Chart Update, page-4735

Hi Bre

I've mixed views on Simply Wall value derivation. I'll explain my opinion in a sec, but a large number of people like its graphical representation.

This is a 'cookie cutter" approach of deriving value. I can definitely confirm that most businesses, and most definitely A2M is made up of many sub- business units all deriving returns at different rates. What gets reported is the net of each business performance. A2M has a lot of subsidiaries, which is all listed and has to be listed as per rules in the market report. If A2M was to generate cash and distribute it all the time, then the value could be somewhat relied upon, but A2M is a absolute "cash hoarder". Cash has a concrete value and each shareholder would receive on per share basis whatever gets distributed. Now A2M also has direct investments in Synlait which has a real value again. This is usually not captured by these kinda 'cookie cutter" models. A random example now, if you had two  identical houses next to each other and you wanted to sell both. In one house, you have a box of cash say 100K tucked away in the basement. If the house were valued 500K each, would you sell both them at the same price each? I'm pretty sure, you'd ask 600K for one with the hidden cash. Makes sense doesn't it. Fair deal right? In A2M's case, it hold true, so whatever intrinsic value they produce will always be undervalued due to lack of adjustments, my personal opinion. Furthermore, the US unit which is not producing cash profits now, when it breakseven, will carry an asset value which again isn't captured by the model. Its not a free asset. Another reason for me to think, "more undervalued" baked into the price. I haven't even talked about Fonterra's royalties yet. I can go on for sometime on more particulars, I'll stop here for now. 

Long term-growth rate.
There are using a risk-free rate for this. Bond rate. A2M at the moment puts it cash, most of it in short-term treasuries earning interest. I get that, but A2M has pricing powers and just realistically speaking, it is far easier to grow more than the GDP growth rate. Then there's FX gains, by just parking cash in the right jurisdiction. The rate they're using is very conservative, and I personally feel it could be better in A2M's case. This a very sensitive number when modelling. This is like saying a healthcare service provider and A2M will grow at the same rate. For now - I'm not buying this idea. This again will yield an undervalued intrinsic price. A few more percentage can be added there. 

NZD parity with AUD, will leave it for now. 

Hope you get some idea, from my point of view.