SML - Synlait Milk Ltd

[Balance]

There is an article on businessdesk.co.nz https://businessdesk.co.nz/article/p...paign=nzh-home (paywalled) commenting on a Forsyth Barr report speculating whether a2 Milk will make a bid for Synlait's Dunsandel plant.

The reports conclusion; if a2 wants to bring more infant formula in-house buying Dunsandel makes better sense than ramping up Mataura.

It tries to guess the value of Dunsandels China licenses. In my opinion this is a problematic exercise given the uncertain macro economic situation in China and the wobbly twiddling with economic levers such as licenses typical of command economies.

Forsyth Barr wonders if Bright Dairy will become a white night to protect its stake in Synlait. My take is this is unlikely as the ultimate owner of Bright, the Shanghai Municipality will be feeling the pinch.

It is Synlait's AGM today so more information may become available latter.

Boop boop de do
Marilyn

SML's AGM is on Friday 1 Dec.

2 more days.

[JimmyTrade]

Grant Watson appeared extremely nervous addressing some of the investor questions.

Was expecting much more invasive questions…

Seems the synlait exclusivity agreement to a2m isn’t going to have an outcome for 12-18 months.

[silverblizzard888]

Share price dropping quick in the last few days to $1.12

Instos exiting before the end of the year or nervous investors selling out on worried thoughts?

[Balance]

Share price dropping quick in the last few days to $1.12

Instos exiting before the end of the year or nervous investors selling out on worried thoughts?

Getting kicked out of NZX50.

So will drop below $1.00 imo in current settings.

[Muse]

Share price dropping quick in the last few days to $1.12

Instos exiting before the end of the year or nervous investors selling out on worried thoughts?

Being booted out of the NZX50

[Marilyn Munroe]

A recent report(1) by the chardonnay quaffers and canape nibblers at MFAT predicts diary exports to China will increase by 25 percent over the next decade.

In my opinion the report does not give enough weight to the demographic and macro economic trends starting to emerge in China.

Predictions, especially about the future, are difficult. We will know in ten years who is right.

Boop boop de do
Marilyn

(1) https://www.mfat.govt.nz/assets/Trad...ember-2023.pdf

[silverblizzard888]

Makes sense with the index rebalancing then. Lots of shares for sale from instos and not a lot of buyers. Also not a lot of certainty around the company's future.

[Rawz]

another company with close to 40% leverage (sitting at 38% by my calc) and SP is under huge pressure. If only they didnt have so much debt..

this is why i prefer companies with strong balance sheets. Every business goes through tough times.. you dont see such massive drawdowns when the balance sheet has strength to it.

However saying all that if they sell Dairyworks they should be okay. SP will rocket if they sell it for $170m-$200m

[silverblizzard888]

another company with close to 40% leverage (sitting at 38% by my calc) and SP is under huge pressure. If only they didnt have so much debt..

this is why i prefer companies with strong balance sheets. Every business goes through tough times.. you dont see such massive drawdowns when the balance sheet has strength to it.

However saying all that if they sell Dairyworks they should be okay. SP will rocket if they sell it for $170m-$200m

Pretty much, if they could pay down debt and pay less interest as a result, which amounts to over $29m last financial year they would produce a decent profit from that itself. Selling Dairyworks was meant to be the solution, but everyone interested in buy it is basically low balling them. Their aim was net proceeds of $130m from the sale, but even that looks like a tough ask given how long discussions are going for. The sale would very much see the company get back on stable ground and see the share price recover very quickly.

They have been aiming to capitalize on their inventory and hold more cash now, so far we don't know how well thats gone, but if they manage to put together enough cash from coverting excess inventory to cash and doing a small capital raise that would get them through. Easiest and preferred solution from the markets view point is selling dairyworks.

[Rawz]

Pretty much, if they could pay down debt and pay less interest as a result, which amounts to over $29m last financial year they would produce a decent profit from that itself. Selling Dairyworks was meant to be the solution, but everyone interested in buy it is basically low balling them. Their aim was net proceeds of $130m from the sale, but even that looks like a tough ask given how long discussions are going for. The sale would very much see the company get back on stable ground and see the share price recover very quickly.

They have been aiming to capitalize on their inventory and hold more cash now, so far we don't know how well thats gone, but if they manage to put together enough cash from coverting excess inventory to cash and doing a small capital raise that would get them through. Easiest and preferred solution from the markets view point is selling dairyworks.

Wow i see inventories are $250m wtf... revenue $1.32b. so they turn it over 5.2x?? less even since inventories is held at cost.
Isnt milk like a FMCG and thus inventory turnover should be much higher?

If they can carry much lower inventory that would definitely help.

If they can convert $30m inventory to cash and then sell Dairyworks for say worst case $150 (its on the balance sheet at $177m). the total debt would be about $300m or a much more reasonable 24% leverage