SML - Synlait Milk Ltd

[Anna Naum]

Synlait to float before Xmas.

http://www.stuff.co.nz/business/market-data/3040354/Synlait-float-to-raise-150m

[kizame]

Oooh this sounds interesting,and a niche player.
We really need the dairy industry in the market.

[Anna Naum]

Article says First NZ to float and prospectus out on Monday. Only want cica $150m so doubtful if there will be a public float I guess

[Dr_Who]

Interesting float.

Will have to do some due diligence on it.

[COLIN]

Now here's an IPO I could be interested in - not a Private Equity cow that's been milked dry.

(I couldn't believe the numbers of posters who got sucked into the Myers float - hopefully they've learnt their lesson, albeit the hard way.)

[kizame]

The interesting thing will be to see how many get sucked into katmandu,even after watching the results of the Myer float.

[Doyle]

Would have to be a little disspointed with the timing of fonterras announcement. Margins are being squeezed, fonterra downgraded value added returns at both reviews this year. While the milk payout has rise over 30% this year, value added distribution has decreased by 37%.

If this does go public I think their will be a hell of alot of interest none the less.

[Anna Naum]

Synlait to float before Xmas.

http://www.stuff.co.nz/business/market-data/3040354/Synlait-float-to-raise-150m


WELLINGTON (Dow Jones)--New Zealand dairy company Synlait Milk Ltd. said Thursday that
it plans to proceed with an initial public offering and listing on NZX Ltd. (NZX.NZ).
Synlait said the offer will be open this month.
The company didn't give details on the size of the offering, which will be
lead-managed by merchant bank First NZ Capital Ltd., but highly-placed people at Synlait
told Dow Jones Newswires this week that the company planned to raise up to NZ$150
million.
The company, with headquarters in the small South Island township of Dunsandel and in
which Japanese company Mitsui & Co. (8031.TO) is the largest shareholder with a 22%
stake, said the initial offering would be for selected institutional investors in New
Zealand, Australia and possibly elsewhere.
The company said it would also take firm offers from NZX firms and there would also be
an offer to Synlait suppliers and staff.
The offer is likely to comprise a mix of new ordinary shares and existing ordinary
shares sold by Synlait.
The majority of the funds raised would be used to fund a proposed second milk
processing plant on Synlait Milk's existing site at Dunsandel, the company said.
Hamilton Hindin Greene broker Grant Williamson said Synlait's IPO "would be a
welcome addition to the market."
He said while the country's economy is dependent on the dairy industry, there were
few opportunities for retail investors to gain exposure to the sector.
He added that there will be plenty of money available for investments in the sector
"if the fundamentals stack up."
The company, founded in 2000, initially raised NZ$105 million to build a dairy
processing facility which began operations in August 2008 and processes over 100 million
liters of milk annually.
Synlait has forward milk supply contracts that will lift supply to 300 million liters
in 2010 and a second milk drier would almost double the size of the factory and boost
processing capacity to 550 million liters a year by 2011.
It produced 30,000 metric tons of dairy products in the year to July 31, 2009 and is
budgeting for that to grow to 50,000 tons in the July 2010 year.
After a complete drought of IPOs in New Zealand since December 2007, Synlait will be
the third this year, following retail chain Kathmandu Ltd. which raised A$340 million in
a joint New Zealand-Australian IPO and sweetening product company BioVittoria's
plan, announced Monday, to raise NZ$20 million.
Dairy dominates the New Zealand economy but there is a lack of sector representation on
the market after farmer-shareholders of Fonterra Co-Operative Group Ltd., which produces
a quarter of the country's exports, last year eschewed plans to float up to 35% of
the company on the NZX.
Brokers said there will be healthy appetite for a quality offering in the sector. The
timing might also be propitious, with Fonterra announcing an 18.6% lift in its forecast
payout to its farmer shareholders Monday following an 88% lift in international milk
powder prices since July.
Synlait has previously said it wants to create specific dairy products by manipulating
the feed of cows. Some herds may be fed grains to boost the benefits of their milk for
consumers' immune systems, brain health and wound healing. Others may be fed a diet
that blocked a significant amount of cholesterol-elevating fat from their milk.
The company has said its links to Mitsui boosts the potential to manufacture such
specialty dairy products as Mitsui has the expertise to develop them.

[Doyle]

Interesting to see whether its just the processing business on the block or the farms as well?

[tango]

From the latest press release it seems like the general public won't get a chance to participate if institutions, staff and suppliers get preference

[elZorro]

In the latest Farmers Weekly, the lead article is on Synlait. It's made a group loss of $42mill in the last year, some due to writedowns, but at least $6.8mill of standard losses there.

Worse: key lender and shareholder Mitsui of Japan is said to be unimpressed and may want out if the float goes ahead. Mitsui are also due to be repaid a loan to Synlait by Dec 31.

Synlait has already started selling off some of its farms, to reduce debt and concentrate on building another dairy plant, where it makes more profit..

Dear John (Penno), I will not be helping out with your problem.

[Dr_Who]

Positive news for dairy farmers.

AUSTRALIAN ministers have called on the US to follow a lead set by the European Union and end subsidies on dairy exports.

“Given that the US introduced dairy export subsidies in response to the EU introduction of subsidies, the US has no excuse to continue with this program,” Trade Minister Simon Crean and Agriculture Minister Tony Burke said in a joint statement.

The European Dairy Management Committee last week decided to cut the level of export subsidy refunds on butter and butter oil to zero - the decision applies to all dairy products, they said.

The EU introduced subsidies in January and this was followed by the US, which introduced a dairy export incentive program in May, which remains in place, they said.

The EU decision is good news for Australian dairy producers, who supply 10-15 per cent of the global trade in dairy products, and another sign that protectionist measures are being wound back, the ministers said.

The EU decision comes after a rise in world dairy prices, they said.

The elimination of export subsidies will be one of the key outcomes from a completed Doha Round of multilateral trade talks, making it impossible for members of the World Trade Organisation like the US and EU to reintroduce such protectionism, which distorts the picture of global trade.

[Balance]

Time to buy some cheap dairy farms.

NZS anyone?

[Doyle]

Deffering IPO. Due to lack of support, what a suprise I would have thought instos would be queeing up to onsell this one at a ridiculous premium. Plenty of hype but obviously the devil was in the detail.

[Anna Naum]

Following a pre-marketing program to brokers and local and international institutional investors, Synlait Milk Limited (Synlait) advises that it has deferred its plans to IPO.

Synlait received strong support for the IPO from local institutional investors and the Lead Manager but the overall level of support was insufficient to proceed at this time.

Synlait remains committed to executing its plans and will continue to consider a future IPO and the alternative proposals centered on private capital placements that have been negotiated in parallel.

[macduffy]

Following a pre-marketing program to brokers and local and international institutional investors, Synlait Milk Limited (Synlait) advises that it has deferred its plans to IPO.

Synlait received strong support for the IPO from local institutional investors and the Lead Manager but the overall level of support was insufficient to proceed at this time.

Synlait remains committed to executing its plans and will continue to consider a future IPO and the alternative proposals centered on private capital placements that have been negotiated in parallel.

A strange rationale for pulling the float!

"Strong support from local institutional investors and the Lead Manager" would normally be enough to give the green light. Particularly as retail investors could be expected to give such an issue keen consideration, at the very least.

Would love to see the draft prospectus.

;)

[kizame]

A strange rationale for pulling the float!

"Strong support from local institutional investors and the Lead Manager" would normally be enough to give the green light. Particularly as retail investors could be expected to give such an issue keen consideration, at the very least.

Would love to see the draft prospectus.

;)

Sounds like BS to me,Charlies came out with something similar with $160,000 spent if I remember correctly, on expenses to do with other corporates presumably chasing them for a buyout.YEAH RIGHT!
Don´t trust directors or management that fluff up the truth.

[Anna Naum]

I thought this was underwritten?

[Anna Naum]

I thought this was underwritten?

Nope, looks like it was not.

[macduffy]

I see that the Herald item says that Synlait's now aborted issue was to list "its production arm" on the NZX.
I must admit that I hadn't picked up that subtle difference. Shades of Fonterra - type issues here?

Perhaps they were getting a bit too cute and complicated?

;)

[macduffy]

As I suspected, the float wasn't going to include the dairy farms.

Too much scope here for dudding the production arm at the expense of the farming arm. I'm not surprised now at the lack of support.

http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=10611475

[percy]

my broker told me it would be years before they paid a dividend, because they wanted to keep building plants.may be we are too dividend driven?

[percy]

i looked up synlait website and found ruth richardson a director.
i will not buy shares in a company where she is a director.
enough said.

[minimoke]

Chinese spent $82m for a 51% holding in Synlait today - excluding the farms which will be operated by a separate Synlait company. Theres another co we won't be seeing on the NZX for a while.

[Balance]

Chinese spent $82m for a 51% holding in Synlait today - excluding the farms which will be operated by a separate Synlait company. Theres another co we won't be seeing on the NZX for a while.

Another example of NZers preferring to put their money with finance companies and 5% rental yielding residential properties than real companies producing real products.

[CJ]

Chinese spent $82m for a 51% holding in Synlait today - excluding the farms which will be operated by a separate Synlait company. Theres another co we won't be seeing on the NZX for a while.Well its back on:

http://www.nbr.co.nz/article/bright-dairy-cede-control-synlait-milk-nzx-listing-bd-140061

This is a bumper year for IPO's on the NZX and makes me wonder if things are getting out of control.

[CJ]

I agree about the concerns regarding bullishness, but Synlait is one worth reading up on.I will put the same spin as I did on one of the proposed tech IPO's"

'This looks promising'

And by that I don't mean that I will invest, but that it is great that I will have the opportunity to invest in it. I will research at the time to determine if the business is good (which this does appear to be) and whether it is under/over priced.

The irony is that while it is great there are lots of IPO's (opportunitites to invest in new businesses), it also signals that we may be heading into a bubble. Its disappointing this didn't list back in 2009 when there were no IPO's.

[CJ]

I will be reading the prospectus with interest on this one.
It MAY be a good exposure to the (dairy) farming sector which despite it being such a large part of the economy, is hard to get an exposure too.

[percy]

It has been possible to trade Synlait shares through BDO Christchurch.Very few trades last year,although volume did pick up in October and November last year,when there were trades at $1.00
Should Ruth Richardson remain chair I will not consider buying.

[percy]

She is not Chair, I just read on their website that she is a non-executive independent director. You may be thinking of Jade, the software company, where she is chair.

http://www.synlait.com/about/key-people/board-of-directors/

Graeme Milne is Chairman. Here is the propaganda from the Synlait website.

It is even worse,she is chair of the GOVERNANCE and human resource committee.!!!!!!!!!

[FarmerHamilton]

If it's allright, I reserve the right to take up the shares which you won't be applying for :-)

With the announcement that Bright Dairy will not be subscribing to any new shares they are going to be diluted back under 50% and the chances are the company will become majority owned by NZer's again. ( Although Mitsui of Japan will own approx 11% ) so maybe not . Ahh darn it , thought we might put the China-phobes to bed for good on this one !!!

