SML - Synlait Milk Ltd

[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.