investment case, page-37

Atlas Pearls is resisting better than what I was expecting, with pearl prices which remain quite high historically and have stabilised since the beginning of the calendar year.
ATP is also removing less pearls at auctions : in April 24, it removed 35,000 pearls from auction, then 22,000 units in June 24 and 7,000 pearls in Oct 24.

As usual, this improvement is a function of the market, but also of their own work.

It remains tough to forecast market prices, but good to see that demand seems to be well supported.
This is quite a surprise, as the luxury market is now under pressure globally, while consumption in China is also slowing down.
Obviously, the new Chinese policies to support consumption could help the pearl market.

Rather than trying to forecast pearl mark prices, which remains tough, probably more interesting to look at the elements that the company can control :
- quality of pearl improved in FY 24, even if it remains below high of FY 22 (reminder : pearl size decreased by 12 % in FY 23),
- the distribution policy* seems also working as the company continues to diversify its distribution, choosing not to sell all its pearls at auction, if it does not not reach the expected prices.
- once again, the company showed a good control of its costs** : gross margin just decreased from 77 % in H1 24 to 72 % in H2 24, despite a 33 % decrease of its average pearl price half on half, thanks to a good control of farm costs.

One of the main interest of this stock is that the level of expectation remains really low, with EV/EBITDA 25 of between 2.3 x and 2.8 x (based on stable price vs Oct 24 auction, same volume than last year or same volume than FY23 and +3 % for operating costs).

As a reminder, the main shareholder (Boneyard Inves) was quite good at selling part of his holding close to the recent peak : he sold 2 % of the capital at 20.80 c in Feb 24.
He still owns 25.09 % of the capital.

Regarding longer term, interesting to see that the company is moving in different directions in order to reduce its exposure to pearl prices :
- moving into higher value added products and retail segment,
- looking at other aquaculture products.
In June 24, the company indicated that it has been tracking for some time the farming and distribution of sea based proteins.

* looking at H2 24, this policy is successful as the average price of pearls sold out of auctions was higher than the prices reached at auctions.
** no problem with the large increase of the administrative expenses (+ 44 % in FY 24) as the company clearly said that it wanted to reinvest in its business and it has kept these expenses as low as possible, while they were rebuilding their business.