[percy]

If it's allright, I reserve the right to take up the shares which you won't be applying for :-)

Off course it's allright.!!!
But take care.!!!! lol.

[Xerof]

I will be into this as well, subject to seeing who they appoint to the board to replace the oversupply of Bright directors.

worked with Milne when he was contracted as a 'neutral' CEO during the Richmond takeover stoush with PPCS- all round good guy

Percy, I guess you could say, quite correctly, that RR isn't a Bright director :D

[percy]

I will be into this as well, subject to seeing who they appoint to the board to replace the oversupply of Bright directors.

worked with Milne when he was contracted as a 'neutral' CEO during the Richmond takeover stoush with PPCS- all round good guy

Percy, I guess you could say, quite correctly, that RR isn't a Bright director :D

Right on the button.!!!! lol.
Pleasing to know your opinion of Milne.
Sparky.I have been known to change my mind? !

[macduffy]

Presumably, nothing will change in respect of the separate ownership of the company that owns the farms who supply Synlait?

[FarmerHamilton]

Presumably, nothing will change in respect of the separate ownership of the company that owns the farms who supply Synlait?

The largest shareholders in Synlait Milk prior to the IPO besides Bright & Mitsui are the largest Synlait Farms shareholders. With the institutions likely to be "all over this" that will change but the in the Top50 shareholders even post the IPO a large chunk will be big SNLF's holders. These were the part owners of the syndicated farms prior to the amalgamation into the Synlait corporate structure back in 2006

This will be HOT !!

[Xerof]

You mean the likes of Armer, Pye and Parker?

or are they only involved in DHL?

[macduffy]

So to understand this correctly, there are two companies:


Correct.

Refer the earliest posts on this thread.

;)

[Xerof]

Farmerhamilton, not to worry, I looked up the shareholders at companies office. A range of Mid-canterbury and north island farmers...probably a Milne 'cluster'

I did note they have appointed Bill Roest to the board on May 8th

[FarmerHamilton]

Farmerhamilton, not to worry, I looked up the shareholders at companies office. A range of Mid-canterbury and north island farmers...probably a Milne 'cluster'

I did note they have appointed Bill Roest to the board on May 8th


Bright paid $82m for 51% of the equity of Synlait Milk in 2011 ... have they had a 15% annualized return ? Assume they have that would make there equity now worth $108m , Synlait Ltd's stake would be worth $105m. Assume they raise a fresh say $80m ... the value is approaching $300m ....

Anybody know if $300m would get them straight into the NZX50 ?

[stoploss]

Bright paid $82m for 51% of the equity of Synlait Milk in 2011 ... have they had a 15% annualized return ? Assume they have that would make there equity now worth $108m , Synlait Ltd's stake would be worth $105m. Assume they raise a fresh say $80m ... the value is approaching $300m ....

Anybody know if $300m would get them straight into the NZX50 ?

Hi FH , Think there is a methodology ike it has to be 10 % larger for 3 months than the smallest company in the index. You will probably be able to find this on the NZX website somewhere.

[CJ]

Anybody know if $300m would get them straight into the NZX50 ?This thread is a B!tch to search for but is worth its weight in gold:

http://www.sharetrader.co.nz/showthread.php?9112-NZX50-constituent-companies-as-at-close-on-25th-March-2013&highlight=index+components

In short, $300m would get it in at about place 40 but remember MRP, Meridian and Z are to be added in the same timeframe. From memory, you have to place 45th or above to get in (to stop constant changing at the bottom ranks).

[Newman]

Bright paid $82m for 51% of the equity of Synlait Milk in 2011 ... have they had a 15% annualized return ?

15% annualised return? Bright Dairy would not like be diluted for their share holding if the return is that high. When the controlling shareholder does not want to put more money into Synlait Milk it is a sufficient indication that future is not so bright.

Some expects the same happy story of Fonterra share floating happen to Synlait Milk. But they are different companies, not only in size but also in performance.

[FarmerHamilton]

Hi FH , Think there is a methodology ike it has to be 10 % larger for 3 months than the smallest company in the index. You will probably be able to find this on the NZX website somewhere.

Just had a quick look , doesn't jump out at me but did notice that the free float is quite important ...

Bright
Mitsui
Penno
Dingle
MacLean

Those five shareholder will probably hold around 60-65% of the shares so it will be interesting to see if the get in the NZX50. I guess it also depends on how much fresh capital they are after. Still no word on that , which is a little odd. Maybe they need to wait to see how many existing shareholders in Synlait Limited will want to sell into the IPO ?

[FarmerHamilton]

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 ....

[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)

[CJ]

I guess it also depends on how much fresh capital they are after. Still no word on that , which is a little odd.
I dont think they are allowed to say until a prospectus is issued.

[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 )

[1leon]

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 )

Those around long enough to recall the sorry history of RJI Limited later Trans Tasman Properties (TTP) and then follow through Fisher &Paykell both ending in compulsory acquistions and the current PGW debacle might seriously wonder if having a majority Chinese shareholder spells the end to an investment opportunity rather than any incentive to take part in an IPO. TTP took a tortuous route to extingushing small holders, Haier had to be forced to up their offer and PGW is about the worst its been after non sensically paying a dividend to meet the needs of Agria.

[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/259211/nz-formula-draws-bad-news-china

[FarmerHamilton]

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/259211/nz-formula-draws-bad-news-china

I agree 40% is still a large shareholding , but I think Bright are reasonably "hand's off" with the day to day management of the stainless steel and leave that to the local experts. They may have more of a say in strategic decisions like the one to go into Lactoferrin , but even then I imagine management have a fair degree of autonomy.

Nice rally in US Stockmarket this a.m. but the Kiwi$ up over 1c ... very volatile the little NZD at present!

[FarmerHamilton]

I agree 40% is still a large shareholding , but I think Bright are reasonably "hand's off" with the day to day management of the stainless steel and leave that to the local experts. They may have more of a say in strategic decisions like the one to go into Lactoferrin , but even then I imagine management have a fair degree of autonomy.

Nice rally in US Stockmarket this a.m. but the Kiwi$ up over 1c ... very volatile the little NZD at present!


I would have thought if the IPO prospectus was on the printing presses then the company would have probably used $0.80c for its FX assumtion for 13/14 season. With the kiwi hitting 11 months lows there may be a need for some re-calculating of the numbers by investors. I imagine with $500m revenue in USD for next season a 1-2c move will be highly leveraged to the bottom line. The hedge book and FX forcasts will make for interesting reading. Just like F&P Healthcare trades very much on the FX movements of the Kiwi/USD cross so may Synlait Milk ...

[NZSilver]

http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=10892567

[randoman]

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/259211/nz-formula-draws-bad-news-china

Whilst I can't really comment on the Chinese long/short-term investment and their motivations regarding shareholders, I do agree with general comments I've read in the past that the Chinese are very keen to secure protein sources.

[1leon]

Originally Posted by 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 .
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

Curiously notwithstanding diluting to 38-41% Bright have obtained an exemption in the IPO to retain control board control as well.It will be fascinating to see how the bookbuild allows for "control" in assessing the share price.

[Xerof]

A few comments from reading the prospectus:

Bright have taken no chances with 'control', refusing to approve the IPO, unless the governance issue was pre-approved. Fair enough, they say it's to do with accounting issues - not sure I am prepared to take that statement at face value.

Following the money, we are seeing 45m returned to some of the foundation shareholders, and debt repaid to the Banks. Countering that, there is an escrow agreement for about 18 months.

I disagree with Farmerhamiltons comments re FX gains going to the bottom line - if you read between the lines on their Treasury management policy, they 'need' to at least match the Fonterra pricing model inputs to be able to compete on farm gate pricing. In short, it's what their chairman would call Americas cup matchracing - taking a different tack with the wrong windshift can lose you the race. So, they will very much stick to the hedging model of their major competition, and that means any FX improvements will form part of a higher gate price, ceteris paribus. The past couple of years they have been a little behind in this regard. Bottom line improvements will come from a higher proportion of inputs going to the high value outputs, with the proviso that the costs incurred to produce those products make it more profitable to do so.

They have experienced some volatility on the bottom line recently, and the forecasts look ambitious. Everything will need to go to plan....

I think I will participate, but with eyes open.

Interested in some comments from the more analytic contributors....

[bottlerboy]

The details regarding Bright Directors are in the following excerpt from the NBR online article

Bright Dairy's shares would be unchanged at 57.2 million, while the Synlait Ltd shareholders reduce to 36 million. Total shares on issue jump to between 140.6 million and 148.8 million from 112.3 million currently. The actual split will depend on how many shares the Synlait Ltd investors sell.
Synlait Milk has sought NZX waivers for what it calls "non-standard governance arrangements" relating to Bright Dairy, which would allow the Chinese company to appoint four of a maximum eight directors. Bright's appointees will not be required to retire by rotation and have a majority of votes.
The arrangements apply as long as Bright Dairy's stake remains between 37 percent and 50 percent.
Mr Penno says the arrangements are to allow Bright Dairy to continue to consolidate Synlait Milk into its own financial statements as it can with the current 51 percent holding.

[Xerof]

Yep, thats the statement they want us to take at face value

[noodles]

Nice to read a prospectus where the company makes a profit. Looks expensive on fy13 earnings, but much better on fy14.

So it really depends on how confident you are in the forecasts.

Way cheaper then a2.

http://www.synlait.com/site/uploads/2013/06/Synlait-Milk-Investment-Statement-and-Prospectus_Make-More-From-Milk.pdf

[1leon]

Yep, thats the statement they want us to take at face value
Yeah right! Bright with a share cap of $3.6 billion needs to equity account a minnow a tenth of its value! And future IPOs should meet Chinese Accounting requirements?

[Lease]

Synlait Milk Limited-a Brilliant Star

1. Growth

The Company sales have grown every year from 2008 onwards. In the last four financial years, sales growth rate is on average at 44%, which is mainly driven by annual volume production growth by 30%.

2. Profitability

As a fast growing Company, Synlait Milk Limited did not make profit from 2008 to 2011 due to relatively low gross profit margin(GPM). The Company started to make profit from 2012 as GPM was improved significantly. The interim report of 2013 financial year has indicated GPM has substantially improved. I can reasonably foresee 2012 is a cornerstone for Synlait Milk as from that year forward, the Company profit will go up year by year.(2013 half year profit has already exceeded the one of full year of 2012).

3. Financial Health

After IPO, interest cover ratio is at 3.01 in 2013 and 9.23 in 2014. Financial leverage(Total Assets/Equity) is at around 2.05-2.10, which is fairly conservative. Long-Term Debt/Equity is almost Nil. Put all together, the company is financially health.

4. Bear Case

The Company may suffer if foreign countries put trading barriers to New Zealand dairy products as the Company's products are mainly exported. For example, Recently, the Chinese Ministry of Industry & Information Technology made some important new announcements with respect to new and intended regulations for the infant formula industry. I personally don't think the Chinese regulations will have negative effects on Synlait Milk as its single largest shareholder is Bright Dairy Holding Limited, but unsure if Synlait Milk can cope with any vicious competition in China and any other emerging markets.

