SML - Synlait Milk Ltd

[minimoke]

Good growth. What's with the share price reaction?

Its those silly buggery 50 shares here, 72 shares there which isn't helping

[couta1]

Even I'm bit perplexed and scratching my head re the price reaction post ASM presentation. Thought it might recover after the initial negative reaction to CEO's departure.

Remember the days when the ATM SP used to tank after every good set of results, just remind yourself that a SP more than often has nothing to do with a companies performance, it's decided by a bunch of schizophrenics.

[sb9]

Remember the days when the ATM SP used to tank after every good set of results, just remind yourself that a SP more than often has nothing to do with a companies performance, it's decided by a bunch of schizophrenics.

Lol, love that word....

[hardt]

Very solid meeting today.

They upgraded IF production FY18F guidance to their top end of 35mt.
Infant formula is a higher margin product and will expand group margins as it continues growing as a proportion of total revenue.

Very simplistic view and a $10 PT on SML IMO. Bought more this morning

FY17A		% GROWTH
GROSS MARGIN PER MT	781.00
MT PRODUCED	141364
GROSS PROFIT - NZDm	110.41
FY18F
GROSS MARGIN PER MT	825.00	5.63%
MT PRODUCED	169637	20.00%
GROSS PROFIT - NZDm	139.95	26.75%

[Beagle]

https://www.anzsecurities.co.nz/Dire...spx?id=4602911

I'm quite encouraged about their long term growth plans, especially the substantial increase in R&D in tandem with Massey University.
Rome wasn't built in a day and just like the Mainland Cheese advertisement "good things take time" this has all the foundational elements of a company that appears to have every chance to grow very strongly over the years ahead. Disc: Holding for the long term and looking to add on weakness. It was interesting to note in the recent John Ryder newsletter that this company got a very good recommendation.

[BlackPeter]

Been there yesterday and (no surprises) quite positive mood. Most of the info is in the presentation anyway, so here just some of the points and highlights I took note of:

Great to see the huge reduction in liabilities - their debts used to be at the upper end of my comfort level, but now the books look really healthy.

They noted that last year's forecasts have been quite modest (btw - they over-delivered) and that they expect for this year much better growth in profitability (hint ...?).

Just doubled their spray drying capacity ... this should allow them to keep growth for another couple of years going

They plan to buy land in the NI to extend the capabilities of their new Auckland factory (and add another supply pool in the North)

Nearly 200 farms currently under contract - roughly 1/3rd (60) of them supplying A2 - milk; Don't know, though, how the volumes compare.

Lactoferrin prices currently going through the roof - which is good for the bottom line. Lactoferrin production has high fixed cost, but very small volume dependant cost. Nigel (the CFO) was smiling when he talked about this subject ...).

I sensed no concerns about John's plans to retire as CEO (but stay as director) - well signalled move and lots of time and flexibility to find the best candidate and allow for a good transition.

Responding to a question: Yes, ATM is their most important customer, but they think the company would be sustainable in the unlikely (and undesired) event of something happening to ATM (or the A2 Milk market). Base of this question was just to assess the risk correlation for investors who have both ATM and SML in their portfolio.

Only thing I personally was a bit surprised about is that they (despite being asked) couldn't or didn't wanted to give us a skill profile of the new CEO they are looking for. Answer was something like "experienced" and "they will go through a thorough process". Either they didn't had yet the time to discuss this as board (I don't know, when they learned about John's plans) - or there is some other reason I don't understand for them to be cagey.

As usual - good atmosphere (you would expect that after a shareholder return of more than 100% last year) and the votes came back with record support of the board (including the increase of the directors fees).

The modest catering (cracker and cheese, sandwiches) did stay in the framework of past years - but hey, we didn't come to indulge - didn't we?

Discl: hold (both SML and ATM)

[BlackPeter]

Ah yes - and here was another bit: They do have a "waiting list" of farmers who would like to supply them. More farmers who would like to sign up than they currently need.

[sb9]

Thanks BP for first hand information from ASM, very pleasing and could see this hit double digit mark in the not too distant future (along with ATM of course .

[Beagle]

Yeap good report BP, thanks. Also holding ATM and SML.

[JeremyALD]

Hmmm not looking to good at the moment. Not sure whether to hold it out or sell and buy back in the low 6s