trying to reinterprate the slide highlighted by Winner in the FY2014 results presentation (p4). Australia and New Zealand are now recognised together. So for future reference we need to combine the separate Australia and New Zealand results into one:

	NZ	Australia	Total
Operating EBITDA	-$7.6m	$18.7m	$11.1m
Intercompany Charges & Licence Fees	-$10.6m	$14.2m	$3.6m
Segment Profit	$3.0m	$4.5m	$7.5m

Very annoyingly the format for the 'ANZ' segment in the FY2015 presentation is far less detailed. There is comparative information that relates to FY2014 of course.

Again from the FY2015 presentation, on p4 the Operating EBITDA of 'ANZ' is listed as $18.7m for FY2014. That figure does not stack up against the implied FY2014 presentation figure of $11.1m. Returning to the FY2015 presentation, looking at FY2014 results, and taking off 'Corporate and Other' EBITDA of $7.5m gives a net operating EBITDA for FY2014 of:

$18.7m -$7.5m = $11.2m

This is the number we are after, within the margin of error. It really is difficult to compare year on year results when the company obfuscates them like this.

SNOOPY