BFC3540 Investment Debates – Week 2 – A2M & TWE

Ayyy we back again. Week 2. How did we go? What’s changed? What’s new? Any announcements?

Let’s firstly talk about where to find news. At this stage in time I recommend one of two ways if obtaining macro, sector and company related information.

So the ASX200 finished the week up 0.4% or 26 points but still down 2.6% for the month.

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A2M finished the week up 3.79%, largely on the back of further momentum from it’s FY18 results last month.

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There isn’t too much significant news regarding A2 or industry related news. For this week’s news you’d honestly carry on the same sayings about A2:

  • It’s a global dairy company with exceptional growth
  • It’s product verticals are international – ANZ, UK, USA, China and other Asian countries
  • It’s on the expensive side of valuation – which could be subject to more risk if general market sentiment is poor
  • All regions are performing strongly (see below)
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  • China is a huge opportunity but the regulatory concerns remain a coin-flip

I’d still favour a long position in A2M.

TWE finished the week down 1% – broadly in line with how the market performed.

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There hasn’t been much exciting news for TWE besides their annual report last month. We can note that there was an announcement for a “change in director’s interest notice”.

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There is always a negative sigma when it comes to directors selling their shares. It always gives the impression that they know something we don’t and they want to secure their own profits. While this isn’t always the case, investors would much rather see directors buying more shares! This is certainly something you can look into deeper as directors, investment banks and other funds’ movement of capital can give us retail investors signals as to where the share price is headed.

Again, this week’s debate should revolve around the same arguments as last week whereby:

  • TWE revamped their organisation in 2015 whereby they consolidated on many brands, focused on branding and marketing and have paved way to distributing their products all over the world
  • TWE aims to deliver around 25% EBIT growth for FY19 – which isn’t all that bad for it’s current valuation (x40ish earnings)
  • TWE’s products are able to benefit from a growing middle class (particularly in China) and China’s growing consumption of wine
  • They face a few headwinds in the form of their US operations, regulatory risk with China and perhaps even weather conditions back at home
  • TWE also has a diverse range of currency exposures
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I’d also favour a long position in TWE for this week.

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