Some musings.

Always a good practice to review your position on stock you hold every couple of months to see if the reasons you bought the stock still hold true. So below are my musings:
What we know is that A2m have issued their first 4 months of actuals (more of that later) and confirmed on the 22^nd of December that “all is good with the world” (me paraphrasing). In reviewing the numbers there is no concern what so ever with the 1^st four months of actuals and confirms all the growth metrics (Sales and profits) that I was expecting.
We have also seen on Hot Copper a number of posts on market share in various categories and segments that A2m competes in. I am not aware of A2m suffering any decline in share in any segment – in fact there has been significant growth in some - so once again all good as far as I am concerned.
The big question, is the turmoil that BAL finds itself in self-inflicted and particular to BAL or a structural problem in the industry? The more I read I can’t help but think that it is self-inflicted; A complex and expensive supply chain, inexperienced management, inability to adapt to regulatory change and now rumours the company is under capitalised and needs to raise funds says to me they are suffering a perfect storm. Also damming is how competitors have reacted to the problems of BAL. Bega and A2m have basically come out and said there is nothing to see here and they are both very confident of continued growth. We also now have the successful launch of BUB which says to me the fundamentals of the industry are strong.
So, what can we expect from A2m? We have the first 4 months confirmed. Sales of $155.2m and a NPAT of $22.0m (Everything in NZD). If I take a base case of no more growth – ie A2m continues for the rest of the year at the same sales and profit per day (actual July to Oct) then full year sales would be $460.6m and NPAT of $65.3m. Not shabby but undersells what is happening at A2m. If I take an aggressive position and say A2m can increase sales for the run home (Nov to June) by 5% above the running rate of July to Oct, then sales would be $475.8m – a more realistic number as far as I am concerned especially given the demise of BAL and the market share growth we are seeing. I would also expect the NPAT margin to continue to increase as fixed cost diminish as a percentage of costs and variable costs get the benefit of economies of scale and efficiencies. So, I would expect the full year NPAT margin to increase from the 14.2% already flagged to at least 16%. This means the NPAT would be $76.1m.
So, I have a full year Sales number of $475.8m and a NPAT number of $76.1m. What does this mean for the share price? $76.1m NPAT equates to 10.6cents a share. At the current PE of approx. 30 then this equates to a share price of $3.18 (NZD). However, I believe given the growth metrics in sales and NPAT you could argue the PE should be at least 35 rather than 30. This puts the share price at $3.71 – or in AUD about $3.41.
Given the share price is around the $2.00 AUD I believe there is significant upside to be had so barring any global melt down in the markets or Trump declaring war on China I am more than comfortable having a significant holding of A2m and look forward to making some serious $’s over the next 6 months. Guess time will tell – always does.
Best of luck to all holders,
slc4me