ATM - A2 Milk Corporation Limited

[Gregnz]

Personally I suspect a lot of the movement in the share price is reflective of uncertainties around future growth and obviously disappointment in management that updated guidance has been released only a month after the previous guidance was reconfirmed.

I took a look back at Feb 2019, when the results for half year till 31st december 2018 were released, the share price traded between $13-$15 at a time when revenue was $613m, cash on hand was $288m.

[Balance]

Personally I suspect a lot of the movement in the share price is reflective of uncertainties around future growth and obviously disappointment in management that updated guidance has been released only a month after the previous guidance was reconfirmed.

I took a look back at Feb 2019, when the results for half year till 31st december 2018 were released, the share price traded between $13-$15 at a time when revenue was $613m, cash on hand was $288m.

Totally irrelevant - the story has changed and market will price the changed story accordingly.

[Gregnz]

Totally irrelevant - the story has changed and market will price the changed story accordingly.

Absolutely, my point being hence why we are at $11, and not $13+

[Balance]

I am not looking to buy ...just trying to find at what consensus level of SP it seems value buy to most ...as that will most likely show the floor of SP

I would recommend those looking to buy get comfortable with the following issues before talking about what level you buy in:

On a very serious note, reading through all the postings in the last 3 days, I believe imo that there are several pertinent observations I would make about the downgrade announcement yesterday:

1. Directors and management obviously do not have a good handle of what's happening with sales & stocks in the market - been too easy in the last few years with demand exceeding supply. Management information system is deficient and frontline staff have been asleep on the job.

This is a very serious problem & issue for a company which is attempting to go global. The fact that we have had 2 shocking downgrades within the space of 3 months is testimony to that fact.

2. Daigou sales are very significant (hundreds of millions of dollars) and ATM is extremely vulnerable to any disruption to that sales channel. With the stroke of a pen, the China government can wipe out that channel.

3. Related to 1 and 2, have there been channel & brand switch? So the decline in sales is really the cannibalization of sales from daigou channel to the direct sales channels in China? This could explain why sales growth to China are now going backwards overall.

4. Management selling in the quantum and the timing begs the question if there has been skulduggery in the way they presented sales forecasts in the last 3 months. Revert back to 1 above if there is no skulduggery. Either way, there is a very serious issue which the company needs to come clean on.

I would certainly stay clear of investing in ATM until answers are forthcoming on the above points.

[Gregnz]

If we remove COVID-19 from the equation, where would we be? Covid isn’t with us forever, that’s my reasoning for why I still believe in the business long term. I believe in the business but not necessarily current management, let’s hope for better with incoming ceo.
If it wasn’t for covid, I don’t believe we would have received a guidance downgrade and I suspect the share price would still be $20+

[Balance]

If we remove COVID-19 from the equation, where would we be? Covid isn’t with us forever, that’s my reasoning for why I still believe in the business long term.
If it wasn’t for covid, I don’t believe we would have received a guidance downgrade and I suspect the share price would still be $20+

Covid has exposed many a company and their weaknesses.

ATM is no exception imo - just more spectacular and there are now some serious issues for the company to address.

Good news is that ATM has a good business and a very strong balance sheet so there is time to fix any issues.

Eg. Are current management and directors really up to the job? The two downgrades in 3 months point to deficient MIS and questionable calibre of frontline staff.

Maybe, just maybe Jayne should have been allowed to stay on?

[Gregnz]

Covid has exposed many a company and their weaknesses.

ATM is no exception imo - just more spectacular.

Yes, but at least we now know what those weaknesses are so they can be addressed. So post Covid potentially a return to Daigou and increased sales within China. Plus a ongoing focus on other markets outside China.
Perhaps long term Covid has done us a favour?

[Gregnz]

Good to see balanced discussion here vs other forums I follow, so thank you all for that.

[Balance]

Yes, but at least we now know what those weaknesses are so they can be addressed. So post Covid potentially a return to Daigou and increased sales within China. Plus a ongoing focus on other markets outside China.
Perhaps long term Covid has done us a favour?

Don't be too sure - have there been channel & brand switch? So the decline in sales is really the cannibalization of sales from daigou channel to the direct sales channels in China? This could explain why sales growth to China are now going backwards overall.

Could be that we have seen the best of sales growth in China for ATM.

Good to see balanced discussion here vs other forums I follow, so thank you all for that.

Critical we all aggressively explore and assess all pertinent matters relating to why ATM has failed so spectacularly with the two downgrades. Could be an opportunity or could be something more ominous. Past performances and share prices are no guide to future performance, and hence sp!

[BlackPeter]

Don't be too sure - have there been channel & brand switch? So the decline in sales is really the cannibalization of sales from daigou channel to the direct sales channels in China? This could explain why sales growth to China are now going backwards overall.

Could be that we have seen the best of sales growth in China for ATM.

You probably should disclose your shorts - they seem to impede on your sight :

So - if a sinkhole appears under our newly build motorway and I take the old road into town instead of queuing up on the motorway, does this mean that I am canabalising the motorway?

That's what you said about direct sales canabalising Daigou .... it appears that your try to throw as many negative expressions around as you can. Instilling fear might be good for a shorters agenda, but it is not really helpful in any sensible discussion.

A2 had a huge sales boost after the start of the pandemic ... and given that babys are unlikely to have consumed significantly more milk during the pandemic than before ... it is quite likely that consumers just filled their cupboards (hey, other people bought toilet paper to last for the next 2 decades) - and find now that they still have some tins they want to use before buying new stuff, which well might explain a temporary drop in sales.

Not sure how any MIS system would be able to determine whether a tin of A2 milk sold in a Sydney supermarket gets immediately consumed, gets put into the cupboard as emergency ration for the next lock down or is sent in a parcel to China. I see how it can be difficult to predict short term product demand and product flow. Don't you?

Do you have any long term indications that Chinese parents are moving on from buying A2 product? If yes - what are they?