SML - Synlait Milk Ltd

[K1W1G0LD]

Well it looks like Mr Market is doing an admirable job of determining whats fair value for this stock.
Bin Doun so long it looks like up to me!!

[zigzag]

The shares were issued at $2.20 a bare 15 months ago. At the time there was comment there was a lot of blue sky in the prospectus. It failed to meet projections. The Company has non standard governance which allows effective control to a 48% holder who was not prepare to subscribe at $2.20,effectively precludes any other party achieving a takeover, has no reason to increase its holding, and can also take its profit further down the distribution chain. Why did/do you think $4 was/is appropriate?

I think your being a bit harsh saying that "it failed to meet projections". Prospectus forecast was for (from memory) 19.7million, and the final figure was 19.6million. Not a major fail in my book.

[1leon]

I think your being a bit harsh saying that "it failed to meet projections". Prospectus forecast was for (from memory) 19.7million, and the final figure was 19.6million. Not a major fail in my book.

Yes I think your about right on profit forecast although it did in the interim revise both up and down. There were however other projections like building costs of $8.7m which blew out to $m21.

[Fisherking]

Yes I think your about right on profit forecast although it did in the interim revise both up and down. There were however other projections like building costs of $8.7m which blew out to $m21.

I agree Leon, the forecasts have been poor both financial and also time estimates around plant build completion. I can't help but think though that dairy must be a growing industry given world population growth. I'll be toughing it out a bit longer to see what the new plant delivers.

[BlackPeter]

Spent this afternoon on the SML AGM and thought that I might put some notes down as long as the memories are still fresh ...

Venue: A West Melton Winery on a nice day. However catering limited to coffee (which I tested after learning how to operate the spender), tea and plenty of (tap-)water. No wine. After the AGM they provided some healthy looking (and tasting) salad rolls with traces of chicken. Looks like they are really concerned for the health of their (in the majority) elderly shareholders. Great stuff!

As well quite concerned to keep us all awake during the meeting ... the chairs have been some of the most inconvenient I ever came across (though good looking design), but hey - this was just the winery. They indicated that next years meeting might be on their own premises ... should be good.

Counted at the beginning of the AGM roughly 40 to 50 shareholders, some more arrived during the meeting. Lots of directors plus representatives of the cornerstone share holder.

Good and plenty of opportunity to talk already prior to the meeting with chairman and MD. Came across as open and honest - though slightly defensive when I questioned the companies shareholder communication. Graeme counted the NZX releases this year and felt it was plenty, but I think he took on board that its not just the number, but as well the content and the timing which matters. Learned as well that they are monitoring this (and other) forum(s) (Hi Michael, if you like you can PM me given that you didn’t got hold of me after the meeting!) and aware when shareholders feel they need more information, but sort of wondering why we wonder while they think they have nothing new to release. Wonderful!

Graeme instructed their comms guy (Michael) to approach me related to my concerns, but it looks like he was to busy with communicating - never managed to get hold of us - and we didn't find him when we looked for him.

Solid presentation (but by now as well published – and, as to be expected, nothing really new compared to annual report). Here are some bits and pieces I took on board:

A2 milk represents only 5% of their supply - and quite difficult to process (keep it separate). They feel however that this might be justified due to higher margin.

Milk price: they expect it to stay low for some time to come (lower demand: Russia / China, higher supply: Europe), which is however not a problem for them ("it is easier to get a premium if the milk price is lower"), though it makes life more complicated “you need to make sure not to sell too much while it is cheap”.

Big Capex this year (nearly 100M) and expect similar Capex next year (more than 100M for Dryer 3, which is on time and on budget). They consider themselves as a growth company ... and indicated (answering a question) that while they have currently enough money, there might be some projects on the backlog where they might need to go back to share holders and ask for more money. I.e. expect growth, but no divvies anytime soon.

Packing line: John wondered whether it was operating today. When asked he said utilisation is roughly 25%, but they planned a larger packing line than they need now (to allow for expansion).

Lactoferrin: Makes lots of $$$$ and they have a unique (and highly secret) process how to make it.

Bought into the Chinese company owning one of their milk powder brands “Akara”

Explained the reasons for previous cost overruns (all to build more capacity than originally planned)

Signed a funding agreement with Mitsumi (for working capital) … conditions are much better than with the bank.

Some discussion around resolution 3 (basically a 10% increase of directors fees). A mature gentleman (never met you, but was this you, Percy?) proposed to move to keep the rise down to 5%, but Graeme didn’t accepted moves … and the shareholder association (Max) said after lots of elaboration that they would support the proposed rise, though recommended to use next time no consultant to determine the fees (consultants have an inherent conflict of interest and make everything just more expensive).

I trust they are still counting the votes …

Overall – despite the basic catering, I found the experience quite worthwhile. Before going to the AGM I planned to sell my SML shares, but now I am likely to hold (and accumulate on dips). Don’t expect huge SP gains anytime soon, but think this is a quite worthwhile long-term game, managed by the right people.

[BlackPeter]

and The Press was there as well ...

http://www.stuff.co.nz/business/farm...dailyheadlines

Not a particularly good article (and why all the focus on the well understood and old news cost overruns, they didn't take such a big part of the meeting)? But than, maybe thats the way the Press reporter deals with the somewhat meagre catering at the AGM, maybe (s)he is used to better stuff? Not sure,however whether this alone is a good excuse for cutting the price of Lactoferrin down by a factor of 100. A ton of that stuff brings $0.5M, not $5,000 as the article stated. Anyway - what do they say ... there is not such a thing than bad publicity ... just bad Press?

[percy]

No I was not at the agm,having sold some time ago when I thought [correctly] the sp had overrun itself.
The communications guy does not seem to be up to the job.Another person who seems to be unable to return phone calls.[part of the reason I sold].
I do note, everytime I drive past the factory, there is more expansion work going on,and also more of their tankers on the roads.

[The BOWMAN]

I am not too concerned about the milk price. What is more relevant to Synlait is the volume. While the price is down, it should help keep the volume up. And as mentioned above, their margin is likely to be better when milk price is low.

[BlackPeter]

looks like the Press wants to turn their turning up at the SML AGM into a sequel - here is the second installment :

http://www.stuff.co.nz/business/farm...dailyheadlines

Not really earth shattering stuff, but sounds like a fair representation of what happened at the AGM. And yes - was it really necessary to pay consultants to recommend a 10% pay rise for directors?

[K1W1G0LD]

Onwards and upwards again. Once Dairy prices stabilize............and that may have started already.