New Zealand Professional Investment Services Firm, Forsyth Barr

Forsyth Barr

New Zealand Professional Investment Services Firm

We are proud to be a New Zealand owned firm, with 21 offices throughout the country and over 300 employees. We assist personal, institutional and corporate clients providing a full range of investment services.

Forsyth Barr is a foundation New Zealand Exchange firm (NZX) and accredited market participant. We have been confirmed by the Financial Markets Authority as a Qualifying Financial Entity (QFE).

Research is the cornerstone of our advice. We have one of New Zealand's leading teams of analysts. Our global affiliations ensure comprehensive research coverage of all major investment markets.

Equity Bottom-Up

<ul><li>We expect The a2 Milk Company (ATM) to report a solid FY23 result on Monday, 21 August, meeting or possibly exceeding its guidance.</li><li>However, its FY24 outlook is the key point of interest. As elaborated in our report titled, "Wheying up FY24", published 9 August 2023, we are more cautious versus consensus on both revenue growth and EBITDA margin expansion.</li><li>Following the material de-rating of the stock year to date, the FY23 result is shaping up very similar to FY22 when sentiment and valuation was depressed. </li></ul>

We expect The a2 Milk Company (ATM) to report a solid FY23 result on Monday, 21 August, meeting or possibly exceeding its guidance.However, its FY24 outlook is the key point of interest. As elaborated in our report titled, "Wheying up FY24", published 9 August 2023, we are more cautious versus consensus on both revenue growth and EBITDA margin expansion.Following the material de-rating of the stock year to date, the FY23 result is shaping up very similar to FY22 when sentiment and valuation was depressed. 

The A2 Milk Company - FY23 Preview — Important Delivery

Pan-Asia Index Rebalances/ Events/ Delta One, Periscope Analytics

Brian Freitas

Pan-Asia Index Rebalances/ Events/ Delta One

Periscope Analytics

Periscope Analytics focuses on event-driven trades across Asia Pacific and provides comprehensive, timely and systematic coverage of index changes to major Asia Pacific indices in a structured manner.

The analysis includes forecasted inclusions and exclusions to all major Asian indices that have significant amount of tracking assets, including estimates of passive buy/sell flow on the stocks. The service also provides commentary and impact of market consultations, ground rule changes, and other events (IPOs, spin-offs, M&A) that could lead to index changes and passive flow.

Periscope Analytics works with multi-strategy hedge funds, proprietary trading firms, stat arb trading groups and long-only investors that invest and trade in the Asia Pacific region with the data being used to trade index rebalances, avoid pre-positioning and passive flow, and to time entry into and exit from stocks.

Event-Driven Trades Across Asia Pacific

Index Rebalance

<ul>
<li>There could be two deletes for the index in September. There are two other stocks that are close to the deletion threshold.</li>
<li>Even if there are no constituent changes, there will be capping changes that will result in one-way turnover of around 2.7% and a one-way trade of A$51m.</li>
<li>Short interest has been increasing on <a href="https://www.smartkarma.com/entities/charter-hall-group" target="_blank" data-smartkarma-citation="entities:5593:1" rel="noopener">Charter Hall (CHC AU)</a> and <a href="https://www.smartkarma.com/entities/jb-hi-fi-ltd" target="_blank" data-smartkarma-citation="entities:555:1" rel="noopener">JB Hi-Fi Ltd (JBH AU)</a> and could be partially driven by potential index deletions.</li>
</ul>


There could be two deletes for the index in September. There are two other stocks that are close to the deletion threshold.
Even if there are no constituent changes, there will be capping changes that will result in one-way turnover of around 2.7% and a one-way trade of A$51m.
Short interest has been increasing on Charter Hall (CHC AU) and JB Hi-Fi Ltd (JBH AU) and could be partially driven by potential index deletions.


