SML - Synlait Milk Ltd

[Sideshow Bob]

Bonds flying off the shelf at 50 percent.

TAB next race to go, and pick a nag by number, name or colours you like.

A much better bet.

[Goob]

No bids on the OTC market either. Previously a bank was making a 2 sided market, now they are only offered.

Bearing in mind that due to the maturity effect these large yield blowouts are still only equating to a small relative face value/price move at this stage.

Agree. People getting too worked up by change in quoted "price" on NZX (which I believe is the only market that quotes bond prices as their annualised YTM ). Price has drifted down from 80 before the result to 75 now; nothing too crazy.

[Newman]

751,000 SML010 bonds changed hands. Bondholders start to act according to their own judgments.

[Lego_Man]

751,000 SML010 bonds changed hands. Bondholders start to act according to their own judgments.

71c on the dollar now. Genuinely pricing in impairment/haircut.

[Waikaka]

What a train wreck. I see some terrible companies (and management) dredging the gutter but this company has reached some spectacular levels of incompetency.

Still ,held my nose and have taken a small position and will participate in the hugely discounted capital raise.

I expected a terrible capital raise (~50mil), Pokeno sold at fire sale (maybe 50% of book value?), dairy works sold for about 100mil. That should clear most of the debt, staggering that they now owe ~560 million and didn't cap raise when share price was higher. They are going to get slaughtered selling these factories.

My only hope is that the whole board and management change and some calm level headed people come in to run a much smaller but still profitable company. So many assets that even these clowns will struggle to wipe out the entire business.

Such a waste.

[JeremyALD]

What a train wreck. I see some terrible companies (and management) dredging the gutter but this company has reached some spectacular levels of incompetency.

Still ,held my nose and have taken a small position and will participate in the hugely discounted capital raise.

I expected a terrible capital raise (~50mil), Pokeno sold at fire sale (maybe 50% of book value?), dairy works sold for about 100mil. That should clear most of the debt, staggering that they now owe ~560 million and didn't cap raise when share price was higher. They are going to get slaughtered selling these factories.

My only hope is that the whole board and management change and some calm level headed people come in to run a much smaller but still profitable company. So many assets that even these clowns will struggle to wipe out the entire business.

Such a waste.

Can I ask what would make you take a position given the above? As you have said they are on a hiding to nothing given their immediate need to sell assets and raise capital.

[Rawz]

Can I ask what would make you take a position given the above? As you have said they are on a hiding to nothing given their immediate need to sell assets and raise capital.

I was thinking the same. Like after the cap raise and asset sales it’s still a poorly run business.

[Rawz]

The only way I would invest in this is if I could calculate what the EPS would be after cap raise and asset sale of north island assets and then put a P/E of 6 what remains. That would be my target price and if the spot price is 50% below that I would have a punt.

I can’t calculate that. Well can’t be bothered to try, as there are many easier investments out there where literally management are telling us what future earning are. So I say why bother?

[Newman]

How many Synlait shares are held by farmers? If the percentage is high, then Bright and A2M have to take into account the farmer's feelings when deciding on asset sales and capital raising. Let Synlait become bankrupt and buy its valuable assets cheaply would be an option for Bright and A2M, but if farmers refuse to supply milk to them, they would have to rethink. In addition, Bright's representatives on Synlait's board must assess the chance of spending many years of life in prison if Bright's $200 m investment in Synlait disappears. That's the current operation in which the Chinese government punishes those who are responsible for business failure.

[Waikaka]

Can I ask what would make you take a position given the above? As you have said they are on a hiding to nothing given their immediate need to sell assets and raise capital.

Fair enough,

Total market cap is currently ~140 million.
Property is ~1 billion, whatever 'other assets' are ~500 million maybe milk powder in the warehouse and utes?


If I figure they get 50c in the dollar on property, milk powder etc so $750 million dollars


Debt is ~560 million. So 750-560 = 190mil


So figure I am buying $190 million worth of milk factory for $140 million.


Or another way to put it would be Debt = Pokeno + Dairy works + whatever I put into the cap raise so I don't get diluted.


So for 140 million I bought Dunsandel, hell in 2020 Synlait bought 582 hectares of dairy for 25.7 million next to Dunsandel that's probably easy enough to sell.


Anyway I don't over science it to take a starting position. Def don't listen to management forecast profit. If the price is a bit lower than the assets and the business isn't in terminal decline then take a punt. Learn more as the position gets larger.