ATM-A2 MILK

[Basil]

A2 at $4.25 today. Lowest point in 5 years. The market has well and truly fallen out of love with a profitable cash rich company. Su remakes that buy back look expensive!

The directors are absolute Muppets.  Buying back the shares and artificially forcing the share price up so they ended up buying on an average price on a forward PE of 30, the same forward PE it used to be on when growing really strongly under Babbage's leadership many, many years ago. Absolutely idiotic that they play fast and loose with shareholders capital like that without ever paying a dividend.  The board are an absolute disgrace and think they know capital markets better than real professionals.  They should stick to their knitting and focus on tasks they have a very small degree of skill in and leave decisions about what's a fair share price to professional's who actually know what they're doing. This is now a low growth company and deserves to be trading on a multiple in the early teens.  Average broker forecast is eps of 22 cents next year.  Send me a PM and wake me up when it gets down to $2.50.  Plenty more pain to come for shareholders in this one, in my opinion.

[Hectorplains]

Mataura Valley is testing the new electric boiler.  Yesterday was lifting a pressure relief valve.
It serves as a safety device, protecting the system from overpressure conditions.  Testing was successful and is part of statutory compliance. Still no news on when it comes into commercial operation though. 

[Hectorplains]

Scott Waddell, the Project Manager for MVM, has been nominated as a finalist for the Change Maker Award at the NZ Sustainable Business Network Awards for 2023.  The Change Maker Award celebrates a young person who is driving sustainability change within their organisation or the wider community.  Waddell has driven the change of a not particularly old and perfectly functional boiler over to a new electric one.  Dimmer beings, like myself,  might dismiss this as a waste of time and resources.  This 'sustainability' change won't decrease production costs or drive any greater production efficiency.  Still I'm sure shareholders will be stoked that with a multitude of problems at MVM (like an EBITDA loss of $26.5 million in Y23) they've got a guy whose solved one that didn't even exist.  Magnificent, surely he's a shoe in for the win then? 

[winner (n)]

...and Hector you me and others threw a few million into the pot to help out (corporate welfare)

[Left Field]

Presentation for todays ASM

http://nzx-prod-s7fsd7f98s.s3-website-ap-southeast-2.amazonaws.com/attachments/ATM/421740/407347.pdf

Impressive market share gains in China IF in an overall declining market...... low single digit growth expected in future.

Not much mention of USA.

I'm not enthused by this update...... and happy to have long since taken my gains on this one.

[BlackPeter]

Presentation for todays ASM

http://nzx-prod-s7fsd7f98s.s3-website-ap-southeast-2.amazonaws.com/attachments/ATM/421740/407347.pdf

Impressive market share gains in China IF in an overall declining market...... low single digit growth expected in future.

Not much mention of USA.

I'm not enthused by this update...... and happy to have long since taken my gains on this one.

Yep, hard to be enthused by this company - unless one likes downtrends.

Interesting that most of their achievements come through Synlait (like the A2 Platinum) and as well their new grassfed formula into the US - and on the other hand they work hard on trying to strangle or kill this milking cow.

No info about their new relationship with Synlait either - or did this come in question time?

Will be interesting to watch whether they are able to slaughter the Synlait cow and still keep milking it or whether they manage to seemlessly transfer IP, export licences and production (with lost of know how as well) to their new very own MVM milking cow. Never understood their strategy to move from nimble and scaleable marketing company to owner and operator of milk factories owning heaps of stainless steel. No doubt the shareholders live in "interesting times".

One of these spectacles which is in my view much better enjoyed from the sidelines.

[Hectorplains]

No info about their new relationship with Synlait either - or did this come in question time?

Indeed it did.  Hearn was horribly awkward trying to deal with the question about the relationship with Synlait.  He came over like Dad trying to explain to the kids why he's moving in with the secretary from work... whose closer to their age than his.  Like he still loves Mum, and he always will but y'know...."

He started with saying the  Synlait - A2  "two-way agreement" for many years worked "very successfully." However; in "recent months" delivery and performance dipped below what was satisfactory.  (That really needs to be clarified.  How so? Why the sudden change? )

The end of the exclusivity commitment was presented with the zen notion that it "should fall away."   However; he was full of praise and gratitude for Synlait  "for everything they've done to help build our business..."

Having warmed to the topic, he then decided he'd keep talking but stop making sense.  Like a rambling, drunken gangster.  He channelled his inner Capone to give us:  "We haven't committed to anything. It may involve Synlait; it may involve less of Synlait, more of Synlait. It may involve somebody else, but we're not in any committed position to do harm to Synlait. We haven't cancelled any contracts. Synlait is doing all our volumes and will continue to do so for months to come regardless of what happens ... years to come probably." 

You'd have thought that the question was nearly as predictable as Friday follows Thursday but he handled it like a blindside.  If this is symptomatic of  the level of communication that's been brought to the table, no wonder then the mediation was a failure.

[Left Field]

Great post, thanks Hector...

At the same time ATM has been touting its cash reserves and need for further acquisitions to expand its production needs and "supply chain rationalization"  while a recent NBR article headlined, "A2 Milk eyes 'large outlay of capital' on acquisitions"..

