We don’t really analyse the result, in this note. There isn’t much point. Rather we just lay out our ground work for thinking about stocks in this situation.
The challenge with A2M is that you really won’t know if underlying consumer preferences have changed over the past 18m of COVID related interruption. You can’t really apply fundamental analysis. Either it recovers, or it doesn’t. Take management’s views on faith, or not. That’s problematic.
And you don’t have a tremendous amount of valuation support if it turns out there is a preference shift, or a substitution effect (that limits the size of the pie when borders reopen). Valuation on forward earnings (blended forward 12m) is 30x.
Cheap on one scenario, expensive on the other (the 30x) with no easy way to assign probabilities.
And when you don’t know a probability distribution, assume half as a starting point, which suggests to me that risks remain to the downside. Easier to make a smaller return, more safely, elsewhere.
Important Information: This document has been prepared by Aequitas Investment Partners ABN 92 644 165 266 (“Aequitas”, “our”, “we”), a Corporate Authorised Representative (no. 1284389) of C2 Financial Services, (Australian Financial Services Licensee no. 502171), and is for distribution within Australia to wholesale clients and financial advisers only.
This document is based on information available at the time of publishing, information which we believe is correct and any opinions, conclusions or forecasts are reasonably held or made as at the time of its compilation, but no warranty is made as to its accuracy, reliability or completeness. To the extent permitted by law, neither Aequitas nor any of its affiliates accept liability to any person for loss or damage arising from the use of the information herein.
Please note that past performance is not a reliable indicator of future performance.
General Advice Warning: This document has been prepared without taking into account your objectives, financial situation or needs, and therefore you should consider its appropriateness, having regard to your objectives, financial situation and needs. Before making any decision about whether to acquire a financial product, you should obtain and read the relevant Product Disclosure Statement (PDS) or Investor Directed Portfolio Service Guide (IDPS Guide) and consider talking to a financial adviser.
Taxation warning: Any taxation considerations are general and based on present taxation laws and may be subject to change. Aequitas is not a registered tax (financial) adviser under the Tax Agent Services Act 2009 and investors should seek tax advice from a registered tax agent or a registered tax (financial) adviser if they intend to rely on this information to satisfy the liabilities or obligations or claim entitlements that arise, or could arise, under a taxation law.