SML - Synlait Milk Ltd

[BlackPeter]

Expect so, creates a an uber bargain for those anticipating a re-rating when SML joins the ASX before xmas. Forward PE is presently 12% or so and analysts have just revalued SML up to $3.74.

http://www.4-traders.com/SYNLAIT-MIL...761/consensus/

I think we could even see a pop when they announce the ASX listing date, that must be soon given a pre-xmas launch, and they will want to launch on the ASX prior to the November agm so as to have something to brag about on the day I reckon.

LOL - this price target of $3.74 is coupled with a recommendation of "underperform".

Now - I don't know whether the analysts are right with their "underperform" rating or with their price target, but they can't have it both, can they? Probably just a typo ... they really meant $2.74;

What I do know however is, that it is a myth to expect an ASX listing to automatically push the SP up. Yes, there are some (few) examples where it did, but it can do less pleasant things to your SP as well. If you want to know more about that - have a look at PPH or (just happening) TIL. Both downtrends are inspirational and can be highly educational (for whoever wants to learn).

Discl: not holding;

[iluab]

I wouldn’t underestimate the demand from A2M retail investors alone, Synlait are quite well known already on the aussie market as a quality production co and there will be insto and retail anticipation already brewing because of that. We are not talking about scented candles or spec tech co's here.

I see it more of an MHI type compliance listing, lot’s of pent anticipation for an established co, and a pop to full value perhaps over valuation as the market takes it up.

Time will tell, I’m buying at these levels, for the long term, perhaps with an ASX kick start.

[ratkin]

What I do know however is, that it is a myth to expect an ASX listing to automatically push the SP up. Yes, there are some (few) examples where it did, but it can do less pleasant things to your SP as well.

Discl: not holding;

Most of the time it is just a wasted cost with very little benefit.

[iluab]

Given Synlait were growing WMP, AMF and Lactoferrin production capacity during the downturn, this can only and positively to FY17 earnings guidance.

http://www.scoop.co.nz/stories/BU161...wder-soars.htm

GDT.jpg

[BlackPeter]

Given Synlait were growing WMP, AMF and Lactoferrin production capacity during the downturn, this can only and positively to FY17 earnings guidance.

http://www.scoop.co.nz/stories/BU161...wder-soars.htm

GDT.jpg

Not really. Synlaits business is basically "clipping the ticket". They don't make money from selling milk, but they get paid for processing milk, whatever the milk price.

Obviously - they only can exist if farmers get enough money to keep supplying them (i.e. there is some value for them in a sustainable milk price), but other than that (and potentially a mood change re dairy industry) would a lower milk price even be good for them (increasing demand and with that throughput).

[iluab]

Not really. Synlaits business is basically "clipping the ticket". They don't make money from selling milk, but they get paid for processing milk, whatever the milk price.

Obviously - they only can exist if farmers get enough money to keep supplying them (i.e. there is some value for them in a sustainable milk price), but other than that (and potentially a mood change re dairy industry) would a lower milk price even be good for them (increasing demand and with that throughput).

I think you will find if you actually read the annual reports that Synlait margins increase significantly with GDT, not calling you out, just saying.

In 2013 at the GDT peak gross margins were 27%, they droped to 12% at the GDT lows and are now on the rise again as GDT recovers, presently circa 20%.

[BlackPeter]

I think you will find if you actually read the annual reports that Synlait margins increase significantly with GDT, not calling you out, just saying.

In 2013 at the GDT peak gross margins were 27%, they droped to 12% at the GDT lows and are now on the rise again as GDT recovers, presently circa 20%.

Didn't check your numbers, but if they are correct, than this is probably more a reflection on high demand for processing milk powder than on high milk prices.

Obviously - there is some correlation, but the margins for producers (farmers) and processors (Synlait or Fonterra) are not 1-to-1 connected.

Sure - if there is an oversupply of milk AND processing capacity, margins will go down for farmers and processors.

The opposite is true if both supply and processing capacity is short (margins for both will go up).

However - if milk prices go up (due to a shortage of supply) than there is no reason for processing margins to go up (as long as there is sufficient processing capacity).

