Synlait to float before Xmas.
http://www.stuff.co.nz/business/mark...-to-raise-150m
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Synlait to float before Xmas.
http://www.stuff.co.nz/business/mark...-to-raise-150m
Oooh this sounds interesting,and a niche player.
We really need the dairy industry in the market.
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
Interesting float.
Will have to do some due diligence on it.
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.)
The interesting thing will be to see how many get sucked into katmandu,even after watching the results of the Myer float.
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.
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.
Interesting to see whether its just the processing business on the block or the farms as well?
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
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.
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.
Time to buy some cheap dairy farms.
NZS anyone?
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.
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.
;)
I thought this was underwritten?
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?
;)
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/n...ectid=10611475
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?
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.
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-...ting-bd-140061
This is a bumper year for IPO's on the NZX and makes me wonder if things are getting out of control.
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.
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.
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 !!!
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
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 !!
You mean the likes of Armer, Pye and Parker?
or are they only involved in DHL?
Correct.Quote:
So to understand this correctly, there are two companies:
Refer the earliest posts on this thread.
;)
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 ?
This thread is a B!tch to search for but is worth its weight in gold:
http://www.sharetrader.co.nz/showthr...dex+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).
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.
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 ?
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 ....
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 ...
Their plan to produce lactoferrin should give profits a boost if they can do it.
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
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 $7 payout for next season not a single Kiwi out of 4.3m of us is interesting in putting a bid in for a pure dairy farming enterprise. Nodoubt there a re a few bids for Restaurant Brands , a company that sells crap food and ****ty coffee ... go figure !!
I seem to have misconstrued the basis of your enthusiasm. Whilst I also share your enthusiasm for Farms (and hope I haven't misinterpreted those posts) of the 115,000 shares traded on Unlisted you did concede on the one substantial trade that "it would be a coincidence if the buyer wanted exactly 60,000" so it might be that there have only been 55000 shares really traded. I do know at least one Kiwi in 4.3m has genuinely bought! As someone who has been on Unlisted for many years I am not persauded it works at all well in either liquidity or value. I rather doubt any major shareholder would be interested in quiting at the discounts minnows have to accept. Unlisted then tends to be a self defeating circle. I have greatly appreciated your forthright posts on Synlait particularly showing you have real skin in the investment game.
I understand from someone in the know that the shareholders of Synlait Ltd have approved the proposed in specie distribution of the Synlait Milk shares held by Synlait Limited. So the Bright 51% / Synlait Ltd 49% structure is about to become Bright 51% / about 100 other holders 49%. There will be some of those 100 holders who may wish to exit into the IPO ( they have this option ) so I guess the number of holders and the percentage they wish to sell may well be one of the factors determining the size of the IPO ....
With the market looking a bit iffy at present their timing of the IPO may have been a couple of months too late ... ??? Collapsing NZ$ 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 )
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.
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
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 ...
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.
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....
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.
Yep, thats the statement they want us to take at face value
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/...-From-Milk.pdf
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.
Ruth Richardson looks like she was in parliament before I was even at school. What's the story?
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.
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)
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
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.
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
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.
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.
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.
If you can make it 20 extra seats , hey presto you virtually double your profit!
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%
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.
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 )
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.
Endless demand growth requires endless supply growth....Quote:
The endless growth I reckon is from demand for NZ dairy products from global market
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
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?
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.
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
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 .
Will Fonterra shareholders take big profits and switch to Synlait?. My broker saying scale back on app lications for sure.