SML - Synlait Milk Ltd

[hardt]

On a different note, I know that the USA tariffs on china and v.v will have an influence on synlait, but how and why will it do so?
Cheers,
sl

All sentiment no substance

[BlackPeter]

On a different note, I know that the USA tariffs on china and v.v will have an influence on synlait, but how and why will it do so?
Cheers,
sl

All sentiment no substance

Not so sure about sentiment - I guess it is all about risk, and this risk is clearly substantially.

Synlait makes currently a significant part of its fat margins by selling A2 milk formula directly and indirectly into China (including Daigou). If these sales channels are for whatever reason interrupted or impaired than Synlaits profitabilty would at least short and midterm (until they open other markets) take a significant dip.

If you want to know how an US - Chinese trade war can impair these trade channels, than just have a look at our aluminium producer. Despite not being Chinese did Trump decide to slap a 25% tariff on all foreign producers unless their governments know which of Trumps buttons to press. Our government didn't know and therefore all our aluminium (and steel) qualifies for Trumps tradewar tariffs.

Now - just imagine the Chinese do the same as the US and slap a high tariff on (e.g.) all imported agricultural products. Do you think it would make a difference to SML if either the Chinese consumers would need to pay 25% more on our premium products (and therefore buy less) - or alternatively if Synlait would need to take a huge cut on its margins to keep prices in China competitive?

I think it would.

The other problem is a bit more generic. Any tradewar is taking money out of the economy of our customers. If consumers need to pay more for cars, petrol and similar imports, than maybe they can't afford anymore to buy the Synlait A2 formula for $50 per pop. They might just save money by buying a Chinese product instead. Less revenue for Synlait.

[44wishlists]

... imagine the Chinese do the same as the US and slap a high tariff on (e.g.) all imported agricultural products...

This will not happen. Simple as that. Chinese food and drug products are constantly having trouble. Consumer confidence in these products are totally burnt, especially to their precious little baby. I would be more concerned about the declining birth rate.

[BlackPeter]

This will not happen. Simple as that. Chinese food and drug products are constantly having trouble. Consumer confidence in these products are totally burnt, especially to their precious little baby. I would be more concerned about the declining birth rate.

Lets face it - feeding babies with milk formula produced half a world away is a quite expensive luxury. Not more, not less. Humanity (including the Chinese) developed quite well without this nonsense.

There is no need at all for the Chinese to buy our or anybody elses foreign milk formula - and I am sure if the Chinese government wants to stop this practise, they will manage to do so quite fast.

The overwhelming majority of babies all over the world is fed from local sources (including breast feeding). It is possible. Not saying that the Chinese will stop using our milk formula tomorrow or next year, but I find it difficult to understand how anybody can exclude this (for the Chinese) quite sensible option. Would save them plenty of money ...

And yes, while they did have some food safety concerns in China, so they did in other parts of the world (e.g. UK - mad cow disease, Austria - blending wine with Glycol, Italy - blending wine with blood, Spain - blending olive oil with mineral oil, Australia and NZ - spiking strawberries with metal pins).

There are all over the world and in all cultures crooks who are happy to risk other peoples lives to make a quick dollar or for some other reason, but this never results in permanent consumer abstinence from a certain product. At best the respective government increases controls ... and the Chinese are pretty good in investigating food safety scandals and punishing the culprits. None of the crooks repeated his/her crime after receiving capital punishment.

[Beagle]

Just broken above the 100 day MA which is encouraging.

[Ggcc]

https://www.nzherald.co.nz/business/...ectid=12195289

Nice little article

[winner69]

Not good for farmers but it’s good for Synlait ...isn’t it?

http://nzx-prod-s7fsd7f98s.s3-websit...855/294101.pdf

[peat]

Not good for farmers but it’s good for Synlait ...isn’t it?

http://nzx-prod-s7fsd7f98s.s3-websit...855/294101.pdf

yes thats what we learnt from Fonterra. So I guess its the same.

[Sideshow Bob]

yes thats what we learnt from Fonterra. So I guess its the same.

They are in a procurement market, so have to pay relative to the competition. In their patch they have Fonterra, Westland and Oceania - but supply relations are a bit sticky in that you need a truck up your driveway every day to collect milk and for a coop you need to have a significant amount invested in shares. Bit different to livestock where farmers often play the field, especially with excess capacity most of the year. I would expect many Synlait suppliers would own at least a few shares.

Westland have been really struggling. Fonterra, well they are Fonterra - enough said. So why pay over the odds?

Generally has been growing supply/volumes, so they just have to position themselves relative to the competition, for a volume/supply of what they need. Just need to be competitive.....

[Beagle]

Not good for farmers but it’s good for Synlait ...isn’t it?

http://nzx-prod-s7fsd7f98s.s3-websit...855/294101.pdf

Yes it is. As others have pointed out all they need to do is be competitive and pay a bit more than Fonterror.
They've done amazingly well over the last 10 years and unlike ATM with Geoff Babbage resigning at least John Penno is staying on as a Director so they still have access to his quite considerable abilities. Then there's the lack of Herdlicker giving shareholders a good licking every so often so I prefer this over ATM.
Holding for 5 years is very much "on trend" at the moment so one wonders how this will grow over the next 5 years ?