5. Management

Most senior managers have vast work experience in dairy industry. Quite a few of them used to work in Fonterra. Some of them also have extensive international work experience. from the results the Company have achieved so far. I think the management is trustful.

6. Valuation

At indicative IPO price of $2.05, forward PE is 28 in 2013 and 15 in 2014. If IPO price is at $2.65, forward PE is 34 in 2013 and 19 in 2014. It is much cheaper than another dairy Company listed at NZX-A2 Corporation.

Overall, it is a fantastic company with endless growth potential. It will certainly be a star at New Zealand Stock Exchange in 2013.

[1leon]

Synlait Milk Limited-a Brilliant Star

1. Growth

The Company sales have grown every year from 2008 onwards. In the last four financial years, sales growth rate is on average at 44%, which is mainly driven by annual volume production growth by 30%.

2. Profitability

As a fast growing Company, Synlait Milk Limited did not make profit from 2008 to 2011 due to relatively low gross profit margin(GPM). The Company started to make profit from 2012 as GPM was improved significantly. The interim report of 2013 financial year has indicated GPM has substantially improved. I can reasonably foresee 2012 is a cornerstone for Synlait Milk as from that year forward, the Company profit will go up year by year.(2013 half year profit has already exceeded the one of full year of 2012).

3. Financial Health

After IPO, interest cover ratio is at 3.01 in 2013 and 9.23 in 2014. Financial leverage(Total Assets/Equity) is at around 2.05-2.10, which is fairly conservative. Long-Term Debt/Equity is almost Nil. Put all together, the company is financially health.

4. Bear Case

The Company may suffer if foreign countries put trading barriers to New Zealand dairy products as the Company's products are mainly exported. For example, Recently, the Chinese Ministry of Industry & Information Technology made some important new announcements with respect to new and intended regulations for the infant formula industry. I personally don't think the Chinese regulations will have negative effects on Synlait Milk as its single largest shareholder is Bright Dairy Holding Limited, but unsure if Synlait Milk can cope with any vicious competition in China and any other emerging markets.

5. Management

Most senior managers have vast work experience in dairy industry. Quite a few of them used to work in Fonterra. Some of them also have extensive international work experience. from the results the Company have achieved so far. I think the management is trustful.

6. Valuation

At indicative IPO price of $2.05, forward PE is 28 in 2013 and 15 in 2014. If IPO price is at $2.65, forward PE is 34 in 2013 and 19 in 2014. It is much cheaper than another dairy Company listed at NZX-A2 Corporation.

Overall, it is a fantastic company with endless growth potential. It will certainly be a star at New Zealand Stock Exchange in 2013.
And its got Ruth Richardson on board! Now why didn't you mention that?

[Lease]

And its got Ruth Richardson on board! Now why didn't you mention that?

I didn't name any senior managers just generally consider the team is great!

[NZSilver]

Ruth Richardson looks like she was in parliament before I was even at school. What's the story?

[NZSilver]

Can someone please explain the difference between synlait milk and synlait ltd. I find it all a bit confusing even after looking at the diagram in the prospectus. Thanks

[FarmerHamilton]

Can someone please explain the difference between synlait milk and synlait ltd. I find it all a bit confusing even after looking at the diagram in the prospectus. Thanks

Synlait Ltd is the 49% shareholder of Synlait Milk. These shares are the only asset SL holds & are are now being given to the individual shareholders of SL and then SL will be closed down. So all current shareholders in SL will become shareholders in SM and will have the option to sell into the IPO or keep their shares. Post the IPO they will be limited to selling $300,000 worth until approx Sept'14 using the IPO price as the reference.

Discl. I am receiving just under 300,000 shares in SML from the above transactions.

[Xerof]

Thanks for your disclosure FH, it is an appropriate action to take when contributing to discussion threads, especially when a Company IPO's

Lease, have you any interest to disclose I wonder? Could you also explain where endless growth is to come from? Do you think they will open more plants next to Fonterra around the country?

Sparky, hard to say what discount to apply for the control situation, could be historically as much as 30%, if viewed the other way ( what might someone have to pay for control)

[1leon]

Sparky, hard to say what discount to apply for the control situation, could be historically as much as 30%, if viewed the other way ( what might someone have to pay for control)
The question of someone having to pay for control is not an issue now--Bright already has control and keeps it with a minority holding whilst the new shareholders are asked to put up all the funds to take the Company into blue sky growth.

[Xerof]

Thats why I said...if viewed the other way

I won't speak for Sparky, but in my experience, where there is an open share register, there is usually a bit of a premium built in for takeover potential in the market price. As you correctly observe, in this case there should not be, and hence Sparky's original mulling of this very point

[FarmerHamilton]

I know the management team well, having four Bright nominees to the board ( incl 1 resident NZer ) is not going to be an issue. They are highly skilled, ambitious, and diplomatic ... Bright must be delighted with their $82m investment, I think the strings they pull are very very loose if that makes sense.

[bull....]

I see ruth richardson is on the board..... anyway heres some comparison

china mengniu dairy - pe 30 , eps .71
Bright Dairy - pe 48.7 , eps .29
Fonterra - pe 24 , eps .29
synliat - pe 28.1 , eps .07

all quick calcs im still doing my research esp on their margins

[Lease]

Lease, have you any interest to disclose I wonder? Could you also explain where endless growth is to come from? Do you think they will open more plants next to Fonterra around the country?



Except I have applied IPO, I have nothing else to disclose. The endless growth I reckon is from demand for NZ dairy products from global market, especially from Asia. Having Bright as a single largest shareholder is a big plus for Synlait Milk as I see so many many Chinese like NZ infant formulas, maybe just only China market will keep Synlait Milk work 24 hours a day, 7 days a week. Haha.

[FarmerHamilton]

They look like they have doubled the P&L this year from last. The new infant formula plant must be cranking as I think that is a good way ahead of the 2013 budget. I also reckon they were long WMP in a rising market compared to Fonterra and have also out hedged them ... 1c on the FX makes a big difference. All in all looks like they have had a great year and there milk supply won't have been affected as badly as the drought affected Fonterra regions as Synlait are probably almost 100% supplied from irrigated farms in Canterbury.

[Lease]

They look like they have doubled the P&L this year from last. The new infant formula plant must be cranking as I think that is a good way ahead of the 2013 budget. I also reckon they were long WMP in a rising market compared to Fonterra and have also out hedged them ... 1c on the FX makes a big difference. All in all looks like they have had a great year and there milk supply won't have been affected as badly as the drought affected Fonterra regions as Synlait are probably almost 100% supplied from irrigated farms in Canterbury.

2013 profit is quite certain as at the time prospectus are prepared, 2013 financial year has almost gone(have 31 July year end). Investors will be happy with the result of 2013FY as profit is almost doubled. If people just look PE ratio, seem the share is not cheap. But given the earnings go up 100% thus PEG is only about 0.3, very cheap.

[FarmerHamilton]

Agreed. Running a milk plant has high fixed costs, given this was the first season for the IF drier it was always only going to run at 50-60% capacity ... as that pushes up to the 70's & 80's some serious numbers should drop to the bottom line. Doubling this years P&L is unlikely but a 30-40% increase is possible just because every extra litre of milk that's processed is highly profitable. Just like an airline ... the last 10 seats sold make you all the money, not the first 90.

[FarmerHamilton]

If you can make it 20 extra seats , hey presto you virtually double your profit!

[bull....]

2013 profit is quite certain as at the time prospectus are prepared, 2013 financial year has almost gone(have 31 July year end). Investors will be happy with the result of 2013FY as profit is almost doubled. If people just look PE ratio, seem the share is not cheap. But given the earnings go up 100% thus PEG is only about 0.3, very cheap.


peg of 0.3 is for 2014 yr if im correct so this is based on prospective forecasts for 2014 not 2013 i get peg of .62 and before that 1.27,2.01,2.23 so should relise peg is not reliable indicator as it can be manipulated by overly optimistic forecasts by management.

some more margin comparison rough est

gross margin c
china mengniu 25%
bright dairy - 35%
fonterra - 19%
synliat - 14.6%

[RTM]

How much energy would these guys use ? Mostly electricity I guess. Hopefully they will have a tail wind from those costs over the next few years.

[Lease]

peg of 0.3 is for 2014 yr if im correct so this is based on prospective forecasts for 2014 not 2013 i get peg of .62 and before that 1.27,2.01,2.23 so should relise peg is not reliable indicator as it can be manipulated by overly optimistic forecasts by management.

some more margin comparison rough est

gross margin c
china mengniu 25%
bright dairy - 35%
fonterra - 19%
synliat - 14.6%

Do not compare with Chinese peers as you can't trust their reporting figures. Synlait 2013 interim report has shown gross profit margin is 18.6%.

[bull....]

Do not compare with Chinese peers as you can't trust their reporting figures. Synlait 2013 interim report has shown gross profit margin is 18.6%.

lol are you trying to imply we shouldnt trust the chinese , anyway i used annual figures , also of note is that over 50% of revenue is from 3 customers and only one is contractually obliged to purchase.

[bull....]

okay so you buying for anticipated growth in their higher margin infant formula business only , i ignored the other stuff as i dont see growth in margin their even though they will get sales increases , manufacturers of products seem to always get sqeezed on margin in the long run so that why i stick to infant formula only.
positives
if dollar declines going forward bonus , new fixed assets planned bonus after 2017 for profits , good growth in revenues good , going forward higher margin product good etc

bad
2013 an 14 profits really just the same , new entrants in the market bad as fonterra only obliged to sell so much to independants so synliat have to compete with them for this volume potentially , chinese market consolidation etc , only 3 big customers ( 1 prop bright an the other netherlands based which sells stuff to them as well so hopefully they can grow customers ( wonder if bright dictates this department )

[Lease]

okay so you buying for anticipated growth in their higher margin infant formula business only , i ignored the other stuff as i dont see growth in margin their even though they will get sales increases , manufacturers of products seem to always get sqeezed on margin in the long run so that why i stick to infant formula only.
positives
if dollar declines going forward bonus , new fixed assets planned bonus after 2017 for profits , good growth in revenues good , going forward higher margin product good etc

bad
2013 an 14 profits really just the same , new entrants in the market bad as fonterra only obliged to sell so much to independants so synliat have to compete with them for this volume potentially , chinese market consolidation etc , only 3 big customers ( 1 prop bright an the other netherlands based which sells stuff to them as well so hopefully they can grow customers ( wonder if bright dictates this department )

Read P118, which shows profit is $10,839k in 2013FY and $19,670k in 2014FY. 2014FY profit doubled as well.

[CJ]

Read P118, which shows profit is $10,839k in 2013FY and $19,670k in 2014FY. 2014FY profit doubled as well.I havne't received the docs yet so excuse my ignorance.

- Is the increase in profit due to increased capacity at their plant (ie fixed costs being spread over higher volumes)
- what growth do you consider reasonable going forward. How much extra capacity will they have at their plant or will groth only come through a new plant or tighter margins.

[Xerof]

The endless growth I reckon is from demand for NZ dairy products from global market

Endless demand growth requires endless supply growth....

