SML - Synlait Milk Ltd

[chrisw]

Fonterra lift farm gate by 40 cents kgms - suppose Synlait need to follow

Fonterra says “A $7.60 per kgMS forecast Farmgate Milk Price also increases our input costs putting further pressure on
our earnings in the second half of the 2020/21 financial year. More details on our earnings will provided at
our half year results on 17 March.

Suppose this applies to Synlait as well .... no wonder they don't want to guess how big the LOSS is going to be

It depends on how well the sales team have been doing at moving commodity powders relative to Fonterra. In the industry the FGMP which is largely set based on Fonterra's performance means that if Synlait have sold a similar percentage of volumes and had a similar hedging policy then it will be less of a problem when it comes to profit (as higher FGMP driven by higher sales prices at GDT). Fonterra have in the past (FY14) paid under the FGMP when it was deemed prudent to do so and if profitability is threatened they may do so again. It is likely that SML is similarly not obligated to pay the FGMP - the risk is a loss of suppliers in time if it is too far below however.

At the revenue side of things the biggest problem remains a2 and a lack of customer diversification. I think any investor in ATM should keep an eye on SML announcements as infant formula production needs to be planned a long way in advance. Based on the most recent announcement it would seem that they have lost confidence in the certainty of the forecast coming from a2 and are 'battening down the hatches'. The half year will be interesting to see where costs have been adjusted in response to this demand shift. There have been rumours of a restructure, but nothing has been reflected in the executive team as of yet.

As was pointed out above the advantage of a2 not owning manufacturing facilities (well to date anyway) is that their costs track nicely with demand (no non-cash depreciation costs). When was demand was increasing they even got their manufacturing partner to build new facilities - now that it is dropping they can shrug their shoulders. Even now with a 20% shareholding they are only bearing 20% of impact from their demand changes. However, I would imagine that any volume discounts that had been negotiated would be gone and so margins may not be a fat for them either.

The key question with Synlait remains whether or not the sales team can find other customers or not to fill the capacity with high margin products. With a cost base readjustment they could go the Open Country Dairy route and focus on efficient production of commodities versus Fonterra, but I think the more interesting business remains the higher margin powders they are set up for.

[winner69]

SML share price almost back to where it was before the guidance withdrawal

Maybe some were stupid thinking withdrawing guidance is the same as a profit downgrade

[BlackPeter]

SML share price almost back to where it was before the guidance withdrawal

Maybe some were stupid thinking withdraing guidance is the same as a profit downgrade

Maybe, maybe not.

What makes you think the market is righter today than it was on the day of the last announcement?

[Sideshow Bob]

https://issuu.com/farmersweeklynz/do...ggestions=true

page 10

Bit confused. SML haven’t announced and the share price mentioned are wrong? Ie states low of $4.50 but now $3.75.

Might be Friday night and a bit slow.....

[Scrunch]

https://issuu.com/farmersweeklynz/do...ggestions=true
I
page 10

Bit confused. SML haven’t announced and the share price mentioned are wrong? Ie states low of $4.50 but now $3.75.

Might be Friday night and a bit slow.....

The article is dated 23 March 2020 (not 2021).
From direct broking's share graph, the share price briefly dipped below $4.50 in March 2020 before rebounding with the market. If the article has been written two weeks later it would probably have referenced a $6 or $7 share price and would have been easy to tell it was old info.

[Sideshow Bob]

The article is dated 23 March 2020 (not 2021).
From direct broking's share graph, the share price briefly dipped below $4.50 in March 2020 before rebounding with the market. If the article has been written two weeks later it would probably have referenced a $6 or $7 share price and would have been easy to tell it was old info.

Thanks Scrunch - I should have known better - what a loser!!

I clicked a link that should have had current version, and was doing it on my phone, so date obviously didn't stand out.

Anyway, one year on, will be a much worse report coming up.....

[winner69]

Operations head guy didn't stay very long -- only started 16 months ago

http://nzx-prod-s7fsd7f98s.s3-websit...471/342782.pdf

[winner69]

Share price higher than before the profit warning

Mind you Fidelity have been buying up this month .... obviously not worried about impending loss

Or maybe they keen because of Chinese connections

[winner69]

Amazing how that buying by Fidelity boosted the share price lately ..they prob stopped and the share price sinking again.

[Balance]

Amazing how that buying by Fidelity boosted the share price lately ..they prob stopped and the share price sinking again.

Fidelity is huge - humongous - dealt with them before and each team is allocated several billions of dollars to invest, with each single investment to be a minimum of US$100m.

They do not chop & change their stock selections year to year.

Depending on how much they have invested in SML so far, they could well have a few more to buy.