Originally Posted by
silverblizzard888
A lot to be excited about for Synlait going forward, their situation has improved remarkably, but of course still a lot of uncertainty that surrounds the company. The management team know what they have to face and seem to be confident they can meet those challenges and now seem to have more control on their future.
New Customer
They have onboarded Abbott, which only started 4-5 months ago and included FDA audits of their facilities which went well and what I imagine has been the big delay for onboarding Abbott. A sign that the product made could be headed for the USA rather than the international market, which would be massive for Synlait getting a foot in the US market.
Upgrading facilities
Most of their upgrade spending is almost finished, which included the new ERP system, which had a lot of interruptions on their supply chain, but now they will see the benefits of making such a massive upgrade to their system. Pokeno facility saw dryer and wetmix upgrades and sets them up to meet the demands of their new customer Abbott.
Inventory
Inventory levels have dropped in value, which has lowered the amount of debt they have taken on; the full year report shows inventory at $250m compared $467m at the half year. Thats had an affect on debt seeing that reduce to $421m from $528m.
Even with the sale of Dairyworks, the debt facility use is expected to remain the same with new customers inventory expected to require a similar amount. Full year report shows Dairyworks inventory at $52m, so some fairly decent size customers are expected to be onboarded.
Asset sale
Dairyworks financial contribution to FY24 is expected to amount to 6 months financials, so a sale and settlement is probably expected to be the very end of the year or start of next year. Dairyworks has a value of $177m on Synlaits books, that includes $52m inventory. Management seem confident a sale will go through, but have left the door open for possible capital raising if required.
Debt
Debt seems to be heading into a healthy direction. With a reduction in inventory requirements theres no need to hold so much debt now and there will start to be a positive contribution from Pokeno with onboarding of new customers. If they can complete the sale of Dairyworks and meet their $130m repayment that further reduces debt to more a manageable level and see a huge reduction in their interest expense bill. If Synlait head back to a reasonably profitable level they will be able to start paying back debt and things should look good onces again.
A2 dispute
The process regarding exclusivity for the production of A2's infant formula will likely go on for a while to come, but in the case they lose exclusivity it might not be that bad, remember A2 squeezes Synlait on their margins, in 12 months time they might have onboarded enough new business that its worth off loading the low margin volume for more higher margin business.
Share price
Current share price represents a opportunity to get into the company at a fairly reasonable price vs the risk they face. I've taken the chance this week to add to my position and feel pretty happy about the company's certainty especially knowing who their new major customer is and that debt is slowly coming back under control. With a market valuation of $312m, a reasonable profit in the current financial year could see them trading at a very low PE and could represent pretty good value.