I can see they are not yet at full capacity, and want to build the new drying room etc, but their outputs are finite once they run at capacity, unless they build more plants of course. BUT, to run at full capacity, they need to increase their input, and currently they partially rely on Fonterra to supply some of that, but will they achieve sufficient supply penetration to 1. replace Fonterra supply, 2. gain further market share. (Yes, I see they have picked up supply agreements with REL for a couple of their farms)

I'm struggling to see this as a true 'growth' story right now - it reminds me of the meat industry with it's supply issues, (potential) production overcapacity and high fixed costs to defray on single-use production facilities. Perhaps I'm too pessimistic, but to characterise this story as one of endless growth is fantasy IMO. There's not endless space to keep dairy conversions going in Canterbury, nor is ECAN prepared to hand over the water

[bull....]

Read P118, which shows profit is $10,839k in 2013FY and $19,670k in 2014FY. 2014FY profit doubled as well.

yea but if you take of int saved from debt repayment profit is pretty much the same is it not ? so there is no increase in profit from sales

[bull....]

Endless demand growth requires endless supply growth....

I can see they are not yet at full capacity, and want to build the new drying room etc, but their outputs are finite once they run at capacity, unless they build more plants of course. BUT, to run at full capacity, they need to increase their input, and currently they partially rely on Fonterra to supply some of that, but will they achieve sufficient supply penetration to 1. replace Fonterra supply, 2. gain further market share. (Yes, I see they have picked up supply agreements with REL for a couple of their farms)
I'm struggling to see this as a true 'growth' story right now - it reminds me of the meat industry with it's supply issues, (potential) production overcapacity and high fixed costs to defray on single-use production facilities. Perhaps I'm too pessimistic, but to characterise this story as one of endless growth is fantasy IMO. There's not endless space to keep dairy conversions going in Canterbury, nor is ECAN prepared to hand over the water

your right supply of product is vital for them and fonterra only has to supply a finite amount under the dairy act , so when the other chinese manufacturers build their plants they might want some of this so reducing supply to synliat potentially.
fonterra might be nice though and supply them all with as much as they can who knows

[Lease]

Perhaps I'm too pessimistic.

You are indeed too pessimistic. Haven't you read latest A2 presentation which indicated its Aussie sales have been up 718% since 1H2008? And reports have shown China infant formula market will be worth $US12 billion in 2016. Why do you think Synlait can't pick such excellent opportunity?

[Lease]

yea but if you take of int saved from debt repayment profit is pretty much the same is it not ? so there is no increase in profit from sales

You are right mate, Interest saving play a big part, but EBIT still have 17% increase. Also I consider the forecast is quite conservative as the last four years sales on average up 44%, and 2014FY only projected sales up 23%.

[bull....]

You are right mate, Interest saving play a big part, but EBIT still have 17% increase. Also I consider the forecast is quite conservative as the last four years sales on average up 44%, and 2014FY only projected sales up 23%.

agree their sales are good but sales are only as good as the margin you make from them and that why they say they are banking on the milk powder to increase the margin then their profit may go up with sales not just on cost savings

[FarmerHamilton]

agree their sales are good but sales are only as good as the margin you make from them and that why they say they are banking on the milk powder to increase the margin then their profit may go up with sales not just on cost savings

The key business case for an investment in Synlait Milk ( discl , I will own around 300,000 shares on IPO date ) is the pie graph on page 66 of the offer document. Infant Formula & Nutritionals going from 8% of volume to 30% in the next 4 seasons on ever increasing overall volumes will increase profits DRAMATICALLY ... if you beleive in management hitting this target then I would say invest BOOTS N' ALL ...

Blue sky number ... my personal target ... $1 eps by 2017 , and still growing at 20% ish . P/E of 12-14 ... you do the numbers.

IPO pricing next Monday & Tuesday , Synlait Limited shareholders to declare how many shares they wish to sell into IPO by this Friday which will decide size of IPO ( and consequently demand/pricing next week ). HUGE next few days for all Synlait Ltd shareholders.

[CJ]

Director control is interesting. Bright get 4 of the 8 person board so potentially it can be deadlock. In that situation, the chairman, who is independent casts the deciding vote.

But of the 4 "independent" directors, the 4 Bright directors get to choose the executive director so Bright get to choose 5 of the 8

[FarmerHamilton]

one of the Bright directors is Ruth Richardson ... she is HOT on good corporate governance. I have absolutely no worries on the governance concerns that have been raised. Bright are in this to make money , pure and simple , no hidden agenda here in my opinion. They will be rowing in the same direction as all SML shareholders new and old .

[Joshuatree]

Will Fonterra shareholders take big profits and switch to Synlait?. My broker saying scale back on app lications for sure.

[FarmerHamilton]

Has there been much feedback from brokers on demand ?

[percy]

Has there been much feedback from brokers on demand ?

Craigs in ChCh had a lot of clients interested in the original float.
Demand this time is a great deal more.

[percy]

Ooooh Percy is going to have something to say about that....

[Tainted Directors thread ] My lips are sealed.!!!!!!
I am enjoying FarmerHamilton's posts on this thread.
Have asked Craigs for an allocation for both myself and my wife.

[percy]

one of the Bright directors is Ruth Richardson ... she is HOT on good corporate governance. I have absolutely no worries on the governance concerns that have been raised. Bright are in this to make money , pure and simple , no hidden agenda here in my opinion. They will be rowing in the same direction as all SML shareholders new and old .

Nice to see she is now HOT.
Yet her record is very cool,one could rightly say FROSTY on corporate governance.
Ex politicans have a shocking record of corporate governance.

[Joshuatree]

For what its worth , Market Analysis say avoid , expensive , priced for perfection.

[FarmerHamilton]

Do they have a website where you can access their research ? Be interesting to see their point of view ...

[Xerof]

www.stockmarket.co.nz

But subscriber only

no, I'm not......

[Lease]

For what its worth , Market Analysis say avoid , expensive , priced for perfection.

I'm sure they will regret their analysis. Just like when FSF float, Morning Star also gave "avoid" recommendation. If you take their advice, you'd certainly miss money-make chance.

[FarmerHamilton]

I'm sure they will regret their analysis. Just like when FSF float, Morning Star also gave "avoid" recommendation. If you take their advice, you'd certainly miss money-make chance.

Nice gentle rise in the GDT Auction last night , prices up 0.7%. No more auctions now until bookbuild ... weak NZD will be a nice tailwind at the moment for Synlait Milk , and all exporters.

[Joshuatree]

Charm offensive has spread to Sharetrader. Lease, Farmerhamilton has made a disclosure do you need to too ?

[goldfish]

I'm sure they will regret their analysis. Just like when FSF float, Morning Star also gave "avoid" recommendation. If you take their advice, you'd certainly miss money-make chance.

Yes i could never understand how they could say that about fonterra, they where the first stock i bought and luckily i ignored there advice. Did show me that so called experts dont know what they are talking about some times. Id be buying synlait if i had spare cash.

[FarmerHamilton]

Charm offensive has spread to Sharetrader. Lease, Farmerhamilton has made a disclosure do you need to too ?


No charm offensive from me JoshuaTree ( are you a mega U2 fan ? ) just stating facts/the obvious. Although being extremely long the stock obviously I want it to do well and the IPO to "get away" successfully.

Dairy prices went ballistic during Feb/Mar/Apr ... came back around 10/12% and the last two auctions the volatility has died away and prices have been firm. However in the meantime the Kiwi$ has fallen from 86c to 77c so in NZD terms we are pretty much at record levels. Synlait's P&L suggests they are doing very well and every time the Kiwi$ drops 1/2c the tail wind just gathers more steam , especially if USD pricing of WMP and SMP remain firm.

This time next month the new season will be kicking off , Synlait will be floated and FarmerHamilton will be a happy chappy !!

[CJ]

Dairy prices went ballistic during Feb/Mar/Apr ... came back around 10/12% and the last two auctions the volatility has died away and prices have been firm. I need to go back to the prospectus as one thing I dont understand is how this effects the farm gate price.

This will become less of an issue as Synlait moves more to value added products (ie. baby formula) but milk powder will still be the bulk of its sales.

[FarmerHamilton]

This is why the Fonterra starting forecast for next year is $7 !!

[CJ]

This is why the Fonterra starting forecast for next year is $7 !!My point being, is there any benefit to the Dairy company since all it does is increase the farmgate price (ie. cost of sales). Is it linked directly or does the dairy company take a margin.

I note that Synlaits milk supply cost is linked to the Farmgate price (less upto 25c)

[Lease]

Charm offensive has spread to Sharetrader. Lease, Farmerhamilton has made a disclosure do you need to too ?

Please look p6 of my disclosure.

[CJ]

Please look p6 of my disclosure.Some of us have different number of posts per page. I assume you are refering to post #89:

http://www.sharetrader.co.nz/showthread.php?7341-Synlait-to-float&p=413842#post413842

[Xerof]

CJ, you are quite correct - the FX rate influences the price Synlait will have to pay for supply. They are in direct competition for supply of raw material, and in order to compete they will have to largely pass on any perceived FX benefits to suppliers. FH should be pushing this line for Synlait Farms, not Milk

For me, the volumes current holders sell into Selldown Co will be the most telling action for the IPO.

[Joshuatree]

Thanks Cj ,lease. Its just sounding like a good ole H/C ramp at times. Sure dairy and proteins are hot and sexy atm(sheesh i dont even know how may udders a cow has) and yes fonterra has been a great performer( for my family too). Maybe it will be a good stag/ inv but it may not be a dead cert( like mighty river for e.g.). And chances are it will list at the higher end as well so do your homework well folks ,and assume nothing.

[FarmerHamilton]

CJ, you are quite correct - the FX rate influences the price Synlait will have to pay for supply. They are in direct competition for supply of raw material, and in order to compete they will have to largely pass on any perceived FX benefits to suppliers. FH should be pushing this line for Synlait Farms, not Milk

For me, the volumes current holders sell into Selldown Co will be the most telling action for the IPO.


Agree that the lower the NZD the higher the COGS ... ie Farmgate Milk Price BUT ... Synlait Milk receive their margin in USD not NZD so when the fx rate falls theoretically their profits in NZ should rise , sure the input costs go up ( as the Fonterra payout rises ) but the margin they make converting raw milk into high value formula and powders ( don't forget the fat ... they make a lot of money from the little AMF plant that no one talks about ) is in USD which obviously is a lot more NZ$ at .77 rather than .85.

5 days to go to book build , hopefully Portugal, Greece , Turkey & Egypt can keep it together for another few days !!

[blah]

My point being, is there any benefit to the Dairy company since all it does is increase the farmgate price (ie. cost of sales). Is it linked directly or does the dairy company take a margin.

I note that Synlaits milk supply cost is linked to the Farmgate price (less upto 25c)

I've been pondering this issue as well. I'm not going to be providing answers but this is how I see it:

The farmgate milk price is based on the 'world price' - essentially the world price less costs that Fonterra incurs in collecting the milk and (not too sure) basic processing costs. The farmgate milk price also accounts to an extent the opportunity costs of milk collection. And because the farmgate milk price is paid by Synlait to farmer-suppliers, indeed a higher farmgate milk price means additional costs of production for Synlait.

