Trading Halt, page-434

from the NBR in NZ today

"According to ASIC data the short position on A2 Milk, which has been significant for some time, has been increasing over the last two months, from 6.6% at the start of October to 7.2% a month later and 8.1% on December 3.However, data provided to NBR indicates the short position is much larger if shorts on the NZ market are included.According to that information the current short position on the stock on the NZX is 3.1% and 8.9% on the ASX, adding up to an overall short position on A2 Milk shares of 12%.If A2 was solely traded on the ASX it would be the second most shorted stock behind flight and holiday booking company Webjet."

Some thoughts on the announcement today.

After this downgrade, which was always highly likely given the first downgrade and the very, very cautious language at ASM, much about A2M needs to be reassessed. First of all management don't come out of this looking good. They were very aware the daigou may not recover at the ASM yet came out and said they were expecting to whack it out of the park 2H21. You forecast what is most likely not what you most want. Daigou channel recovering is some time away and may never recover. This is the easy money and margin that underpin A2M's growth. The much touted shift to other channels such as CBEC and China label MBS distribution etc. all come at much greater cost to A2M so margins take a hit as soon as the daigou channel is reduced. The revised forecast show as much. They are now reliant on growth in China label which means whatever growth they get come at greater cost. In their other big growth market of the USA they have been pushing back breakeven as well so any profit out of there is some time away and can' be relied on.

I have little confidence in management going forward. Daivd Hearn is past his use by date. Sussan Massamo's marketing plans will come under scrutiny without the easy daigou margins. Peter Nathan unloading most of his variable shares not long before a downgrade...looks dodgy. I think it was at the HF20 announcement Geoff Babidge said they believe they can get the growth and maintain a strong EBITDA margin of 31%. This clearly only applies if daigou when daigou are firing. The new CEO is obviously unproven in this business.

Now you know why they hold on to all the cash they have because they can't be sure they won't need it just to maintain top line growth. Easy growth is gone it would appear.

How does the market now value A2M going forward in the light of this downgrade? Still too difficult to forecast any thing past the next few month son much lower P/E is appropriate. Can only see headwinds for the SP until they prove they can get it back on track which is some time away.

Can't see much upside from her tbh as can't be considered a growth stock until they prove it is growing again.