ATM - A2 Milk Corporation Limited

[couta1]

Excuse my ignorance on this stock but is it in competition with SML directly or indirectly or neither,I'm interested in taking a position in this stock where does it rate on the risk scale,any help would be appreciated, I held SML briefly last year but sold without making anything and after that it took off

[In4a$]

Excuse my ignorance on this stock but is it in competition with SML directly or indirectly or neither,I'm interested in taking a position in this stock where does it rate on the risk scale,any help would be appreciated, I held SML briefly last year but sold without making anything and after that it took off

I am no expert Couta, and didnt think ATM would go anywhere in the beginning, but basically they market their A2 gene milk from selected cows globally, SML is basically a milk powder plant in canterbury, selling NZ produced milk powder. Its not a Co-op like Fonterra so I feel has a better potential to return profits to investors, so I dont hold FSF.
Disc : Hold both, SML, ATM, will be getting more ATM

[couta1]

I am no expert Couta, and didnt think ATM would go anywhere in the beginning, but basically they market their A2 gene milk from selected cows globally, SML is basically a milk powder plant in canterbury, selling NZ produced milk powder. Its not a Co-op like Fonterra so I feel has a better potential to return profits to investors, so I dont hold FSF.
Disc : Hold both, SML, ATM, will be getting more ATM

Thanks In4a$ for help, wouldn't buy sml now at their current price but ATM looks promising I guess possibly more risky as sounds a more selective market?

[In4a$]

Thanks In4a$ for help, wouldn't buy sml now at their current price but ATM looks promising I guess possibly more risky as sounds a more selective market?

I agree, I saw ATM as risky, got in late with 2k at .83 then another 2k at .90, ( I like to dip my toes in then buy more as price climbs, rather than risk my cash with one buy) many seem to be confident its valued at around $1.10 so I might get more. I saw WYN as a better choice and thats paying off now.
SML I saw as a safe bet, They have a factory, they make milk powder which seems to be a hot product at the momement and they are a good size for a potential takeover. Had 8k sold 3k when it topped $4

[Citizen Erased]

Noob question: Would you expect a slight pull-back in ATM after the recent spike? I'm looking for an entry point for a small investment.

[baller18]

Noob question: Would you expect a slight pull-back in ATM after the recent spike? I'm looking for an entry point for a small investment.

I'm no TA expert, but on the charts it is outside the bollinger band, but buyiing pressure is still high, very similar pattern to PEB where buyers are piling up. It might retrace one to two cents then and there, but then once again it can shoot up.

[warthog]

Hi couta I have been involved, in the past, in the supermarket business.
It is extremely hard, for a new brand, to get space on the supermarket shelve's.
For ATM to have achieved this with a premium biotech product means the supermarkets think it is a winner. So it's market is not that selective if it was it would not have been given space on supermarket shelve's.

It's "supermarket shelves" (plural, not possessive).

Yes, the supermarkets think its a winner not in and of itself, but they (supermarkets) think that in the context of similar products it can still grow *their* revenue so bodes well for ATM in larger markets.

[warthog]

I'm no TA expert, but on the charts it is outside the bollinger band, but buyiing pressure is still high, very similar pattern to PEB where buyers are piling up. It might retrace one to two cents then and there, but then once again it can shoot up.

"might" ... "it can".

Yes indeed. It can go up, down (potentially to zero), or just bump along doing not very much.

[Snoopy]

"might" ... "it can".

Yes indeed. It can go up, down (potentially to zero), or just bump along doing not very much.

No ATM can't go down to zero. As long as there are projected profits and or positive cashflow the share will always retain some value. If you really think it could go down to zero, you don't understand how the sharemarket works.

SNOOPY

[Snoopy]

I'm interested in taking a position in this stock where does it rate on the risk scale, any help would be appreciated,

Couta, ATM has one outstanding achievement. They have broken into the very tough Australian supermarket duopoly, with a premium product that is gaining market share depute heavy discounting in conventional milk. IMO the rise in ATM's share price is almost entirely because of this Australian market achievement.

In NZ they have been far less successful. Some would say this is because of the partnership arrangement that A2 adopted in NZ, whereas in OZ they took complete control of their own destiny. They are also in the formative stages of breaking into the UK market, again in a partnership arrangement. If they can crack the UK and Australia, then it must be looking good for other markets too. So there is a brief outline of what you get with A2. The other side of any investment is what you pay to be part of the action.

A2 is currently trading on an historic PE of 100. Another way of looking at PE is that it measures the amount of time an investor must wait to get their capital back if all profits are paid out as dividends. If you are 25 years old now and invest in A2, you will be 125 years old before you get your share capital invested back, and only at that point will you start to see a return. Of course this assumes a steady state business performance, which all current shareholders would dismiss. Nevertheless it does highlight how extremely expensive ATM is. I would go so far as to say it would be one of the ten most expensive shares ever traded in the entire history of the NZX, and that includes the 1987 boom. You would have to assume that major success in the UK has already been built into the ATM share price, and anything short of breakthrough growth in that market will see the ATM share price severely punished.

In a nutshell with ATM you have a very high investment potential at a very high price. From an investment perspective this equates to very average prospects going forwards for those buying in at 90c.

There are two scenarios I see going forwards. ATM is able to replicate its success in Australia in other markets. This probably means going it alone, as per the Australian model, and that means a lot more capital will be needed. So shareholders should expect either a large cash issue or placement that will significantly dilute their equity position in the next few years. This will mean new shares available at significantly lower prices than today.

The alternative is to expect a much slower expansion program with partners in new markets. In this scenario I would see growth slowing to the extent that a PE of 100 is totally unjustifiable. In this scenario I see ATM succeeding even as existing shareholders get caned - conservatively I would see the share price halving.

Given the two most likely scenarios will see the share price significantly lower going forwards, the best strategy going forwards looks like hanging out for any upcoming capital raising. I can't imagine why you would take the risk of paying 90c for this.

SNOOPY