MVIS Australia Equal Weight Index Rebalance Preview: Deletes, Close Deletes, Capping Changes

<ul><li>The a2 Milk Company (ATM)'s 12 month forward PE has de-rated materially year-to-date, while EPS estimates are up modestly.</li><li>ATM is now trading on ~23x 12 month forward PE (~19x cash adjusted), which is a near all-time low.</li><li>Following recent robust data suggesting market share gains across offline and online channels, and an improving gross margin outlook, we think FY23 earnings guidance may prove to be conservative. </li></ul>

The a2 Milk Company (ATM)'s 12 month forward PE has de-rated materially year-to-date, while EPS estimates are up modestly.ATM is now trading on ~23x 12 month forward PE (~19x cash adjusted), which is a near all-time low.Following recent robust data suggesting market share gains across offline and online channels, and an improving gross margin outlook, we think FY23 earnings guidance may prove to be conservative. 

<ul>
<li>There are unlikely to be any inclusions to the index in June while there are three stocks that are close to the deletion threshold.</li>
<li>Even if there are no constituent changes, there will be capping changes that will result in one-way turnover of over 4% and a one-way trade of A$78m.</li>
<li>Short interest on <a href="https://www.smartkarma.com/entities/amp-ltd" target="_blank" data-smartkarma-citation="entities:678:1" rel="noopener">AMP Ltd (AMP AU)</a> has been increasing as the stock has dropped and a further decline in the stock could lead to deletion.</li>
</ul>


There are unlikely to be any inclusions to the index in June while there are three stocks that are close to the deletion threshold.
Even if there are no constituent changes, there will be capping changes that will result in one-way turnover of over 4% and a one-way trade of A$78m.
Short interest on AMP Ltd (AMP AU) has been increasing as the stock has dropped and a further decline in the stock could lead to deletion.


MVIS Australia Equal Weight Index Rebalance: Potential Deletes & Capping Changes

<ul><li>We upgrade our ATM rating to NEUTRAL from UNDERPERFORM following recent share price weakness in what we view as a more balanced risk/reward.</li><li>Risks remain on the outlook and we are circumspect on ATM's margin expansion</li><li>ATM is trading on ~24x 12 month forward PE (~20x cash adjusted) which is below its five year average (~29x) and against a three year forward EPS CAGR of +16%.</li></ul>

We upgrade our ATM rating to NEUTRAL from UNDERPERFORM following recent share price weakness in what we view as a more balanced risk/reward.Risks remain on the outlook and we are circumspect on ATM's margin expansionATM is trading on ~24x 12 month forward PE (~20x cash adjusted) which is below its five year average (~29x) and against a three year forward EPS CAGR of +16%.

The A2 Milk Company: Shaken, Not Stirred; Upgrade to NEUTRAL

Australia

a2 Milk Company Limited produces cow milk which is free of a protein called beta casein A1.  The Company 
offers its products in Australia and New Zealand.

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A2 Milk Co Ltd (A2M AU)

The A2 Milk Company - FY23 Preview — Important Delivery

We expect The a2 Milk Company (ATM) to report a solid FY23 result on Monday, 21 August, meeting or possibly exceeding its guidance.

Forsyth Barr

MVIS Australia Equal Weight Index Rebalance Preview: Deletes, Close Deletes, Capping Changes

With a couple of weeks to review cutoff, there are two stocks in deletion zone and another two that are close to the deletion zone. Most likely, no...

Brian Freitas

The A2 Milk Company - Wheying Up FY24

The a2 Milk Company (ATM)'s 12 month forward PE has de-rated materially year-to-date, while EPS estimates are up modestly. ATM is now trading on...

Forsyth Barr

MVIS Australia Equal Weight Index Rebalance: Potential Deletes & Capping Changes

There could be 3 deletions for the MVIS Australia Equal Weight Index in June. Capping changes could result in one-way turnover of 4.1% and a one...

Brian Freitas

The A2 Milk Company: Shaken, Not Stirred; Upgrade to NEUTRAL

We upgrade our ATM rating to NEUTRAL from UNDERPERFORM following recent share price weakness in what we view as a more balanced risk/reward; Risks...

Forsyth Barr

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