I am a shareholder of A2M since 2017 with a small position and have never done really intensive DD on it. What I learned is that their latest half year report was well received by the market due to positive revenue-surprises. I had a quick look into the report and it doesn't look bad imo. Profitability in relation to invested capital (taking into account the huge cash-pile) does look good. But what concerns me is whether their suppy is secured. I learned that the majority of the supply for Infant milk is outsourced to Synlait - a company A2M is a 20 % shareholder of. They paid approx 280 m AUD for their stake Synlait seems to be in serious financial problems and insolvency is a concern. A2M did huge write-offs in their books on the Synlait-stake which lead to a charge of around 30 m AUD in the HY-report to write down the Syanlait-asset to appro 40 m AUD. I also learned that they aquired a 75% stake in a milk-supply-company called Mataura to bring supplies inhouse. my question is:
1. Will Mataura be able to supply the Infant milk-segment or parts of it ? 2. What happens when Synlait goes out of business - will A2M run out of supplies ?
Good profitability does not help if A2M loses the necessary supplies. I walked through their 2023 yearly report but didn't find any valuable information regarding this. 150 pages ob blabla and no word on this - imo - most interesting questions. Can anyone help me ?
A2M Price at posting:
$5.78 Sentiment: Hold Disclosure: Held
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