SML - Synlait Milk Ltd

[minimoke]

Maybe NZ has oversold. Oz closed at AUD$9.62 or NZ$9.97

[Chanchay]

Maybe, I don't have those insights to be certain about it though. Some believe bad news begets more bad news and therefore that's enough for them to bail on the first sign of bad news. I don't think it's necessarily reliably correlated though, certainly a possibility but not a probability.

What I see from the TA is a highly reactionary one-day response to perceived bad news and the uncertainty that surrounds that as the SP traded in a wide range and settled in the middle .. or maybe it's not 'bad' news per se, but news that was not expected!

Various people here have broadcast their concerns that material information appears to have been withheld, or not made obvious in disclosures. SML would be considered naive, or worse negligent, to have failed to realise what the results represent a material divergence from guidance or worse than that, a considered denial of their responsibility for disclosure. Surely not.

I give them the benefit of the doubt, that they just f'd up this time but the business is still solid and they're unlikely to make the same stupid mistake again anytime soon. Further, some suggest that the failure to disclose prior has been glossed over by soft feel good messaging in their reporting. That would no doubt concern shareholders as we have seen even in our relatively small community, resulting in a concerted exodus today.

If nothing else, I think ST's community has a learned response to 'react then think' which is sometimes more important than 'think then react'. A whole lot of people bailed today and took profits that might not be there tomorrow or the next day. Bravo to them, if the hypothesis holds that SML got way overpriced and they withheld information from us and the SP just goes lower and lower.

It's a severe blow to the slow march up from $8.05 lows late last year, or is it? One day has ruined only a few short months of SP appreciation. But it's not a calamity, far from it. A TA might notice that the price range fits very closely between the 100MA and the 50MA, like some magic forces that bounded the trading range.

Personally I'm not that worried, and didn't react today because of it, unless the SP decided to drop to or below $8 which I see as solid support. Then I'd decide whether to quit my investment or buy into the SP weakness. One might consider that SML in the long haul have a massively growing pipeline for their product and any SP weakness for whatever reason doesn't counter the investment in growing production capacity to meet the growing demand. It may even be an opportunity to buy SML while the buying is good, and hold for the long game.

Intriguing. Days like this I enjoy as I learn how fickle the market is and how effective patience can be.

I enjoyed your analysis baa baa. I'm not sure where this one is going, I appreciate the concerns posters have made regarding management and lack of announcement regarding a2 pricing adjustment, but I felt the market over reacted today so purchased more at $9.36.

I feel positive about pokeno because of the significant increase in production it will bring and their diversification into the liquid milk market down south. I feel the green wash is just fashionably corporate responsibility, not necessarily bad but also not particularly important and should not be held up as a trophy when things aren't going well financially.

The CEO commented in an interview that seasonality played a role and that he didn't think today's result was far from what they had indicated to market. I don't know exactly what he was referring to. I like many investors was seriously taken by surprise by the missing 4-8 million from npat that we were expecting.

[Ggcc]

Maybe NZ has oversold. Oz closed at AUD$9.62 or NZ$9.97

I agree as I mentioned earlier. It is still a great company with a great future. Maybe not as great as A2, but great none the less. I am still holding for now.

[minimoke]

I feel the green wash is just fashionably corporate responsibility, not necessarily bad but also not particularly important and should not be held up as a trophy when things aren't going well financially.

.

It is bad - there is no doubt about that.

Every manufacturer knows that every single step they take needs to be a step that adds value to the manufacturing process chain. Unless going green achieves some cost saving or increase in revenue there is absolutely no reason for it. By stopping burning coal they risk significantly increasing energy costs and will not do one single teeny smidge to improve teh "global warming" disaster. Ask them - how many parts per billion of CO2 difference will their plan make to the atmosphere - I bet they dont answer.

In the meantime every minute they spend pondering global warming or implementing diversity is a minute they are not focusing on improving manufacturing efficiencies.

