SML - Synlait Milk Ltd

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

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Originally Posted by Xerof

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?

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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.

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Originally Posted by 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.

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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!

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Originally Posted by Lease

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.

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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.

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Originally Posted by bull....

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%

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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%.

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Originally Posted by Lease

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%.

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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.

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 )

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Originally Posted by 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 )

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

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Originally Posted by Lease

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

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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.