I think it will be all doom and gloom if the story stopped here. But the flipside is that dairy-exports are also linked to the 'world price'. While a higher world dairy prices would mean a higher farmgate price, it also means a higher price that milk powders, baby formula etc command, translating to higher revenue.

I wouldn't have a clue how the COGS effect would weigh against the revenue effect so I won't elaborate further. Rather I'm more interested in pondering how Synlait will be affected when Fonterra enters the Chinese baby formula market.

[NZSilver]

So who's participating in the IPO, I'm going to try and get a few.

[CJ]

So who's participating in the IPO, I'm going to try and get a few.I've asked for an allocation (from ASB) but they haven't come back asking for anything binding at this stage.

Not sure what my chances are at getting any given they aren't the lead broker.

[bull....]

heres a list of top companies selling infant formula in china

ADY
- Abbott
- Beingmate
- Brightdairy
- Dumex
- Heilongjiang longdan
- Liaoning Huishan Dairy Group
- Mead Johnson
- Mengniu
- Nanshan Bywise
- Nestle
- Sanyuan
- Scient
- Shanghai Chenguan Dairy Co.,Ltd
- Shanxi Guchengruye
- Synutra
- Tibet Yak Milk
- Wandashan
- Wissun
- Wyeth
- Xian Yinqiao Group
- YASHILY
- Yili

this list of companies is written about in the Chinese Infant Formula Milk Powder Industry 2013 research report http://www.researchandmarkets.com/research/nb7f7k/chinese_infant

and i see some of them are in trouble

http://nz.news.yahoo.com/a/-/world/17857158/china-milk-antitrust-probe-may-be-step-towards-consolidation/

[lowrolling]

http://nz.news.yahoo.com/a/-/world/17857158/china-milk-antitrust-probe-may-be-step-towards-consolidation/

Reduced margins will come from this. Not a good sign for Synlait who are aiming for 40-50% of their business to be producing infant formula.

[bull....]

Reduced margins will come from this. Not a good sign for Synlait who are aiming for 40-50% of their business to be producing infant formula.

yep some have dropped their infant milk prices already , but they still do very nicely.

Also i see fonterra will present a strategy http://www.nzherald.co.nz/agribusiness-feature/news/article.cfm?c_id=1503466&objectid=10894266 to expand the local milk pool which could be of benefit to companies like synlait and others

[FarmerHamilton]

yep some have dropped their infant milk prices already , but they still do very nicely.

Also i see fonterra will present a strategy http://www.nzherald.co.nz/agribusiness-feature/news/article.cfm?c_id=1503466&objectid=10894266 to expand the local milk pool which could be of benefit to companies like synlait and others

You can take a horse to water but you can't make it drink .... ( the French fizzy stuff is far nicer )


Ancient chinese proverb ????

You get my point ...

[Lease]

A few of my friends want to register their interest, but seems no brokers accept their registration. This share is hot!

[Xerof]

They are too late I'd say. I had to put in for a firm allocation by last Friday, but may not be the same for every broker.

[CJ]

They are too late I'd say. I had to put in for a firm allocation by last Friday, but may not be the same for every broker.Thats early - book build isn't till next week.

[Joshuatree]

My broker has plenty

[CJ]

My broker has plentyWho is your broker?

And how do they know if the book build hasn't been done yet?

[Xerof]

My broker is a provincial........there's only one postal delivery a week to the big smoke:D

[Joshuatree]

Craigs, said theres some there if i wanted any.

[FarmerHamilton]

Craigs, said theres some there if i wanted any.

All sell orders will be in now from existing shareholders , the size of the IPO will now be known. Book build participants to do their stuff on Monday and Tuesday and we will know the exit & entry price for the IPO probably Wed morning.

Markets have been kind this week thanks to ECB & BoE ... my guess is somewhere in the $2.45-$2.55 area.

[FarmerHamilton]

All sell orders will be in now from existing shareholders , the size of the IPO will now be known. Book build participants to do their stuff on Monday and Tuesday and we will know the exit & entry price for the IPO probably Wed morning.

Markets have been kind this week thanks to ECB & BoE ... my guess is somewhere in the $2.45-$2.55 area.


Searching the web to see if any info on size of issue has been published. Synlait Ltd sell orders were due in 5pm last Friday so bookbuild participants currently jockeying for shares will know how big the IPO will be $110m ? , $120m ? .... $130m ?

Anyone heard ?

[1leon]

Searching the web to see if any info on size of issue has been published. Synlait Ltd sell orders were due in 5pm last Friday so bookbuild participants currently jockeying for shares will know how big the IPO will be $110m ? , $120m ? .... $130m ?

Anyone heard ?
My broker access indication is that they are not participating on basis that in light of recent IPOs both they and clients would be safer to buy on market. This listing seems more blind than anything to date---non standard governance and unknown quantity of shares available. How does book build ascribe a value to those uncertainties?

[Joshuatree]

Ive a friend in China overseeing 400 workers building a drying plant. He's worked all over the world and says he has never seen so many luxury cars. also says Synlait is being scrutinized by chinese govt for selling some of its products as kiwi made when they are actually rebranding someone else's. Govt also investigating price fixing by suppliers into china "Its very expensive here in in supermarket. Its a goldrush of sorts in China"(infant formula).

[CJ]

My broker access indication is that they are not participating on basis that in light of recent IPOs both they and clients would be safer to buy on market. This listing seems more blind than anything to date---non standard governance and unknown quantity of shares available. How does book build ascribe a value to those uncertainties?The bookbuild finishes tomorrow and then the offer opens. All the uncertainties should be know by then (I think).

[1leon]

The bookbuild finishes tomorrow and then the offer opens. All the uncertainties should be know by then (I think).
The uncertainty that will remain is how the market views a "non standard governance" listing. It really belongs on "Unlisted"! No matter how they spin it Bright has practical and legal control with a minority holding.And notwithstanding Bright's expressed optimism for the Company they were not prepared to protect their majority by further investment. Is future development also to fall on other shareholders?

[CJ]

The uncertainty that will remain is how the market views a "non standard governance" listing.What? Like Fonterra where you get no votes at all - that was a roaring success!

[1leon]

What? Like Fonterra where you get no votes at all - that was a roaring success!
And no one seemed to quite get to grips with what those are either! Perhaps obscurity is the answer.
Intringingly Fonterra Farmers also seem to have been keen to quit their shareholdings because of high prices. Also interesting to note comment 1 June: Chief executive Theo Spierings said shareholders and Fonterra unit holders should expect the strong lift in international dairy powder prices to create "a more challenging environment" for Fonterra's earnings in the first half of the 2014 financial year to July 31.

[FarmerHamilton]

And no one seemed to quite get to grips with what those are either! Perhaps obscurity is the answer.
Intringingly Fonterra Farmers also seem to have been keen to quit their shareholdings because of high prices. Also interesting to note comment 1 June: Chief executive Theo Spierings said shareholders and Fonterra unit holders should expect the strong lift in international dairy powder prices to create "a more challenging environment" for Fonterra's earnings in the first half of the 2014 financial year to July 31.


D-DAY for SYNLAIT .... IPO price set this a.m.

[GBHcorp]

Set at $2.20

[1leon]

Set at $2.20
Intriquing--near the bottom of the indicative $2.05-$2.65 range. Any indication how many farmers have sold in?

[Xerof]

"The IPO comprises $75 million in new capital to repay debt and fund Synlait Milk’s growth initiatives and a secondary offer of $38.7 million being 17.6 million existing shares originating from participating shareholders of Synlait Limited"

[NZSilver]

Im suprised at 2.20, I was expecting atleast 2.50. Now it will be interesting to see how much scaling occurs.

[CJ]

ASB have just advised they didn't get an allocation. Are any brokers still offering more?

[blah]

Just got this email from ASB Sec - so looks like I won't be getting an allocation:

Dear Client

Synlait Milk Limited

Thank you for your expression of interest in the offer of fully paid ordinary shares (“Shares”) in Synlait Milk Limited.

Unfortunately ASB Securities was unable to secure an allocation of shares in the offer.

We are unable to offer you shares on the primary market through the Initial Public Offer “IPO” period, however can assist with purchasing the shares on the secondary market when they list on NZX main board, expected listing date, 23 July 2013.

Thank you for your continued support and please accept our apologies for not being able to provide you the opportunity to invest in shares in this offer.

Yours sincerely

[randoman]

Does anyone know which brokers got allocations for this? I got an email from ASB saying they didn't get an allocation.

[Lease]

Very sadly, have called quite a few brokers and none of them can offer me to subscribe. Joint managers - FNZ & Goldman Sachs told me the offer is heavily oversubscribed.

[percy]

I have just spoken with my broker at Craigs,who advised me Craigs received 20% of what they applied for.
Looks as though you had to be with the lead brokers to get a decent allocation.
My broker was very surprised at the price.He expected over $2.50.
He felt MRP disaster meant they wanted it to stag well.

[blah]

I don't get it... if it is heavily oversubscribed why is the issue price not higher than it is set at?

[bull....]

I don't get it... if it is heavily oversubscribed why is the issue price not higher than it is set at?

probably what percy say want it to open well i didnt get any so good luck i will look to buy maybe in 2017

[1leon]

I have just spoken with my broker at Craigs,who advised me Craigs received 20% of what they applied for.
Looks as though you had to be with the lead brokers to get a decent allocation.
My broker was very surprised at the price.He expected over $2.50.
He felt MRP disaster meant they wanted it to stag well.
I would not have thought the purpose of a book build was to get a new share to stag well although it might suit brokers. If it was,farmers were ill advised to sell in. Next intrique will be to see how many will sell out their $300,000 worth allowed by escrow if it does indeed stag well.

[NZSilver]

Scaled to 30% of original request.

[1leon]

Scaled to 30% of original request.

NZ Herald this morning :A large European dairy cooperative has gazumped the Synlait Milk capital raising to emerge with a strategic stake in the Canterbury-based processor before its sharemarket listing on July 23, sources say.......
While Synlait Milk is understood to be happy with the addition, the emergence of a major new participant in the initial public offer (IPO) process has left potential investors high and dry.

[NZSilver]

NZ Herald this morning :A large European dairy cooperative has gazumped the Synlait Milk capital raising to emerge with a strategic stake in the Canterbury-based processor before its sharemarket listing on July 23, sources say.......
While Synlait Milk is understood to be happy with the addition, the emergence of a major new participant in the initial public offer (IPO) process has left potential investors high and dry.

And this is why... only 30%

http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=10896452

[CJ]

A large European dairy cooperative has gazumped the Synlait Milk capital raising http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=10896452

It will be interesting to see what stake they managed to secure. The article suggests over 5% but you have to wonder if it is worthwhile for them to hold less than 10%.

Having said that, with two other major holders already on the register, they clearly are interested in a minority stake, as a takeover would be impossible.

Gutteed I missed out as with the low IPO price and the high level of scaling (heard 20% and NZSilver states 30% above), this is going to go off like a frog in a sock. I will wait to see where it settles once the stags have had their fun but I think my exposure to the dairy industry will remain at zero.