[freddagg]

No, its clearly a symbiotic relationship and they need each other just as much. One can only assume the stake ATM has in SML gave them a competitive advantage in negotiations or was it that the board of SML are simply weak ? No, please don't encourage him, he doesn't need it.
The new CEO comes from Fonterror...probably just a very ordinary player is a terribly company. I am sorry but I think the board have called his appointment wrong.
He wasted no time whatsoever climbing right onto the very top of the diversity and cultural sensitivity bandwagon as soon as he was appointed as though this was his top priority and the most urgent area of reform needed.

The clue we overlooked factoring in properly was the culture of where he came from. Some famous person once said "Man is a product of his environment"

I have no doubt that Fonterra can supply ATM with exactly the same product that Synlait do and if Synlait had not accepted the price they did from ATM then Fonterra would have been very happy to supply.
It is always a race to the bottom with processors, I have been watching it for 40 years in the meat industry.

[Raz]

I have no doubt that Fonterra can supply ATM with exactly the same product that Synlait do and if Synlait had not accepted the price they did from ATM then Fonterra would have been very happy to supply.
It is always a race to the bottom with processors, I have been watching it for 40 years in the meat industry.

That is right, one main client and how long is the supply contract for ?

[Leftfield]

That is right, one main client and how long is the supply contract for ?

I understand SML has agreed to supply ATM for 5 yrs.

I have no doubt that Fonterra can supply ATM with exactly the same product that Synlait do and if Synlait had not accepted the price they did from ATM then Fonterra would have been very happy to supply.
It is always a race to the bottom with processors, I have been watching it for 40 years in the meat industry.

I agree, a future supply of A2 IF from Fonterra is very likely, and my guess is that this will be used in other Asian markets such as Sth Korea, Japan and Singapore.... and possibly USA. ( I'm unsure if Fonterra is registered/approved to supply A2 IF in China.)

ATM will be aware that it needs to lessen its longterm IF sales reliance on China (as well as a need to diversify its IF supply)

Also on RNZ morning report this morning, it was reported that a key reason for SML's reported lower margins is that SML was relying on production/sales of its own brand of IF to lift its margins to offset those lower margins negotiated by ATM..... however China is playing hard with SML's registration approvals, and there is a 'delay' which has caught SML out. So no Chinese registration of SML's IF..... yet.

JMHO... DYOR ( I hold no SML)

[winner69]

Those registrations, or lack of them, are a worry

Leon didn’t sound too convincing on the radio this morning about getting them this year

Could be a big drag on earnings

[winner69]

The number of believers deserting the company (or taking their money/profits) yesterday just shows a company can go from hero to zero very quickly.

[BlackPeter]

The number of believers deserting the company (or taking their money/profits) yesterday just shows a company can go from hero to zero very quickly.

Well, I would not be that harsh. They are clearly not at ZERO, and I don't see them getting there. Just a healthy correction by de-hyping :

Synlait is a good company and a much better milkprocessor than their big competitor Fonterror, and even they do have a value above Zero. I think Synlaits focus on high value products (like A2 milk formula and lactoferrin) might help, though there is obviously something to say about the benefits (but as well cost) of diversification.

They are currently (at $9.75) on a (3 year) forward PE of 17.8. Might rise somehow after the analysts recalculated their numbers. What would be more realistic? 12.5 - allowing still for some growth - this would put their SP slightly below $7. If I pick a PE of 10 (boring old cyclical agriculture) than it still would be a SP of $5.50;

Again - analysts will review their forecast earnings, which will further depress above numbers, but I don't see them dropping below say $4, which still would be a nice rise from the $3 the company traded for in 2016. Good solid company, just had a hyped up overshoot and changed to a less tested CEO with a funny taste for colours.

Time will tell. Certainly no reason to despair .... the time to buy back in will come, though changing their colour schema (including the person introducing it) might potentially speed up this process ;