More Headwinds For a2 Milk

ATM have had a bad run of late. After suggesting that all is well, followed by a mass sell off of shares from the board of directors, the board then declared that the situation was not too clement for ATM’s milk sales.

Despite the directorate touting the collapse of the Daigou market as the reason for a drop in sales, I can’t help wonder if increased competition lending itself to lower margins has assisted recent failings in profit.

Despite this I held my position with the view that ATM will recover post covid19. I accept that the playing field is now different with competition appearing, but competition is normal in business, and the share price had already fallen to a level that accounted for this. Besides, it’s a growth market with plenty of room in China for many players in MBS alone. Also ATM have other things going on in their growth plans such as the move into milk processing which I think derisks the business. I’m a big fan of vertical growth for companies that are big enough to swallow the entire output of upstream production, because although initially expensive and risky due to lack of inhouse experience, vertical growth derisks business in multiple ways, and offers an avenue of growth.

That aside, there is now a new problem emerging, which suggests that the Daigou market may not return post vaccine as I had expected. (Probably rightly so, given the racial issues that were reported) China appears to be urging students not to apply to Australian universities. This is a big problem for ATM because it’s believed that Chinese students make up a big part of the Daigou market.

Personally I’m not going to sell my shares on this news, mainly because I can’t bare crystallizing my losses at this price (which I acknowledge is a really bad way to think), but also because doing so doesn’t effect my long term strategy and I’m willing to wait to see how the company is in 5-10 years time.

That said, with all that’s gone on and what’s to come, I am not a happy shareholder and won’t be buying more ATM shares (not only because it doesn’t fit my strategy for retirement income in the near term).


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