THE A2 MILK COMPANY LIMITED (ASX:A2M) - A2M - Fundamentals FY19, 37546163, page-11 - HotCopper | ASX Share Prices, Stock Market & Share Trading Forum

Originally posted by quantsyd ↑

Originally posted by sandy68
Ever since the report has come out, I’ve come to a realisation that yet again there has been a mixed bag of emotions. A larger percentage are satisfied and some are skeptical. Not new to this as we see this every year. Commentary fundies vs invested fundies. None of these commentary matters to us some investors unless they’ve picked up on something verifiable and is a risk of compliance, and can also provide public domain information on this. I couldn’t care what they think about product market share and business in China. What I’m always interested to know is whether they think it is good, average or a bad buy and why do they think so. At least a numerically and logically backed up reasoning explaining why will sound nice. This is all that matters to me. Because they have a following, and thats all.

By the way, the reported earnings was way more than I expected and has fallen outside my compiled standard deviation, which is an awesome result for me.

A2M’s stock price should be in between $16 - $21. I think that A2M shares are “TO CHEAP” and a “GOOD BUY” and I want to share some numbers and assumptions explaining why. This is a simple valuation centred around PE. One way to look at A2M. All values below have already been converted to AUD from NZD.

Facts : A2M has 733,297,297 units of shares on issue and owns 31,174,646 units (17.4%) of shares in Synlait. And A2M is a growth stock.

The discount is A$1.05 on current share price. This is the adjusted discount after taking into account A2M’s realistic cash build position by FY19 end, their investment in SM1 and net of any debts. This assumes that A2M is able to cash hoard A$384 million (Will get there easily and comfortably) and Synlait’s stock price goes to $10 (almost there) on ASX valuing A2M’s investment in SM1 at $311.746 million.

Market stock price of A2M at $14, makes adjusted stock price $12.95 [14 - 1.05].

A2M is on path to deliver A$39.5 cents EPS for this FY.

Adjusted PE will be 32.7 [ applying adjusted or discounted share price on EPS ]. A2M’s diluted EPS growth rate is 55%so lets use 55% for maths. The PEG ratio is then 0.59 [32.7/55] Significantly undervalued. If we then say, lets assign a fair value [PEG = 1] based on growth for ongoing FY19. Assuming PEG = 1, then we have adjusted PE = 55 [1 * 55], which means the stock price should be A$21.72 [0.395 * 55]. If market thinks 20% undervalued is fair then PEG = 0.80, then adjusted PE will be 44, which means unit stock price should be A$17.38[0.395 * 55]. If market thinks A2M being 25% undervalued is fair, then PEG = 0.75, then adjusted PE will be 41.25, which means unit stock price should be A$16.29 [0.395*41.25].

I've explained my position I made on paragraph 3.

Comments Welcome.
Thanks for the analysis. Just one minor question: the HY EPS is 20.9 cents, wouldn't that translate into 42 cents FY, assuming 2nd half is flat on the 1st half? The difference from your analysis is only 2.5 cents but using a multiple of conservative 40 that would put $1 extra on the valuation.

Expand

No , I think you got it wrong .

NZ 21c for HY and assume 2nd half is flat that will be NZ42c for FY.

Sandy use AUD 39.5 c for FY. Which is NZ 41c.

There’s only NZ1c difference not 2.5c.

I personally think sandy ‘s EPS estimate is very spot on.

No.	Vol.	Price($)
16	7014	$5.71

No.

Vol.

Price($)

7014

$5.71

Price($)	Vol.	No.
$5.72	13671	18

Price($)

Vol.

No.

$5.72

13671

No.	Vol.	Price($)
1	5399	5.630
6	17273	5.610
4	33072	5.600
4	20359	5.590
2	7656	5.580

No.

Vol.

Price($)

5399

5.630

17273

5.610

33072

5.600

20359

5.590

7656

5.580

Price($)	Vol.	No.
5.650	7091	2
5.670	9037	3
5.680	9833	4
5.690	6747	2
5.700	8222	4

Price($)

Vol.

No.

5.650

7091

5.670

9037

5.680

9833

5.690

6747

5.700

8222

(20min delay)
Last $5.72		Change -0.015(0.26%)		Mkt cap ! $3.808B

Open	High	Low	Value	Volume
$5.73	$5.75	$5.68	$2.960M	517.7K

No , I think you got it wrong . NZ 21c for HY and assume 2nd...

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No , I think you got it wrong . NZ 21c for HY and assume 2nd...

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