Originally Posted by
Sideshow Bob
Looking at A2 at the moment, to me the most puzzling aspect is MVM.
We all know the issue with daigou/sales/revenue - and the processing agreement with SML. Surely at the moment they don't need more supply capacity.
To re-visit the investor update from the most recent announcement:
The plant has been a bit of dog since it has been built, but heard the original holders didn't tip in the capital they promised and milk supply a hodge-podge with everyone at different pricing, among other things.
It obviously has potential, and spreads geographic/supply risk - but what can they do that Synlait can't or couldn't? Have they just taken the opportunity while it has come up?
Or is this more a Synlait story - we all know how how reliant they are on A2 for their cream, but remembering that A2 own near 20% of SML, valued at $170m even at todays SP. Synlait updated the market at the same time as ATM before Christmas and said their IF volumes were going to be down 35% of the year and NPAT would halve (from $75m last year). Synlait have all sorts of issues, but is this a margin grab by A2? Or are they also worried about Synlait in some way?
Would be waaaaay too elementary, but $37.5m less NPAT on a volume drop of 35% might suggest they make $100m/pa out of A2. And SML have alot of other issues with their profitability. But regardless alot of value of A2 in that SML SP. So are A2 trying long-term to take that processing margin to MVM, at the expense of Synlait - with whom A2 don't have a rep on the board.
While I can understand the "Strategic Rationale", surely at the end of the day they bought them because they think they need more product and capacity? The trouble is they probably couldn't tip that money into Synlait without triggering some sort of takeover.
Then in the "transitional period" they are expecting to lose another $10m per annum, until FY 2025 - which seems a long time when the plant has already been up and operating for a few years. Then does A2 have the expertise and experience to make the plant work?
Maybe the plant came for sale and they looked at their cash pile, and thought "why not". Or maybe it is a hedge against the (ever-increasing) competition who own their own plants, can produce A2 and are attacking them on price & squeezing margins - and the start of A2 becoming more vertically integrated, and a more traditional producer model.
Clearly they haven't been willing to spend a large chunk of their cash pile and have a real big crack on marketing and building their moat (ie their brand). Will they roll the dice and go post-Covid?
I still can't work out whether they've just seized the opportunity, or if it is a margin grab, or they need the volume, or that they've just essentially raised the white flag to the competition......or a combo of each.
Still puzzled.....:confused: