A2M (ASX) A2m PE and price Forecast with increasing sales

Originally posted by Nwatt ↑

Hey vic wattle,

I completely agree that there is limited potential in further increases in production due to plant capacity but it appears that potential exists. I have stated that those calculations were optimistic and was using rough number similar to those proposed by lainn. If its closer to 90 or 95 or 99 we wont know until operating figures have been given let alone the actual plant capacity to increase infant powder production. Maybe the potential capacity is closer to those proposed by wild-1 / (Lightforce Nov 2015). which are even higher than i have suggested. I think that as a market looking at the valuation of a company whose products are in such high of a demand that they have supply capped the processing plant is anything but negative. If i had the choice to invest between two companies one with a product that sells okay and room for growth vs one with a product that is such in high demand it has capped the processing plants production. I think i would rather buy the latter company at a higher PE ratio. I rather pay a higher price for a better quality stock even if it may take some time for them to establish substantial increases in production given once they comission a new plant or have organised a contract with a new manufacturer, theie production has the potential to increase by factors of 50 - 100% possibly even more. (refer to 100% increase in infant formula production Naomi Forecast) Where will the price sit then when this occurs?

Looking at plant capacity as a supply constraint and highlighting it as an issue for future growth is great criticism of the short term growth potential of the company but given this consideration it is a bit unfair to then run a PE ratio based on their FY16 forecast... Perhaps a more appropriate PE ratio would be based on a 12month period running the plant at current capacity (could be considered close to plant production limits by some) if your going to discount the plants capacity so highly. This gives a PE ratio of roughly 44 using my forecasts of 15 mil revenue from infant powder per month.

Lets look at other companies with high PE ratios (using FY15 data instead of FY16 FC because lazy so its not exactly an apples to apples comparison i admit but trying to illustrate that high PE is not necessarily a bad thing)

Dominoes Pizza (DMP) 78
TPG Telecom (TPM) 34

My opinion is A2M has a better potential growth profile than both of those companies. Now lets go back in the past and look at the PE ratio of this company earlier this year.

NPAT = 0

29/9/2015
share price 65c
shares on issue 660 066 000
Market Cap 429 Mil
PE ratio Infinity (this stock looks a little overpriced maybe the market will take this into consideration)

Lets go forward a couple days after cap raising
23/10/2015
share price 71c
shares on issue 723 300 000
Market Cap 513 Mil
PE ratio Infinity

and today
share price ($1.875)
PE ratio (based on FY16 forward earnings) = 68 (seems pretty cheap in comparison doesnt it)

Sorry i was joking around but just highlighting as many other people are doing that maybe people are valueing the PE ratio too highly at this point in time. I think many people on this forum, myself included really appreciate that you have highlighted a supply constraint, its best that people are critical of a stock on both sides. But i only see this plant capacity constraint as a positive factor in the long run as soon as we have the resources for increased production, the potential for growth is huge.

Currently instos are pushing the price up. Naturally this stock should have retraced a bit last week and when instos stop buying a retrace is bound to happen. The question is when will they stop buying and at what price will this stock find its next support?

I really appreciate your input vic, its made myself and others put more consideration into some of the production issues A2M will face in the future. It will be interesting to which directions the company takes to increase its growth. Hopefully A2M will be an offtake partner with MGCs proposed new plant. Maybe i'll even put a bit of money that way.

Thanks,

Naomi

Expand

That Pe ratio of 68 used is vic wattles estimate of fy16 forecast

No.	Vol.	Price($)
2	9718	$6.84

No.

Vol.

Price($)

9718

$6.84

Price($)	Vol.	No.
$6.85	6515	3

Price($)

Vol.

No.

$6.85

6515

No.	Vol.	Price($)
2	3655	6.850
1	250	6.800
2	9844	6.750
2	1494	6.700
1	500	6.680

No.

Vol.

Price($)

3655

6.850

250

6.800

9844

6.750

1494

6.700

500

6.680

Price($)	Vol.	No.
6.640	43	1
6.840	3555	3
6.850	3042	4
6.860	3412	3
6.870	3945	4

Price($)

Vol.

No.

6.640

6.840

3555

6.850

3042

6.860

3412

6.870

3945

(20min delay)
Last $6.85		Change 0.000(0.00%)		Mkt cap ! $4.952B

Open	High	Low	Value	Volume
$6.88	$6.90	$6.78	$7.886M	1.152M

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