SML - Synlait Milk Ltd

[Waikaka]

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.

I suppose farmers might privately own shares but don't think there is a 'farmer block' in the share register per se.

39% Bright Dairy = 100% participation in cap raise
20% A2 = Maybe 0% in cap raise
15% Big Insto's = Prob support
26% Small retail = maybe 50% participation if lucky.
(cribbed from Craig's research note)

Don't know anything about how China does it but glad I have a NZ passport.

[whatsup]

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.

I think its a total waste of time thinking about a C R at this stage, what the most important question that should be on every S Her lips is " whats the supplier loyalty ", from todays Business news there is considerable cocky flight despite it taking two years for them to leave and IMHO with SMLs deterating financial strength this will only accelerate !

IMHO SML is an unavoidable train wreck, an investment at present for the very brave, as Ive already said I think it will be bought out by Fonterra but Q is at what price ?

[Rawz]

NZ RegCo should issue one of those TRADE WITH CAUTION announcements for SML lol..

[Filthy]

very soon these guys would've sold off a couple of their best factories, at heavily discounted prices (so.... they will be left with the s**t ones that no-one wants/they cant sell - dont need a north island strategic review to tell you that...) plus they will likely lose their biggest customer (matter of time), and maybe some or most of their raw supply, which is now under pressure from the sound of it (farmers leaving them). they essentially wont have a business anymore (the trifecta of customer/product/factories = dead) - at least in the short term anyway. That's before you even consider & resolve the debt issue; which requires such a huge amount, so def a CR of sorts, at a huge discount... against a falling SP & with retail at the bottom of the heap. maybe at mid teens, low 20s. so the pay back period to break even from your lower avge SP would be what... 5/10 years+? - and that's IF they survive. plus may need working capital on top of that to get over this hump and take the business in a different direction. I confess, I took a small punt on SML at SAMR time (oops!), but crystalized the loss - better to move on. funds reallocated to MNW, which I'm starting to accu. grass is way greener over there. agree rawz - trade with caution lol.

[ralph]

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.

That is a very sober unbiased way of looking at this mess instead of joining the downrampers feast like a sheep.
Thanks for the heads up

[Ferg]

That is a very sober unbiased way of looking at this mess instead of joining the downrampers feast like a sheep.
Thanks for the heads up

I agree - I was going to post last night but it got a bit late. Waikaka's post was a refreshingly simple way of looking at this. Although, the big unknowns will be the discount applied to asset values under a fire sale scenario, and how much the liabilities will grow if not repaid under pain of penalties. I ran a few numbers and ended up with an orderly breakup value of around $300m which is a return of 2:1....I was much more generous than 50% on the current assets, and other assets were a mixed bag of discounts (from 10-100%). The other unknowns is how much one needs to tip in via CR (assuming there is one*) to ensure there is a relatively orderly realisation of assets values and if they can trade profitably in the meantime.

*Although the auditors in the latest IR had this to say:

The successful execution of an equity raise in combination with other deleveraging options by 31 July 2024...is critical to the ability of the Group to continue trading as a going concern.

[Mr Slothbear]

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.

sure I see your logic but then why not compare it to another business where NTA is significantly higher than the share price.

two examples that come to mind ryman shareprice 60% of NTA. No ESG BS. No b corp BS. Strong track record and still hugely profitable.

or seeka, NTA almost double shareprice without all the concerns present with Synlait, which are many.

[Waikaka]

sure I see your logic but then why not compare it to another business where NTA is significantly higher than the share price.

two examples that come to mind ryman shareprice 60% of NTA. No ESG BS. No b corp BS. Strong track record and still hugely profitable.

or seeka, NTA almost double shareprice without all the concerns present with Synlait, which are many.

Absolutely valid point,

In my situation I prefer to have a diversified bundle of garbage, that means constantly on the hunt for companies on their knees. Bought all sorts of crazy things over the years.

One of the fun things is when people look in the gutters they all find different things they think are cheap. Makes it great fun. I wonder in a fire sale Ryman may well only get 60c on the dollar for book value. For Synlait I wrote down the book value of property by 50% if I did the same to Ryman NTA, perhaps the market cap would be greater than NTA. Not sure.

[Sideshow Bob]

https://www.nzx.com/announcements/429245

Shuffling the deck chairs.....

[billkiapi]

Rob Stowell has been in CFO role for the entire time this business has suffered huge shareholder value losses and a fight with A2M- why they'd appoint him to oversees risk and compliance I cannot figure out. Surely he is part of their problem- debt laden, revolving door, ego led customer relationship and fight with vendors.