[NZSilver]

http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=10896452

It will be interesting to see what stake they managed to secure. The article suggests over 5% but you have to wonder if it is worthwhile for them to hold less than 10%.

Having said that, with two other major holders already on the register, they clearly are interested in a minority stake, as a takeover would be impossible.

Gutteed I missed out as with the low IPO price and the high level of scaling (heard 20% and NZSilver states 30% above), this is going to go off like a frog in a sock. I will wait to see where it settles once the stags have had their fun but I think my exposure to the dairy industry will remain at zero.

30% with FNZC

"or go off like clams in the sun"

[Balance]

NZ Herald this morning :A large European dairy cooperative has gazumped the Synlait Milk capital raising to emerge with a strategic stake in the Canterbury-based processor before its sharemarket listing on July 23, sources say.......
While Synlait Milk is understood to be happy with the addition, the emergence of a major new participant in the initial public offer (IPO) process has left potential investors high and dry.

High and dry?

What BS - the story I heard is that local institutions and investors bid at the very low end so missed out.

What would you do if you were Synlait? Give the shares to those who bid low or reward those who bid high(er)?

Gee whiz, NZ fund managers sure know how to whinge and whine!

[1leon]

High and dry?

What BS - the story I heard is that local institutions and investors bid at the very low end so missed out.

!
So how did investors bid at low end--investors were only given the option of indicating interest on an indicative range with no ability to dictate the book build price. The investors must then have been prepared to pay $2.65

[Balance]

So how did investors bid at low end--investors were only given the option of indicating interest on an indicative range with no ability to dictate the book build price. The investors must then have been prepared to pay $2.65

Retail investors take what they take.

Institutions bid at a specific price.

[mcdongle]

I offered to pay $2.65 and got what i asked for with no scaling back.

[CJ]

So it sounds like institutions has stuffed this up for the second time - not being interested years ago when the IPO was first mooted and now this time by bidding too low, probably hoping to get a bargin following the MRP debacle.

Oh well - lets move on.

[Balance]

I offered to pay $2.65 and got what i asked for with no scaling back.


Exactly.

You get rewarded for being prepared to pay top dollars, believing in the company so the company reciprocate accordingly.

NZ fund managers want everything cheap - it's the only way they know how to make money at IPOs.

[CJ]

I offered to pay $2.65 and got what i asked for with no scaling back.Is that through the lead broker or were you involved in the institutional book build?

[mcdongle]

No. just through my normal broker. Have no idea how they did it reading this forum ? The only thing i can think of is they applied for loads more than needed which could be dodgy if it went wrong.

[FarmerHamilton]

No. just through my normal broker. Have no idea how they did it reading this forum ? The only thing i can think of is they applied for loads more than needed which could be dodgy if it went wrong.


If its Nestle ... the shares will go nuts ... my bet is Hoodwegt.

[bull....]

ill go with hoodwegt - protecting their supplier status ?

[CJ]

ill go with hoodwegt - protecting their supplier status ?How big a percentage would you require to influence that? Dont see that as the reason but will be interesting to see how this plays out.

[FarmerHamilton]

How big a percentage would you require to influence that? Dont see that as the reason but will be interesting to see how this plays out.

Agree with CJ , a 5%-10% holding is not going to allow you to influence the sales of the company.

Strategic investment, glowing endorsement of the company strategy. At $2.20 , they will be very pleased I imagine.

[karen1]

More thoughts on large investor: http://www.stuff.co.nz/business/farming/agribusiness/8906076/Synlait-attracts-key-institutional-investor

[Scottman]

I asked my broker through Forsyth Barr if I needed to make a bid price and all he wanted was an amount I was prepared to spend. Still waiting to hear if I got any. Gutted.

[FarmerHamilton]

Strategic investor is Royal Friesland-Campina . BIG Netherlands dairy company ... Fonterra will not be best pleased.

2012 Revs : Euro 10.3 B .... whew !!!

[FarmerHamilton]

from the company website

FrieslandCampina purchases shares in New Zealand milk processor Synlait Milk Ltd.FrieslandCampina Investments Holding B.V.(1), a subsidiary of Royal FrieslandCampina N.V., has purchased a 7.5 percent interest in Synlait Milk Ltd. The dairy company is located in New Zealand's South Island, near Christchurch. Completion of this transaction is subject to listing of Synlait Milk Ltd on the New Zealand Stock Exchange, which is expected to occur on 23 July 2013 (NZST)(2). With this initial public offering the company wants to raise capital to finance its growth.
Synlait Milk plans to use the capital raised to finance, among other things, a new spray dryer and an on-site blending and consumer packaging plant. By acquiring this interest, FrieslandCampina is supporting the company's growth ambitions.
Roelof Joosten (http://www.frieslandcampina.com/english/news-and-press/news/press-releases/%7E/link.aspx?_id=D07654F1370040828F76DBA28E7F060C&_z=z), Chief Operating Officer of FrieslandCampina Ingredients: “In recent years, we have developed a close working relationship with Synlait Milk, a supplier of high-quality raw materials. With this investment, we are supporting our supply of raw materials and also the growth of Synlait Milk.”
Synlait Milk began processing milk in 2008 and currently has the capacity to process 550 million litres of raw milk, which it procures from around 155 dairy farms in the Canterbury region, into approximately 95,000 metric tonnes of products each year. The company focuses exclusively on business customers.

[NZSilver]

http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=10897010





from the company website

FrieslandCampina purchases shares in New Zealand milk processor Synlait Milk Ltd.

FrieslandCampina Investments Holding B.V.(1), a subsidiary of Royal FrieslandCampina N.V., has purchased a 7.5 percent interest in Synlait Milk Ltd. The dairy company is located in New Zealand's South Island, near Christchurch. Completion of this transaction is subject to listing of Synlait Milk Ltd on the New Zealand Stock Exchange, which is expected to occur on 23 July 2013 (NZST)(2). With this initial public offering the company wants to raise capital to finance its growth.
Synlait Milk plans to use the capital raised to finance, among other things, a new spray dryer and an on-site blending and consumer packaging plant. By acquiring this interest, FrieslandCampina is supporting the company's growth ambitions.
Roelof Joosten (http://www.frieslandcampina.com/english/news-and-press/news/press-releases/%7E/link.aspx?_id=D07654F1370040828F76DBA28E7F060C&_z=z), Chief Operating Officer of FrieslandCampina Ingredients: “In recent years, we have developed a close working relationship with Synlait Milk, a supplier of high-quality raw materials. With this investment, we are supporting our supply of raw materials and also the growth of Synlait Milk.”
Synlait Milk began processing milk in 2008 and currently has the capacity to process 550 million litres of raw milk, which it procures from around 155 dairy farms in the Canterbury region, into approximately 95,000 metric tonnes of products each year. The company focuses exclusively on business customers.

[Scottman]

How can a company like that step in during the IPO process & grab those shares. Sorry I'm a novice and may ask a few questions on here.

[NZSilver]

Of interest

Top 20 global dairy companies, 2012




Rank
Company
Country
$ U.S. (Billion)


1
Nestlé
Switzerland
25.9


2
Danone
France
19.5


3
Lactalis
France
18.8


4
Fonterra
New Zealand
15.7


5
FrieslandCampina
Netherlands
13.4


6
Dairy Farmers of America
U.S.
13


7
Dean Foods
U.S.
11.7


8
Arla Foods
Denmark/Sweden
10.3


9
Kraft Foods
U.S.
7.7


10
Meiji
Japan
7.4


11
Unilever*
Netherland/UK
7.2


12
Saputo
Canada
6.9


13
DMK
Germany
6.4


14
Sodiaal*
France
6.1


15
Yili
China
5.8


16
Mengniu
China
5.8


17
Bongrain
France
5.5


18
Muller*
Germany
4.6


19
Schreiber Foods*
U.S.
4.5


20
Land O’Lakes
U.S.
4.








Read more: http://dairybusiness.com/seo/headline.php?title=rabobank-world-s-top-20-dairy#ixzz2Ym9RWYIc

[CJ]

How can a company like that step in during the IPO process & grab those shares. Sorry I'm a novice and may ask a few questions on here.They would have had a broker bidding in the institutional book build on their behalf. No different than if a fund wanted to take a big bite.

[Options]

So who will be buying on day one. Looks like this is shaping up to be an excellent long term play with a new supportive shareholder on board. I would have thought getting in up to $2.60 should pay dividends in the long run.

[bull....]

if synliat is the manufacturer and atm are the seller of the end product doesnt the seller make more money ?

[percy]

So who will be buying on day one. Looks like this is shaping up to be an excellent long term play with a new supportive shareholder on board. I would have thought getting in up to $2.60 should pay dividends in the long run.

I am considering buying more.And yes most probably around the $2.60 mark.
My wife and I both were allocated 3,000 shares each.At this stage I will take our holdings to 5,000 each.
I am also looking to add to our EBO,and SKL holdings.I have money coming and going at present,so when the dust settles I will see what I have,and where each SP is at the time.May even take my HNZ holding up to match the wife's holding,although she enjoys getting a bigger divie than me.!!!!

[percy]

if synliat is the manufacturer and atm are the seller of the end product doesnt the seller make more money ?

Yes.More profit if you control your brand,rather than Synliat who manufacture for the brand owner.

[baller18]

if synliat is the manufacturer and atm are the seller of the end product doesnt the seller make more money ?
Isnt the end product sold by bright diary which owns half of synlait, which therefore wouldn't synlait benefit as well?

[1leon]

I am considering buying more.And yes most probably around the $2.60 mark.
My wife and I both were allocated 3,000 shares each.At this stage I will take our holdings to 5,000 each.
I am also looking to add to our EBO,and SKL holdings.I have money coming and going at present,so when the dust settles I will see what I have,and where each SP is at the time.May even take my HNZ holding up to match the wife's holding,although she enjoys getting a bigger divie than me.!!!!
I'm still having difficulty reconciling the low IPO price with the range of comments of people missing out, being scaled 20 or 30% or getting full amount applied for and the comment that Friesland agressively bid for its stake. Both scaling and agressive bidding seem totally at odds with a low book build price. Did you get the full amount you applied for or was your application also scaled.

[percy]

I'm still having difficulty reconciling the low IPO price with the range of comments of people missing out, being scaled 20 or 30% or getting full amount applied for and the comment that Friesland agressively bid for its stake. Both scaling and agressive bidding seem totally at odds with a low book build price. Did you get the full amount you applied for or was your application also scaled.

I applied for $15,000 worth for both myself and my wife.Total of $30,000.
We are to get 3,000 shares each.Total 6,000 shares at $2.20 is $13,200.I deal with Craigs ChCh.
Two friends applied through Hamilton Hindin and Greene [ChCh broker].One received 3,000,the other received 2,000.I do not know what/or how many they applied for.I think Synlait minimum parcel is 2,000 shares.I think the wife and I were a bit lucky,as I heard Craigs received 20% of what they applied for.May differ with each Craigs branch,and each advisor in each branch.I don't know.[and I am not going to ask!]

