SML - Synlait Milk Ltd

[CJ]

Today's payout foercast from Fonterra will be being put into the spreadsheets at Synlait IPO HQ as we speak to give implied returns for next season. This obviously is Synlait Milk's biggest COGS and is crucial for the forcasting of future returns. The falling dollar over the last month is obviously great news but a starting price of $7.00 might be a bit of a surprise. This season ( 2012/13 ) payout staying put will be great news for the current year P&L which may well help the shares to IPO at the upper end of the range when it is set.

Waiting for the IM with baited breath ....

Considering the different ownership structures of synlait vs Fonterra, are should payouts be similar. ie. to what extent does the milk payout price reflect a return for the ownership of fonterra (eg. Milk price = $4, return on milk power processing = $3)

[FarmerHamilton]

The vast majority of Fonterra's profit comes from low value add dairy products , WMP,Skim,Cheese,Butter etc
Synlait's whole point of difference is that they are headed towards high value infant formula and nutritionals making up a big proportion of the revenue. Fonterra might build a couple of infant formula capable driers but really they have set their stall out to control the global commodity market ( to which they do a great job for NZ ). However as the 90% Gorilla in the room they do effectively control all the other independent's cost of the basic raw material ( liquid milk from the farmgate ) and so Synlait will be kind of hostage for the near term at least to the Fonterra payout ...

[mcdongle]

Their plan to produce lactoferrin should give profits a boost if they can do it.

[FarmerHamilton]

Agreed, moves like this do "move the needle" for Synlait. For Fonterra it is just not worth it, literally a drop in the ocean for them. That is Synlait's key point of difference and should make the float a big success

[1leon]

I don't follow FH logic that an improved milk price is good for Synlait Milk float. It should be good for (Unlisted) Synlait Farms Ltd. but the reality here has also been that Synlait Farms on Unlisted has been a total failure in terms of improving liquidity--3 transactions at 35% discount and now only one very small bidder at 40% discount to asset backing.And that was the position even before a float of Milk was raised. The 3 substantial private holders of Milk and Farms haven't then achieved any access to funds which it seems Milk needs and which has been a continuing difficulty for Milk.I would have thought a full float of Farms might have more appeal to the market than Milk remove the current discount Farms is suffering and give the principal shareholders some breathing space.

[FarmerHamilton]

I don't follow FH logic that an improved milk price is good for Synlait Milk float. It should be good for (Unlisted) Synlait Farms Ltd. but the reality here has also been that Synlait Farms on Unlisted has been a total failure in terms of improving liquidity--3 transactions at 35% discount and now only one very small bidder at 40% discount to asset backing.And that was the position even before a float of Milk was raised. The 3 substantial private holders of Milk and Farms haven't then achieved any access to funds which it seems Milk needs and which has been a continuing difficulty for Milk.I would have thought a full float of Farms might have more appeal to the market than Milk remove the current discount Farms is suffering and give the principal shareholders some breathing space.

I didn't say that a high payout was good for Synlait Milk ... I do think this years profit will be very good however based on the current Fonterra payout. I reckon Synlait have probably outsold them and outhedged them so look for some big numbers in the prospectus for 12/13.
Agreed SNLF Unlisted experience is nothing to write home about but at least over 100k share have traded but it is disappointing that the day after a Fonterra announcement of a $7 payout for next season not a single Kiwi out of 4.3m of us is interesting in putting a bid in for a pure dairy farming enterprise. Nodoubt there a re a few bids for Restaurant Brands , a company that sells crap food and ****ty coffee ... go figure !!

[1leon]

I didn't say that a high payout was good for Synlait Milk ... I do think this years profit will be very good however based on the current Fonterra payout. I reckon Synlait have probably outsold them and outhedged them so look for some big numbers in the prospectus for 12/13.
Agreed SNLF Unlisted experience is nothing to write home about but at least over 100k share have traded but it is disappointing that the day after a Fonterra announcement of a $7 payout for next season not a single Kiwi out of 4.3m of us is interesting in putting a bid in for a pure dairy farming enterprise. Nodoubt there a re a few bids for Restaurant Brands , a company that sells crap food and ****ty coffee ... go figure !!

I seem to have misconstrued the basis of your enthusiasm. Whilst I also share your enthusiasm for Farms (and hope I haven't misinterpreted those posts) of the 115,000 shares traded on Unlisted you did concede on the one substantial trade that "it would be a coincidence if the buyer wanted exactly 60,000" so it might be that there have only been 55000 shares really traded. I do know at least one Kiwi in 4.3m has genuinely bought! As someone who has been on Unlisted for many years I am not persauded it works at all well in either liquidity or value. I rather doubt any major shareholder would be interested in quiting at the discounts minnows have to accept. Unlisted then tends to be a self defeating circle. I have greatly appreciated your forthright posts on Synlait particularly showing you have real skin in the investment game.

[FarmerHamilton]

I seem to have misconstrued the basis of your enthusiasm. Whilst I also share your enthusiasm for Farms (and hope I haven't misinterpreted those posts) of the 115,000 shares traded on Unlisted you did concede on the one substantial trade that "it would be a coincidence if the buyer wanted exactly 60,000" so it might be that there have only been 55000 shares really traded. I do know at least one Kiwi in 4.3m has genuinely bought! As someone who has been on Unlisted for many years I am not persauded it works at all well in either liquidity or value. I rather doubt any major shareholder would be interested in quiting at the discounts minnows have to accept. Unlisted then tends to be a self defeating circle. I have greatly appreciated your forthright posts on Synlait particularly showing you have real skin in the investment game.

I understand from someone in the know that the shareholders of Synlait Ltd have approved the proposed in specie distribution of the Synlait Milk shares held by Synlait Limited. So the Bright 51% / Synlait Ltd 49% structure is about to become Bright 51% / about 100 other holders 49%. There will be some of those 100 holders who may wish to exit into the IPO ( they have this option ) so I guess the number of holders and the percentage they wish to sell may well be one of the factors determining the size of the IPO ....

With the market looking a bit iffy at present their timing of the IPO may have been a couple of months too late ... ??? Collapsing NZ$ will be good news though as 100% of Synlait Milks revenue is probably generated in other currencies besides the Kiwi$ ( NZD below 80c now , first time for many many months )

[FarmerHamilton]

Bright have indicated they will not participate in the IPO so their current 51% stake will be diluted down to probably near 40% so I am assuming they are happy long term investors, I would guess they have an off take agreement which guarantees them a certain tonnage of product at market prices each season. They will also go from having board control to just a representation. If the IPO is big enough to get them in the NZX50 then tracker finds will need to buy and you'd have to think they will be on the radar of the big AgriFunds around the world .

[1leon]

Bright have indicated they will not participate in the IPO so their current 51% stake will be diluted down to probably near 40% so I am assuming they are happy long term investors, I would guess they have an off take agreement which guarantees them a certain tonnage of product at market prices each season. They will also go from having board control to just a representation. If the IPO is big enough to get them in the NZX50 then tracker finds will need to buy and you'd have to think they will be on the radar of the big AgriFunds around the world .

There is a view, with which I don't entirely agree, that 30% is effective control. I wouldn't be entirely sanguine about "probably 40%" if that is in fact what Bright will reduce to. I am very conscious I risk being acused of sino phobia and would be pleased if anyone could provide any examples of Chinese NZ long term investment for the continuing prosperity of all shareholders. If you throw Fonterra ( NZ infant formulas quality again a live issue) and Zespri scandels into the mix,the investment future tends more to the highly speculative than than conservative!
http://www.odt.co.nz/news/national/2...bad-news-china