A2M Valuation, page-18

This thread is a bit misleading, so I will post my view on A2M valuation here.

First of all, what a result by A2M this week, from a TA perspective, SP “might” of ran too hard, and it has retreated from high of $13.78 to $11.77 at the close of Friday.

From a FA perspective, what is a fair price for A2M now?

Here is my take after the result.

Before the result, consensus for FY18 was (NZ$, FX A$1 = NZ$1.07):

• Revenue $850M
  
  
• Gross Margin $412M
  
  
• EBITDA $240M
  
  
• NPAT $166M
  
  
• EPS NZ$0.23 or A$0.215
  

Which gave us a forward PE of 40.5 at SP $8.71 before the result.

Now A2M management gave a “VERY” conservative of earning increased by $35-40M for the next 6 months, i.e. EBITDA of $178M to $183M, we’ll take $180M (only growth of 26% 6mom, I think minimum is 30%+ 6mom for the next 3 years)

So my FY18 result would be (1/2 yr result + next 6 months):

• EBITDA $143 + 180 = $323M
  
  
• Other costs (distribution, admin, marketing etc) $74.5M + 100M = $175M
  
  
• Gross Margin $323M + $175M = $498M
  
  
• Revenue $1017M (49% margin)
  
  
• NPAT $226M
  
  
• EPS NZ$0.313 or A$0.292
  

For PE at 40, SP would be $11.68.

So this is based on the VERY conservative of $35-$40M EBITDA increase over the next 6 months. A2M revenue is expected to increase by 30% per year over the next 3 years, so PE of 40 is justified.

If EBITDA is increase by (over next 6 months):

• 40% and PE of 40, SP would be A$12.40
  
  
• 50% and PE of 40, SP would be A$12.94
  

After the result I’ve bought as much as I can under $11 (80% trade and 20% hold to increase my holdings). I think there is good value there if you think A2M management is right about the $35-40M outlook. $11-$12 is still good value. And $12+ is a long term “no brainer”.

Above is only based on growth over next 6 months and did not take into account for benefits from Fonterra news or other market expansions. So please, as always,

DYOR.
Frank.