I am liking the clarity around the $2bn sales revenue target and exactly where these would come from. A2m initially got lucky with daigou etc but now I feel like the business is being grown off a more solid base with better management in place. I am also finding their revenue and EBITDA margin targets more realistic. Another plus is that David B is sticking to the USA market. I was concerned that US would not take off and DB might decide to withdraw this market. The risk is there that DB decided to stay in the US market due to pressure from the board (I'm sure the SP would take an absolute thrashing if A2m left US) but I'm willing to give this the benefit of doubt. I hope there is a good case for staying in the US. The partnership with Hersheys very encouraging is actually the best thing I have seen management do in the US and I think it's not being given the credit it deserves - a couple more partnerships like that and almost every household will know about A2 milk.
My bear case is 10% NPAT margin with a revenue growth to $2bn in 5 years to a $200m NPAT in 5 years based on the revenue growth goals provided by DB. FY22 NPAT expected $130m. Currently trading at a PE of 38 - not a huge bargain but downside is limited. I would not expect the market cap to go below ~$4bn NZD.
In for my first long term hold after exiting post multiple downgrades.
A2M Price at posting:
$6.31 Sentiment: Hold Disclosure: Held
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