Company result

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.

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