Just came across this negative online article on A2m from Live Wire.
I agree with them if their next profit report in six weeks is not good its SP will be smashed just like any other high P/E company would be. Reading it in detail you would think a expert talking head in charge of $100's of millions of others peoples money would take the time to do their home work on A2, its competitors and recent events especially today's major one that went public prior to this article by Daniel Moore from Live Wire.
He goes on making a big deal about Nestle's Atwo IF product like its a given its a fait accompli its going to cut A2's lunch in the exclusive A2 IF space. His only reason its because they are bigger and can afford more marketing spend is his justification. Mmm, I remember when Apple and Amazon were minnows too going up against companies a thousand time bigger. Going on Daniels logic Nokia and all the big retail stores should of at the time crushed those two upstarts and had nothing to fear because a bigger company will always remain the biggest gorilla regardless of how their nimble new entrants products or services are perceived and accepted in the market place.
Did he do any research to see its priced too high, its unloved by the buying public and not making a dent in A2m IF sales and they tried to but failed to get to adequate supply from A2/A2 NZ based farmers for supplies.
I love how later on in the article the highly paid puff piece with impeccable research skills tells us that BUBs a NZ based company in his words never mind that a quick 2 second google search would tell you its a Australian company with its management and head office based in Sydney's northern beaches.
Does he even know that Bubs IF is goat based not cow based and for that reason alone will never scale the heights of A2 as the market for goats based IF is a fraction of A2's bovine based formula.
He finishes his article with concern about their margins and growth going forward, did he even bother to read today's press releases from A2m or their IF manufacture this morning about increased supply orders and a reduction of its cost to A2 ?
I am all for hearing both sides of the coin but after such poorly researched articles not even taking into account major price sensitive news releases published prior to their A2m article release I am glad I control my own stock picks both in and out of our SMSF and not trust my life savings with such lazy fund managers that cant be bothered to research the companies they are writing a article on, their competition or read the companies recent press releases before signing off on article like this that might influence peoples decision to buy/hold or sell a stock.
Who knows if its just laziness or just like that other NZ fund that was talking down A2 and recommending it as a sell while later on being found out to be a major purchaser of the stock at the same time.
Its only six weeks away from the next profit announcement if we dont hear something sooner from Geoff B andor from our new CEO. One thing for certain the SP has taken a bit of a beating in recent times, if the next report shows growth to be leveling off or stagnating the SP will take another major hit but in my opinion what is the likely hood of that happening and how can anyone read those positive price sensitive press releases and not read between the lines and fill in the blanks of the increased supply announced today and not figure out which way its more likely to go ???
DYOR and try to sort out fact from fiction before making your own call on A2m.
When looking at all stocks over a period of time, even the best quality ones, it becomes clear that companies often fall into or out of favour with investors based on short-term factors. These short-term factors can greatly impact the perception and the PE rating of the company’s stock price and will often impact investors’ perception as to what constitutes a company with bright prospects (a ‘growth’ stock) as opposed to a company with poorer prospects.
Further to Anton Tagliaferro’s wire ‘Market dynamics – the case for value remains’, we compare two ASX top 100 stocks – A2 Milk (market cap $8 billion) which falls firmly into the ‘growth’ stock category and Brambles (market cap $14 billion), which is perceived by many in the market as having earnings issues and is thus seen as a much less exciting prospect, thereby now very much falling into the ‘value’ category.
A2 Milk
A2 Milk is a New Zealand milk products company listed in Australia and the stock has been a star performer over the last few years as Chinese consumers that can afford it have swapped their buying preferences to overseas infant formula brands after melamine was found in infant formula of Chinese local brands in 2008. Thanks to this scare, demand for A2’s products have benefited greatly from its clean, green NZ image.
As a result of this, A2’s profits have risen rapidly from effectively zero a few years ago to a forecast NPAT of NZ$188 million in FY18 and its share price has risen from under $2 a share to over $10 a share (see chart below) valuing the company at $8 billion – this valuation now equates to a not insignificant PE of 44 times the company’s FY18 forecast earnings.
Source: FactSet Date: 18 June 15 – 18 June 18
A2’s recent past success is now obvious to all – the question is whether A2’s Milk shares on a PE of 44 times represent good buying today or is A2 too risky an investment for the prudent long-term investor?
There are many things to consider when answering this question. Crucial factors for investors to assess are how sustainable A2 Milk’s current EBIT margins of 30%, and its cash-adjusted return on equity of close to 100% will be going forward.
In reality, it will only be possible for the company to continue to generate these exceptional returns going forward if the company’s product and competitive position are extremely strong.
The key questions then become:
Is an investment in A2 shares still an attractive proposition given the high expectations implied in its lofty valuation?
Has the company got a strong enough competitive advantage through its brands and products to enable A2 to continue to produce and grow its recent returns in the longer term?
One of the major issues for A2 is that its product has been successful in China through the unregulated and opaque so-called Chinese ‘daigou’ or suitcase market and not through any exclusive distribution agreement. The company has managed to achieve an estimated 5% share of the market in China through word of mouth and A2 has managed to achieve this share through limited marketing spend.
A2’s success is now drawing attention from many milk producers and competitors in the sector – recently global giant Nestle, with all its scale and marketing clout launched “Atwo” into China to directly compete in A2’s market. And only in the last fortnight, Bubs Australia, another NZ infant formula company, announced it was increasing its milking herd by over 5-fold and raising capital to take advantage of the opportunities in the infant formula market in China.
While it is true that A2 has grown rapidly and has a cashed-up balance sheet, in our opinion, those investors who are extrapolating A2’s current margins and returns well into the future are likely to be disappointed. We believe that the market appears to be overly optimistic on A2’s outlook as the high returns the company currently enjoys are unlikely to be sustainable over the long term as competition increases, and on a PE of 44 times forecast earnings,
A2 is a very risky investment in our opinion.
(20min delay)