[macduffy]

I'm still having difficulty reconciling the low IPO price with the range of comments of people missing out, being scaled 20 or 30% or getting full amount applied for and the comment that Friesland agressively bid for its stake. Both scaling and agressive bidding seem totally at odds with a low book build price. Did you get the full amount you applied for or was your application also scaled.

I doubt that you'll be able to make sense of it without being a party to the actual process.

In general terms, those bidders (brokers) who bid highest get the most shares, even though they're all placed at the same price. After that,it's up to the individual firms as to how they allocate them to clients.

At least, that's how it has been explained to me.

[1leon]

I doubt that you'll be able to make sense of it without being a party to the actual process.

In general terms, those bidders (brokers) who bid highest get the most shares, even though they're all placed at the same price. After that,it's up to the individual firms as to how they allocate them to clients.

At least, that's how it has been explained to me.
But in the various IPOs I have paticipated in I have simply been invited to participate on the basis of an indicative price range
(flexible at both ends). I have never been invited to suggest my price--surely that is the reason for the company giving an indicative price in its prospectus/application. Percy might like to indicate if he was invited to suggest a price--I assume from his last post he simply indicated the total amount he wanted to invest. I had simply indicated the number I wanted.In this case the brokers presumably knew they had heaps of clients prepared to buy on the basis of the indicative range but the price was fixed at the low end. From the other side existing shareholders had to sell in on the basis of the indicative price and must be baffled how they have been sold out at the bottom end with with unsatisfied demand (i.e. massive scaling). To adopt CJ's colourful expression shareholders who sold in might also go "off like a frog in a sock"!

[percy]

No, price was not mentioned,just the total amount we wanted to invest.
I have received the prospectus today,and have to let my broker know on Monday should I decide not to go ahead.

[macduffy]

I agree, 1leon, I've never been invited to suggest a price. But it's the parties to the bidding process, ie the brokers and other instos, who bid their prices and get allocated blocks of shares. After that, we're in their hands as to how many they allocate individual investors.

Of course, it's also in the interests of the company to ensure a healthy market for the shares once they're listed. So there is a tension between the company's interests and those of any shareholders selling into the issue. Depending on the level of their holding, post issue, they will also have a keen interest in the performance of the shares, once listed.

[1leon]

No, price was not mentioned,just the total amount we wanted to invest.
I have received the prospectus today,and have to let my broker know on Monday should I decide not to go ahead.
Thanks Percy. Clearly then brokers are, as I have always understood, bidding on basis of volume they want and that clients are prepared to pay wherever the price falls based on indicative range.

[FarmerHamilton]

Thanks Percy. Clearly then brokers are, as I have always understood, bidding on basis of volume they want and that clients are prepared to pay wherever the price falls based on indicative range.

I don't want to be seen to be greedy but we are a little disappointed at $2.20 given the level of interest which appears to be out there. Just to diversify a little we are selling 40% of our holding in the IPO ( also the escrow feature meant if you were a big holder then you could only sell $300k worth in the next 15 months ) so to play it safe we decided to sell some and have the option to sell a few more post listing.
I will be buying stocks like Coca-Cola,Colgate Palmolive,Bristol Myers and Eaton for instance with the proceeds.
Will probably keep 125,000 Synlait Milk for long term along with same number of Synlait Farms. Will sell gradually as values increase in 10% increments, however won't start selling any more SML until $2.80

[percy]

I don't want to be seen to be greedy but we are a little disappointed at $2.20 given the level of interest which appears to be out there. Just to diversify a little we are selling 40% of our holding in the IPO ( also the escrow feature meant if you were a big holder then you could only sell $300k worth in the next 15 months ) so to play it safe we decided to sell some and have the option to sell a few more post listing.
I will be buying stocks like Coca-Cola,Colgate Palmolive,Bristol Myers and Eaton for instance with the proceeds.
Will probably keep 125,000 Synlait Milk for long term along with same number of Synlait Farms. Will sell gradually as values increase in 10% increments, however won't start selling any more SML until $2.80

I too would be very disappointed receiving $2.20.

[zigzag]

I received my prospectus in the mail today. Quite a comprehensive document. Page 178 gives a reasonable description of the book build process. I allowed $7000.00 for 3000 shares, so price is a little less than I was expecting. Perhaps they want to ensure a successful float, and some happy new shareholders. I look forward to July 23.

[FarmerHamilton]

I am long my holding at an effective 41c so although 220c might be a tad low we are still pretty pleased.

[1leon]

I agree, 1leon, I've never been invited to suggest a price. But it's the parties to the bidding process, ie the brokers and other instos, who bid their prices and get allocated blocks of shares. After that, we're in their hands as to how many they allocate individual investors.

Of course, it's also in the interests of the company to ensure a healthy market for the shares once they're listed. So there is a tension between the company's interests and those of any shareholders selling into the issue. Depending on the level of their holding, post issue, they will also have a keen interest in the performance of the shares, once listed.
Here the "tension" was somewhat more complicated. The bulk of the IPO was by far coming from new allocation, not existing selling in. Further even those selling in could hold back $300,000 to sell on listing and were only restrained about a year on holdings retained above that level. If in fact this issue was grossly oversubscribed it did not require listing at the bottom of the indicative range to ensure a healthy market. The complicating factor here is that we do not have any idea how many shareholders are waiting to throw their $300,000 worth in on listing.I wonder whether the real answer is that the institutions were reluctant to go above $2.20 even though private clients with no access to the numbers wereprepared to go to $2.65.The reported suggestion that FrieslandCampina bid vigorously seems to hint other institutions weren't keen to even bid that far.

[FarmerHamilton]

There are probably only about 40 shareholders who own $300k + so the amount that might be still to be sold is a maximum of about $12m .... discl. me included

[mcdongle]

Hi 1leon, I was asked what price i was prepared to pay for the shares by F Barr for the wife. we had a chat and decided $25000 at $2.65 and $25000 at $2.15 so i was guaranteed some but they were scaled back and she got 4500
My other broker for myself i just went in at $2.65 thinking i would be scaled but somehow i wasn't [and he wont tell me how] and have coughed up $50000 which i was not expecting so i hope they go up.

[1leon]

There are probably only about 40 shareholders who own $300k + so the amount that might be still to be sold is a maximum of about $12m .... discl. me included
I have perhaps also overlooked smaller holders who have sold down part and of course there may also be staggers wanting out.
It is interesting to compare the sell down of Synlait Milk and Synlait Farms holders. My rough mental arithmetic suggests a sell down in excess of 11% in Synlait Milk but since Synlait Farms arrived on Unlisted in May there have been sales of less than 1% in Farms shares. And Synlait Farms has generally lacked sellers more than buyers. Does this suggest that the original shareholders are happier staying in the farms than the processor and do not have the same confidence on Synlait Milk projections?
Discl. bought Synlait Farms but do not have allocation of Synlait Milk

[FarmerHamilton]

I have perhaps also overlooked smaller holders who have sold down part and of course there may also be staggers wanting out.
It is interesting to compare the sell down of Synlait Milk and Synlait Farms holders. My rough mental arithmetic suggests a sell down in excess of 11% in Synlait Milk but since Synlait Farms arrived on Unlisted in May there have been sales of less than 1% in Farms shares. And Synlait Farms has generally lacked sellers more than buyers. Does this suggest that the original shareholders are happier staying in the farms than the processor and do not have the same confidence on Synlait Milk projections?
Discl. bought Synlait Farms but do not have allocation of Synlait Milk


No doubt a lot of the Synlait Ltd / Farms shareholders are thru and thru classic kiwi dairy farmers who bought into the equity partnership model when Synlait was just 4 or 5 separate large scale irrigated Canterbury dairy farms ( one of them called Robindale was alone milking 3100 cows ). Many of them were diversifying from their own un-irrigated Waikato farms. In a dozen years they have abandoned Fonterra, built $250m worth of stainless steel including the best infant formula plant in the southern hemisphere, a consumer products business selling to all four corners of the globe with three major shareholders from Holland,China & Japan , and now have a stake in a corporate dairy farming venture with 5000ha and 15,000 cows. Huge change and a far cry from their initial investment thesis !! and many will be more comfortable with the farming side of their investment , Synlait Milk has been a huge dollop of cream on the cake ( pun intended ! ) which has been a spectacular success. Many will have sold enough SM to recoup their whole initial investment , and still have a stake in Farms and Milk worth hundreds of thousands of dollars.

I invested in a single Synlait managed farm in 2003 , and on 23 July at $2.20 for SML and assuming Farms is trading at $1.25 will have sold enough shares in each to have returned 1.5 times my initial stake ( $400,000 ) and our remaining holding combined in both will be worth $690,000. It's been a great ride, with quite a few bumps in the road ( 2008/9 ) but a real fun journey. Hopefully the Synlait Milk story is in its infancy and we will keep a decent slug of those for many years.

[Balance]

Competition is good - Fonterra has become arrogant and inward looking.

No forward planning - could have got into infant formula business a long time ago but preferred to stay a commodity player.

So all power to Synlait.

[FarmerHamilton]

Problem for Fonterra was that to get into infant formula they would have needed to be in "boots and all" to move the needle. When you are selling millions of tonnes of basic skim and whole milk powder , 10,000 or 20,000 tonnes of infant formula is a drop in the bucket , is it really worth the effort ... they have now been forced to compete by all the smaller players like Synlait who are getting "more from milk" ( Synlait's corporate moto ) and are a very attractive alternative destination for the milk of forward thinking cow cockies.

[FarmerHamilton]

GDT Auction tomorrow night ... GMT1200

[Scottman]

They would have had a broker bidding in the institutional book build on their behalf. No different than if a fund wanted to take a big bite.

thanks for that CJ

[Major von Tempsky]

I shall wait for the listing and after the price has inevitably declined after that I shall look at the gross dividend yield and if it compares well with other candidates I shall buy some.

Any other course of action is myopic stupidity.

[FarmerHamilton]

I shall wait for the listing and after the price has inevitably declined after that I shall look at the gross dividend yield and if it compares well with other candidates I shall buy some.

Any other course of action is myopic stupidity.


There is no dividend , and I wouldn't be expecting one until Drier3 is up and running and chucking off huge dollops of cash. Revisit in 2016/17 MvT !!

[percy]

I shall wait for the listing and after the price has inevitably declined after that I shall look at the gross dividend yield and if it compares well with other candidates I shall buy some.

Any other course of action is myopic stupidity.

Yeah Right>!!!!!!

[zigzag]

I shall wait for the listing and after the price has inevitably declined after that I shall look at the gross dividend yield and if it compares well with other candidates I shall buy some.

Any other course of action is myopic stupidity.

Are you even on the right page?

[FarmerHamilton]

Are you even on the right page?

I wonder how many people gave XERO a wide berth because there is no dividend in the forseeable future ..... AAPL, GOOG, AMZN anyone ?? No thanks , no divi ... urgghhh !!