Possibly ATM is softening up SML for a takeover offer. Time will tell.

[Sideshow Bob]

Indeed it did.  Hearn was horribly awkward trying to deal with the question about the relationship with Synlait.  He came over like Dad trying to explain to the kids why he's moving in with the secretary from work... whose closer to their age than his.  Like he still loves Mum, and he always will but y'know...."

He started with saying the  Synlait - A2  "two-way agreement" for many years worked "very successfully." However; in "recent months" delivery and performance dipped below what was satisfactory.  (That really needs to be clarified.  How so? Why the sudden change? )

The end of the exclusivity commitment was presented with the zen notion that it "should fall away."   However; he was full of praise and gratitude for Synlait  "for everything they've done to help build our business..."

Having warmed to the topic, he then decided he'd keep talking but stop making sense.  Like a rambling, drunken gangster.  He channelled his inner Capone to give us:  "We haven't committed to anything. It may involve Synlait; it may involve less of Synlait, more of Synlait. It may involve somebody else, but we're not in any committed position to do harm to Synlait. We haven't cancelled any contracts. Synlait is doing all our volumes and will continue to do so for months to come regardless of what happens ... years to come probably." 

You'd have thought that the question was nearly as predictable as Friday follows Thursday but he handled it like a blindside.  If this is symptomatic of  the level of communication that's been brought to the table, no wonder then the mediation was a failure.

I fully don't understand where that relationship is at, and what A2's strategy is for sourcing/production.

[BlackPeter]

I fully don't understand where that relationship is at, and what A2's strategy is for sourcing/production.

I think you are not alone ;

[Left Field]

To possibly answer the confusion and conflict re the A2M and SML I turned to Hotcopper.

Interesting background here;

Source; https://hotcopper.com.au/threads/ann-cancellation-of-synlait-exclusive-supply-rights.7638794/page-14?post_id=70946501

"Correspondence between A2 Milk chief executive David Bortolussi and former Synlait chair John Penno reveals serious tension between them over Penno's interest in a third-party supplier of product tracing technology.

The emails followed Penno's appointment of receivers in January 2022 to Signum Holdings, the parent company of brand protection software company Trust Codes, an important supplier to both milk processor Synlait and its prime customer.. A2 Milk....."

A letter from Bortolussi to Penno...said,  "Any interruption would have a significant adverse impact on a2MC, particularly on our customer experience, counterfeit prevention, recall risk, and channel traceability," said Bortolussi.

The article outlines possible serious conflicts of interests by Penno and serious communication failures to keep A2M informed.

Interesting...

[Hectorplains]

Craigs seeing things that others aren't - they have retained an overweight rating on A2 milk but lowered the target price 1.2% to $5.69 on slightly lower earnings estimates.

[BlackPeter]

Craigs seeing things that others aren't - they have retained an overweight rating on A2 milk but lowered the target price 1.2% to $5.69 on slightly lower earnings estimates.

Lets face it - A2M is a pure hope and speculation game. The fundamentals are clearly against the company, but sure - nobody can predict in which direction the hypewave might swap.

[Breezy]

Lets face it - A2M is a pure hope and speculation game. The fundamentals are clearly against the company, but sure - nobody can predict in which direction the hypewave might swap.

Hardly as a company with a huge cash balance which has been around for a long time, they also own a stainless steel production plant and are looking to add to that. Will eventually become a boring dividend paying dairy company like some of their competitors. Last time their profit was running at current levels the sp was around $8 before it had its hyped run up to $21, will be back to those profit levels around 2026 ( Same levels as when it was $21) Gaining a larger piece of a smaller pie is a pretty good achievement.

[BlackPeter]

Hardly as a company with a huge cash balance which has been around for a long time, they also own a stainless steel production plant and are looking to add to that. Will eventually become a boring dividend paying dairy company like some of their competitors. Last time their profit was running at current levels the sp was around $8 before it had its hyped run up to $21, will be back to those profit levels around 2026 ( Same levels as when it was $21) Gaining a larger piece of a smaller pie is a pretty good achievement.

You just forget that ATM was always priced as "growth company" with unlimited scalability (due to its previous marketing only strategy). They changed their strategy, given that growth did not work. Today it is just another boring and not scalable milk processor (more milk, more stainless steel) with a forward PE of 16 (at the current low SP). A fair PE for a not growing agricultural company might be around 10, So - a share price of $2.40 would still not sound cheap, but o.k. Everything above that is hype.

To get back to $8 you would either need a lot of credible growth (and I don't see, where this is supposed to come from with China shrinking) ... or a ton of hype.

And yes, I heard for the better part of a decade how much worth ATM is due to its cash reserves. Did you ever do the numbers how much cash per share they really hold? At last FY it was roughly 60 cents per share, and clearly - the board hasn't demonstrated yet that they know what to do with money (other than wasting it). So, if you like add that to the PE based SP as dead capital, but really - what are 60 cents cash per share worth if the board does not know how to make money with it? So far they only demonstrated that they know how to pump hype and they know how to waste money.

Good luck with your investment, I think you will need it.