ATM-A2 MILK

[winner (n)]

Should we need reminding

"The buyback programme that started on 7 November 2022 ended with the acquisition of 21.68 million A2M shares at an average price of NZ$6.87 per share. This buyback represents 2.9% of total issued capital, and the company spent around NZ$149 million on this programme, including brokerage costs."

Current SP down 12.5% to $4.68

So $6.87 was good buying then

The $288m they spent on Synlait so far is worth about $60m today

[Minimoke]

So $6.87 was good buying then

The $288m they spent on Synlait so far is worth about $60m today

I'm surprised Synlait held up as well as it did today. I reckon that's going to get hit by the ugly stick that has been used today when their results/outlook come out

[Basil]

So $6.87 was good buying then

The $288m they spent on Synlait so far is worth about $60m today

Directors are absolute "Legends" eh 
How did those class actions turn out in the end ?

[winner (n)]

Bortolussi seems to piss off analysts with his vague answers. Bad idea to puss off analysts, esp so soon after printing guidance lower than their expectations.

Never mind ....seems the way he operates.

Fron NBR -

On an investor call, Craigs Investment Partners senior analyst Stephen Ridgewell asked for more specificity around what was meant by "teens" in respect of ebtida margin guidance, and when the company expected margin improvement to occur.

Bortolussi said it was not providing specific guidance on where in the "teens" but said it had made it clear the goal was to be in that range and targeting year-on-year guidance.

"We're guiding to margins being broadly in line with last year. Of course we will try and target an improvement in that.

[Minimoke]

So $6.87 was good buying then

The $288m they spent on Synlait so far is worth about $60m today

I see SML has a market cap of $321m. And I think that is overvallued. No sign they have sold Dairy Foods and Talbot, No news that there balance sehhet has been shored up. And no market nows on production given this ATM sales downgrade.

So lets say SML is with $300m (and I think I am being generous)

They own 20% which is the $60m you mention

Which means remaining value is $240m.

Which is just 30% of A2Ms current cash reserve.

Buy out SML, get synergies between SML, MVN and Pokeno  - they would have a large part of South Island covered and a good bit of the North Islan

Get rid of all the ESG nonsense (except the absolute minimum) and focus on productivity and efficiency.

Package it all up nicely and put the whole lot on the block. A buyer would get 3 production facilities, well established multi national supply lines and a pile of cash

[Basil]

Sounds like a plan Minimoke but the fly in the ointment is likely to be Bright Dairy who's Chinese owners will want their pound of flesh and then some...

So lets say SML is with $300m (and I think I am being generous)

Be lucky if its really worth $200m with the weak outlook.  I wouldn't even pay $1 a share if I was told I had to hold for several years.

[Left Field]

Morgans like ATM's "Strong execution."

[Minimoke]

Are A2M about to write off their investmetn in SML?

Today they have announced their intention to cancel Synliats exclusive supply agreement for stages 1 to 3 of a2MC's current infant milk formula (IMF) products. Instread looking at utilising Mataura.

Or, do they expect the value of SML to totally tank, and they will come in with a takeover offer that SML can't say no to. Afterall A2M has more than enough cash.

Though maybe a purchase of distressed assets in a liquidation sale might be a better strategy

https://www.directbroking.co.nz/DirectTrade/dynamic/announcement.aspx?id=6476875

[BlackPeter]

Are A2M about to write off their investmetn in SML?

Today they have announced their intention to cancel Synliats exclusive supply agreement for stages 1 to 3 of a2MC's current infant milk formula (IMF) products. Instread looking at utilising Mataura.

Or, do they expect the value of SML to totally tank, and they will come in with a takeover offer that SML can't say no to. Afterall A2M has more than enough cash.

Though maybe a purchase of distressed assets in a liquidation sale might be a better strategy

https://www.directbroking.co.nz/DirectTrade/dynamic/announcement.aspx?id=6476875

Actually - they might want to be careful with distressing SML too much. Not sure SML will keep their Chinese export licence if they go broke ... it is linked to the physical factory (in Dunsandel) and its owner (Synlait). If Davids war games result in first Synlait and then ATM going broke (because they don't have any Chinese milk formula anymore they are allowed to supply), than this would be an amazing example of shooting oneself into the foot.

Anyway - what a spectacle to watch from a safe distance ... though I feel very sorry for the Synlait staff. They must go through a terrible time - and I know some of them personally - quite nice and competent people.

[Minimoke]

Actually - they might want to be careful with distressing SML too much. Not sure SML will keep their Chinese export licence if they go broke ... it is linked to the physical factory (in Dunsandel) and its owner (Synlait). If Davids war games result in first Synlait and then ATM going broke (because they don't have any Chinese milk formula anymore they are allowed to supply), than this would be an amazing example of shooting oneself into the foot.

Anyway - what a spectacle to watch from a safe distance ... though I feel very sorry for the Synlait staff. They must go through a terrible time - and I know some of them personally - quite nice and competent people.

ATM said in last Annual Report they are aiming to have 3 China Label registrations. So I am sure the company is thing through the ramifications.

[BlackPeter]

ATM said in last Annual Report they are aiming to have 3 China Label registrations. So I am sure the company is thing through the ramifications.

Sure - but I guess we all realize that aiming for Chinese registration and getting it are two different pair of shoes. From memory - it took SML at the time more than a year to get through the process, despite having a significant Chinese cornerstone shareholder and despite a much friendlier geopolitical situation at that time.

[Minimoke]

Sure - but I guess we all realize that aiming for Chinese registration and getting it are two different pair of shoes. From memory - it took SML at the time more than a year to get through the process, despite having a significant Chinese cornerstone shareholder and despite a much friendlier geopolitical situation at that time.

There were issues around covid that delayed the re-registration process. NZ now has people on the ground here who do the audits. MVN also has a chines stakeholder.

I have no doubt getting registration isn't easy. But its not like A2M are trying to sell their new stuff tomorrow. They are looking a few years out. And with nice shiny new stainless in Mautaura then this shouldn't be too had a process.

[BlackPeter]

There were issues around covid that delayed the re-registration process. NZ now has people on the ground here who do the audits. MVN also has a chines stakeholder.

I have no doubt getting registration isn't easy. But its not like A2M are trying to sell their new stuff tomorrow. They are looking a few years out. And with nice shiny new stainless in Mautaura then this shouldn't be too had a process.

If SML keeps surviving, the supply line might work. If you have however a look at their books and the
 coming renewal of their bank facilities and their meagre earnings (even before A2M pulling the plug) - I'd say, this is not a given.

Allow SML to go down the gurgler later in the year (e.g. because the banks don't like the earnings outlook and pull the plug) - where does this leave ATM supplying product?

The other question is as well - even if ATM gets Chinese registration for other products, SML owns not just the registration but as well the IP for their A2 Platinum IMF. Just wondering how ATM will manage to produce and sell stuff SML holds IP and registration for? I guess we know about Chinese companies doing such exercises ... but ATM is subject to NZ Law, aren't they?

[Minimoke]

If SML keeps surviving, the supply line might work. If you have however a look at their books and the
 coming renewal of their bank facilities and their meagre earnings (even before A2M pulling the plug) - I'd say, this is not a given.

Allow SML to go down the gurgler later in the year (e.g. because the banks don't like the earnings outlook and pull the plug) - where does this leave ATM supplying product?

The other question is as well - even if ATM gets Chinese registration for other products, SML owns not just the registration but as well the IP for their A2 Platinum IMF. Just wondering how ATM will manage to produce and sell stuff SML holds IP and registration for? I guess we know about Chinese companies doing such exercises ... but ATM is subject to NZ Law, aren't they?

If the banks pull the plug then I see the liquidators moving in. They will keep the plant ticking over because mothballing it will make it less attractive to buyers. (Note the amount of inventory held by A2)

Banks will look at gaining as much as they can from a distressed sale process. Up on the block will go inventory on hand, stainless steel SAMR and IP.

At half year bank had $350m in working capital and revolving credit. So that is what they will want to recover.

A2 has approx $800m in cash. Lets say they can pick it up for $315m - with banks taking a 15% hit.

Then A2 flogs off Dairyowkrs and Talbot at distressed value of $50m. That means they have now spent $265m. A2 can't flog off some of the auckland properties because Synlait have already sold them and they are on lease.

So, for $265 They get Dunsdandel, Pokeno and they retain Mataura. Three facilities. Three facilities to get SAMR on.

(Lets not mention the subordinated bond holders because I reckon they are now sweating blood).

And that's worse case. But lets remember China Animal Husbandry Group have a stake in Mataura. They could be convinced to chuck $50m or so into the pot to get a stake in Pokeno/Dunsandel as this will help assure safe supply of needed product into china (who will be learning from America that they can't produce IF on their own). So it may only end up cosing a2 $200m or so.

[Basil]

Just a small technical matter but what you suggest above Minimoke is normally done by receivers, not liquidators.  I agree, if this plays out as you suggest, its highly likely any receiver appointed by the bank would continue to trade the company and try and sell it as a going concern.  On the balance of probabilities, you would think a JV between Bright Dairy and ATM would be in a truly commanding position to negotiate an extremely attractive price and bondholders and shareholders in Synlait would be in an incredibly weak position.

On the other hand, would the market support another $200m capital raise ?  Does the company have sufficient credibility left to tap the capital markets for that sort of amount ?