As well - if milk demand increases but there is plenty of supply (remember all these US farmers currently spilling their milk) but processing capacity is short, milk will stay low but processing margins will go up.

Synlait is for milk what a refinery (e.g. NZR) is for oil ... high petrol prices don't necessarily mean high refinery profits and vice versa.

And if you don't trust me ... John Penno confirmed various times that Synlait's profits are correlated with the processed volume, not with the price of milk paid to farmers ...

[iluab]

Margins are also a function of efficiencies, Synlait have also recently constructed a forth dryer which is coming up to full capacity. Net margins at FY reporting were at record highs at 6.3%, who knew aside from well researched investors.

My financial interpretation is that Synlait have become a pretty slick efficient operation during the GDT downturn, and have not been deterred from increasing capacity at a time when the sector has been suppressed, they profitably doubled their value added lactoferrin capacity alone during that time.

On a sector cyclical basis there is not going to be a better time to BUY Synlait in my opinion, if one believes GDT has stabilized or is recovering to mean reversion levels.

Add to that the pending ASX listing which, if nothing else, will have the Aussie investors and insto's determining fair value, analyst consensus is presently $3.74, although I could easily see retail investors taking that into the $4 overvaluation range, just as they did with established earners MHJ and A2M when they listed.

Synlait as a growth co has a forward PE of only 15 on the sleepy NZX, Bega Cheese on the ASX as a cyclical has a forward PE of 25.3.

Boom times ahead for Synlait, mark this post.

[BlackPeter]

Margins are also a function of efficiencies, Synlait have also recently constructed a forth dryer which is coming up to full capacity. Net margins at FY reporting were at record highs at 6.3%, who knew aside from well researched investors.

My financial interpretation is that Synlait have become a pretty slick efficient operation during the GDT downturn, and have not been deterred from increasing capacity at a time when the sector has been suppressed, they profitably doubled their value added lactoferrin capacity alone during that time.

On a sector cyclical basis there is not going to be a better time to BUY Synlait in my opinion, if one believes GDT has stabilized or is recovering to mean reversion levels.

Add to that the pending ASX listing which, if nothing else, will have the Aussie investors and insto's determining fair value, analyst consensus is presently $3.74, although I could easily see retail investors taking that into the $4 overvaluation range, just as they did with established earners MHJ and A2M when they listed.

Synlait as a growth co has a forward PE of only 15 on the sleepy NZX, Bega Cheese on the ASX as a cyclical has a forward PE of 25.3.

Boom times ahead for Synlait, mark this post.

I assume you hold and want to get others to push the SP up - right? Remember - dairy is very cyclical - and what goes up will come down.

I do agree that SML is a good company, though last time I visited them (last AGM) they still had some problems with their production line. I don't know whether their SP has now bottomed out (though the trend line does not really look that way - nice down trend, isn't it?). Typically (but not always) after CR's goes the SP below the issue price - and I think it will do this here as well.

Anyway - I do know that they will need more money than they raised this time (and 2018 might be a good time for that), i.e. whatever you are buying at the moment is just a "right" to put in more money next time.

Still - for the impatient investor it might be a good time to buy in when the current bottom is confirmed (i.e. not yet).

For the more patient a good time might be after the next CR (to fund their second site).

Whatever the respective investor profile - I don't think there is any rush. Just sit back, enjoy the action and watch the SP dropping - and (if you are an inpatient investor) buy in when you notice the trend to change.

Discl: not holding - and enjoying the show

[iluab]

I think you may find with some research that the $300m for the next expansion is roughly allocated to one third equity, one third debt (which has been reducing) and one third from forward earnings. So, NO, it's unlikely we will see another capital raising within the next couple of years, thats done now.

Agree the NZX will take the shareprice to the CR at $3 on low local day trader volume as it does, the next catylst will correct that, and we are due for an ASX announcement and earnings guidance next month which I'm expecting to suprise to the upside.

I'm not interested in trying to time low volume bottoms, waste of ones time really, anytime about here for an entry is optimal from a long term growth or value investors perspective.

Miss out if you wish, or be in, it really matters not to me, but the upside potential on a balanced risk reward basis is pretty damn good right now for those that do.