LTH Capitulation. You know what comes soon enough.
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Need to see some evidence of a trend reversal first but does the market trust management or governance any more ? After all that's happened what credibility if any can we put on anything a representative of the company says now ? I think therein lies the real conundrum for momentum investors.
The best strategy would appear to be, wait for a trend reversal, ignore whatever the company says as that's been completely untrustworthy lately and put a very tight stoploss on any new position.
While the directors and senior management were super swift in selling at the peak,it is strikingly surprising that not one bought any of the shares at these throwaway prices( or not)
A momentum trader doesn't give a toss about all of the questions, they just TA into a trade when the markers say so and TA out of it when it reverses. It is just sentiment for them. Has nothing to do with any of the many many questions endlessly debated on discussion groups.
Momentum is, or it is not.
Cheap SP don't necessarily make the best investments. It's therefore worth considering other aspects of an investment too. I run the SWOT analysis for ATM this year.
Threats:
- Covid 19 shock to ATM, no students and no travelers. Prob last for couple of years.
- Some Chinese customers scared of imported goods which may contains virus.
- Chinese babies birth rate lowest level, constantly decline year on year.
- Potential Protectionism & Patriotism against imported goods
- Foreign affairs may affect trade relationship betw NZ and China
- Massive competition in A2 Niche market in China. Even Fonterra has Aptamil Essensis Organic A2 and Karicare Gold A2 range for sale in China.
- Chinese Domestic IF suppliers increase the capital and marketing investment and gain significant market shares.
- The Mataura acquisition may be declined.
- Chinese Customers spending lower than expectation, or lockdowns.
- Sky high cost and possible delay for shipping right now.
Weakness:
- New Management team does not understand the business model and slowly response to Covid 19
- Board does not understand the business
- Constantly made wrong forecast, it seems that ATM has not have data analysis and perform a price sensitive, or regulatory change stress testing
- No business strategy change or review so far after Sales, NPAT, and margin all down for a year.
- New CEO believes that ATM is not in crisis, according to media
- Number of high ranked Insiders selling at the market peak
- Corporate Daigou and CBEC share online sales channels in China, such as Taobao and its T-mall, JD, XIAOHONGSHU, VIP.COM, PINDUODUO, Suning, etc. Price war.
- When retailed Daigou and Corporate channel shrinks, CBEC increases its purchasing power, they may raise some trade conditions, such as extended credit terms, 6 months. constant inventory swap policy and lower purchasing cost.
- ATM SEO or SMB through Baidu.com. However, its official website (https://www.a2store.cn/) shows only 45 purchase for Stage 1, 31 purchase for stage 2, 57 purchase for stage 3 and 16 purchase for stage 4. Its retail price nearly doubles than T-mall and Taobao. different sales channels have different price, huge variation.
If we go back to 2015-2019 pre-covid 19 period, we still run SWOT analysis for every single year, we cannot get so many threats and weakness.
That's fine if you are a pure TA momentum trader. Many investors use TA as one of their tools in their toolkit but also look for opportunities where TA and FA concurrently give encouragement to buy. I find my most lucrative investments are when TA and FA line up together and because they're so incredibly lucrative I spend a lot of time mining for those special opportunities. I'm sure you'll stick to what works best for you and i can assure you I'll be sticking to what i know works best for me :p
What's clear to me is that both FA and TA suggest this remains an excellent stock to avoid at this time. Great one to short though so for those that have the skills, good for them.
Excellent post flyinglizard !!
SEO means Search Engine Optimization. A2 put ads on that Baidu, which is the main search engine provider in China. if you type key word " milk", or "infant milk" in Chinese, then A2 ads shows on the top of search result. A2 has to pay Baidu for every click through Baidu. The click will link directly to A2 Chinese official website. It has an online store, but few purchases...unbelievable low.
What this means? eg, If A2 has more than 10000 clicks through Baidu, and it has 200 sales, then the SEO purchase rate is 200/10000 = 2%. Each tin sales for 300CNY,
A2 has 50% margin through online direct selling, then its sales 300x200=60000 CNY, gross profit is 30000CNY. if Baidu charges 1CNY for each click, A2 has to pay Baidu 10000CNY. then deduct overhead.
I just made up some numbers above, if the SEO purchase ratio is too low, then it is a bad online marketing.
I hope A2 has the right data analyst to exam those variables of inputs and outputs.
Aunty Jayne said open the border! She must be so relieved now....hahha
https://www.smh.com.au/national/virg...17-p57sn2.html
Thanks for the post, flylizard - very informative & useful.
https://www.shortman.com.au/stock?q=A2M
Interesting to note that despite the very high market turnovers on 10th & 11th May after the 4th downgrade, the number of stock shorted barely budged!
Which suggests that long term holders are bailing out and short term traders & bargain hunters are the net buyers - and they must be rather miffed that the sp has continued to slide away.
Means more downside in the short term as traders bail out with their stoplosses triggered by the sp slide.
Came across an earnings forecast from exactly a year ago and the scale of ATM's downgrades & market reaction can best be summed up by these numbers :
Revenues EBITDA EPS
F21E 2,101m 650m 62
Updated 1,227m 151m 13
F22E 2,426m 756m 72
Updated 1,387m 282m 25
The downgraded numbers for F22 are sobering : Revenues downgraded by 43% and EPS by 78%!!!
Latest from Craigs:
Not sure I get the 34x PEQuote:
It has been a wild ride for A2 shareholders over the past 18 months and the note carefully deconstructs the issues leading up to the c60% fall in 2H21 underlying EBITDA last week. To recap briefly; in 3Q20 (March) A2 IF sales in China leapt 48% as consumers pantry stocked during the lockdown, in 4Q20 A2 saw strong albeit moderating sales (+22%) as Daigou replenished depleted inventories and ATM increased supply to the channel to mitigate further potential supply chain shocks. However, by this point (June 2020) sales to end-consumers were already starting to soften reflecting a preference for local brands and risk of catching COVID from imported product – coupled with the Daigou issues of delivering timely product due to logistics issues etc. ATM were not sufficiently aware as these trends accelerated at a faster rate causing over-supply and downward pricing pressure. By March of this year IF sales were down a staggering 48% - these issues were clearly outlined in Ridgewell’s note “The Worm is not Turning” based on feedback from proprietary Daigou contacts who had a more accurate read on the situation than ATM at the time……
The bad news is that the latest Daigou feedback implies A2 sales were down a further 10% MoM in the April and are even more bearish for May (Chart’s 3, 4 below) … this is not expected to impact FY21F guidance but has implications for the exit run-rate into FY22 and leaves Ridgewell’s FY22F EBITDA of $200m well below consensus (c$300m).
The Good news is that ATM management now have a clearly articulated plan to stabilise the situation – essentially by increasing brand spend to support Daigou sales and removing excess inventory from the channel to reduce discounting and enable a wholesale price rise given input cost pressures (6th chart). However, the environment is not static and local brands continue to steadily take share (5th chart below) suggesting sales will stabilise at a lower run rate. Ridgewell has FY22 revenues flat YoY - the overall increase reflects the Mataura valley acquisition.
A2 Milk remains a strong brand (see Chart in page 12 of the note) and Ridgewell’s revised TP of $7.03 (from $10) reflects the inherent long term value of the business albeit negative near-term earnings momentum tempers current sentiment and he retains the Neutral recommendation with ATM still trading on a 34x PE based on his (below market) EPS estimates.