( nb. AAPL does now pay dividend )

My best performing share in my US portfolio ( by a country mile ) pays no dividend . Celgene ( CELG:US )

[FarmerHamilton]

Dairy payout lift tipped as world prices up 4.9pc (+graphic) By Jamie Gray (http://www.nzherald.co.nz/jamie-gray/news/headlines.cfm?a_id=744) 9:00 AM Wednesday Jul 17, 2013


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http://media.nzherald.co.nz/webcontent/image/jpg/201327/milking_shedbigMM_460x231.jpg A higher dairy payout is being tipped after a big increase in world dairy prices in the latest overnight auction. Photo / NZ Herald


Dairy farmers could be looking at another record year for profit in 2013-14 after a 4.9 per cent rise in GlobalDairyTrade prices was recorded at the overnight auction, banks said.
Prices for whole milk powder - the most important line for New Zealand producers - were up by 7.7 per cent from the last auction at US$5,058 a tonne.
ANZ Bank said prices gained as buyers scrambled to refill their inventory after last summer's drought and a seasonal low in New Zealand supply, which would put upward pressure on Fonterra's $7 per kg of milksolids milk price payout forecast for this season.
"The lower New Zealand dollar and higher-than-expected prices will raise the prospects of Fonterra lifting their initial May forecast of a $7 per kg milk price for 2013-14," ANZ said in a commentary.
Article continues below

"If mother nature plays nicely and farmers remain disciplined with their expenditure, then this could deliver a new record for profit in 2013-14," the bank said.
The Bank of New Zealand said the auction was "a very positive result" given the already high level of prices. "Restricted offshore dairy supply remains a key driver," BNZ said in a commentary.
"The upshot is there is now clear upside risk on Fonterra's current season milk price payout," the bank said.
See full results from the auction here. (http://www.globaldairytrade.info/Results.aspx)
This morning's GDT dairy auction gave the New Zealand dollar a lift, with the currency last trading at US78.95c from US78.28c in late local trading on Tuesday.
But the Kiwi remains well down from this year's peak of US86.75c in April and its record post float high of US88.43c in August 2011.
Rabobank, in its latest quarterly rural confidence survey released earlier this week, said the sharp drop in the value of the New Zealand dollar and a swift end to last summer's drought had significantly improved the outlook for farmers.
- APNZ (http://www.apnz.co.nz/)

[FarmerHamilton]

The lack of interest in this is very re-assuring , makes me assume no one has it !!

[FarmerHamilton]

Lists Tuesday 11.00am

[goldfish]

Looking forward to this one, i did really good from fonterra and have high hopes, i have freed up some cash for tuesday and will buy on market. If it was oversubscribed like i heard and with that big oseas dairy company getting a lot the only way is up for the immediate term. Will see what the trend is first but can only see upwards in the short term. Not going to invest just trade short term. Good luck to all.

[baller18]

Looking forward to this one, i did really good from fonterra and have high hopes, i have freed up some cash for tuesday and will buy on market. If it was oversubscribed like i heard and with that big oseas dairy company getting a lot the only way is up for the immediate term. Will see what the trend is first but can only see upwards in the short term. Not going to invest just trade short term. Good luck to all.

I would be careful on this one, yes it was oversubscribed but still don't understand why the price was set so low..

[1leon]

Looking forward to this one, i did really good from fonterra and have high hopes, i have freed up some cash for tuesday and will buy on market. If it was oversubscribed like i heard and with that big oseas dairy company getting a lot the only way is up for the immediate term. Will see what the trend is first but can only see upwards in the short term. Not going to invest just trade short term. Good luck to all.
You seem to have declared your tax position! The interesting question might be where the buying pressure will come from with 3 companies having entrenched positions one with legal control and the 3 together having over 50% of the shares. There might seem little prospect for upside on the basis of a future takeover and the main reason to buy would be belief that future dividends will be as high as the (agressive?) forecasts. In the meantime the dairy payout i.e. cost to Synlait, is rising.

[goldfish]

Im hopeing the buying pressure will be from people wanting exposure to the dairy industry whom missed out or got less allocation in ipo.

[goldfish]

I would be careful on this one, yes it was oversubscribed but still don't understand why the price was set so low..
No im unsure of that either...anyone? I dont think its necessarily a negative though.

[percy]

I am looking to adding to my wife's and my own holding.
May buy half of what I want "at market open" at 11am Tuesday.
Then see where they are before buying the other half of what I want.
Will speak to my broker on Tuesday morning and seek his thoughts.

[CJ]

Im hopeing the buying pressure will be from people wanting exposure to the dairy industry whom missed out or got less allocation in ipo.This is what I would have though but what would I know - I backed MRP and WYN!

[1leon]

This is what I would have though but what would I know - I backed MRP and WYN!
Sounds remarkably like the "bigger fool principle".

[CJ]

Sounds remarkably like the "bigger fool principle".
4658..........

[1leon]

4658..........
So that's what a guru looks like. I had wondered.

[whatsup]

What is the NZX code?

[percy]

What is the NZX code?

SML is the code.

[zigzag]

The lack of interest in this is very re-assuring , makes me assume no one has it !!

As the resident expert/farmer could you tell me who benefits most from these price increases in the latest auction. Would it be Synlait or Synlait Farms, or perhaps a bit of both.

[FarmerHamilton]

As the resident expert/farmer could you tell me who benefits most from these price increases in the latest auction. Would it be Synlait or Synlait Farms, or perhaps a bit of both.

Synlait Farms benefits from every rising auction no doubt , higher payout = higher profit = higher shareprice.

Synlait Milk will benefit as it encourages more milk to be produced , higher throughput with the plant , bigger profits. It obviously increases the input costs, but with infant formula alot of what is "in the can" is not actually milk ...
On the commodity WMP,SMP,AMF then as long as they track the revenues/tonne of powder that Fonterra is achieving then they will be fine , higher milk prices hurt Fonterra's consumer business margins too , which is good for Synlait.

It just boosts sentiment as well around the whole of NZ, so that's got to be good for both companies share price.

[Snoopy]

Synlait Farms benefits from every rising auction no doubt , higher payout = higher profit = higher shareprice.


Agreed



Synlait Milk will benefit as it encourages more milk to be produced , higher throughput with the plant , bigger profits. It obviously increases the input costs, but with infant formula alot of what is "in the can" is not actually milk ...


I would be interested to know what proportion of input costs of infant formula are not actually milk.

I haven't read the Synlait prospectus FH, so no doubt you can correct me if I am speaking pout of turn. But common sense tells me that if I was building a milk processing plant, I wouldn't build it without knowing that I had a secure supply of milk signed up to keep it running. Why would Synlait suddenly decide they need more milk than was in their business plan?

I would have thought the driving force behind Synlait profitability is the price points that are able to be achieved in their largest export market China. I would imagine that Bright Dairy has already stitched up this side of the business plan. So that means any milk price rise will be negative for profits over the duration of the current marketing agreements.

Don't get me wrong, I think the future for Synlait processing is Bright (pun intended). But I can't see that increasing input costs is good for business in any way.



It just boosts sentiment as well around the whole of NZ, so that's got to be good for both companies share price.


The last big spike in dairy prices was I understand bad for business, as other products got substituted that did not contain milk!

SNOOPY

[FarmerHamilton]

I am looking to adding to my wife's and my own holding.
May buy half of what I want "at market open" at 11am Tuesday.
Then see where they are before buying the other half of what I want.
Will speak to my broker on Tuesday morning and seek his thoughts.

Everybody got their allocation ... ready for the "off" at 1100hrs tomorrow ?

[whatsup]

Should we run a "book" on what the opening price will be.

Whatsup = $2.55.

[FarmerHamilton]

Should we run a "book" on what the opening price will be.

Whatsup = $2.55.


farmerhamilton ; $2.35

[Joshuatree]

Good luck folks, hope its a good one for all ,ca-ching.

[percy]

Would be happier at $2.35.Not sure whether I will pay $2.55,so will split the difference and go for;
percy; $2.45.

[Balance]

Would be happier at $2.35.Not sure whether I will pay $2.55,so will split the difference and go for;
percy; $2.45.

10% premium so $2.42

[percy]

Looks as though I will be paying $2.65 for half of what I want.

[Scottman]

I'm thinking it will be in the $2.40 - $2.60 range. Will go with $2.47 to be different.

[zigzag]

ZZ will go for $2.44

[bonne vie]

So what games are being played - when you look at the current depth - with match rate of $2.70. Over enthusiasm of buyers??. Given it is outside the guide range - I guess like others have said in the past - sit out and wait for the price to settle in the months to come if you are an investor. I guess lot of sellers will be getting very encouraged by the current bids on offer and will wait and see too. Such is the psychology of shares sometimes - rather than fundamentals.







500


2


310




4,000


1


301




22,800


8


300




2,000


1


295




4,650


3


290




4,500


2


285




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49,182


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250


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260


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261


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29,500




262


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[baller18]

So what games are being played - when you look at the current depth - with match rate of $2.70. Over enthusiasm of buyers??. Given it is outside the guide range - I guess like others have said in the past - sit out and wait for the price to settle in the months to come if you are an investor. I guess lot of sellers will be getting very encouraged by the current bids on offer and will wait and see too. Such is the psychology of shares sometimes - rather than fundamentals.









500





2





310







4,000





1





301







22,800





8





300







2,000





1





295







4,650





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285







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281







49,182





8





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3,600





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276







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268







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Asks











Price





No.





Quantity







250





1





5,000







260





2





100,000







261





2





29,500







262





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2,000







270





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280





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10,000







285





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How come no trades have gone through if all the buyers are willing to pay more than $2.5 and theres a seller at $2.5?
How does that work??

[randoman]

How come no trades have gone through if all the buyers are willing to pay more than $2.5 and theres a seller at $2.5?
How does that work??

Listing opens at 11am ;)

[bonne vie]

Does not go on market to either 11 or 11.30am.

[baller18]

lol that explains it... thought it goes on market at 10am.

[CJ]

2.62 from the looks of it. NIce stag.

Wonder what it will settle at by days end.

[whatsup]

Looks as though I will be paying $2.65 for half of what I want.

Percy Spot on $2.65, now the question is do we buy at these levels.

[zigzag]

Percy Spot on $2.65, now the question is do we buy at these levels.

I bought this stock to hold long term, and I'm guessing most other holders did too. So you would need to pay up in order to encourage people to sell.

[baller18]

Really sucks how us little investors dont get to participate in these STAGS! Rich gets richer!!

[CJ]

This raises the question - if there was so much demand, why was it priced so cheap.

Really sucks how us little investors dont get to participate in these STAGS! Rich gets richer!!Agree - my broker (ASB) didn't get an allocation at all (from what they told me).

[percy]

Looks as though I will be paying $2.65 for half of what I want.

Got mine $2.62

[CJ]

Got mine $2.62
Appears to be drifting lower from a high of $2.75. Buyers at 2.64 and sellers at 2.67.

Will be interesting to see where it ends up at the end of the day.

[1leon]

There are probably only about 40 shareholders who own $300k + so the amount that might be still to be sold is a maximum of about $12m .... discl. me included
With current sales around $8.5m it would be interesting to know how many pre IPO shareholders are now selling down their non escrow shares and how many of the sellers are stags.