SML - Synlait

[KW]

I can't see Dairyworks being flogged. Apparently "Cashflow returned from Dairyworks to Synlait was outstanding" why would they flog off a "cash cow?

Because they may have no choice in the matter.  The end of the free money era means companies have to do what they have to do, or go bust.  If the banks won't lend, and their major shareholders and institutions wont cough up more money in a cap raising, they will be forced to flog the crown jewels.

[Minimoke]

Dairyworks EBITDA was $18m. Synlait bought it back in 2019 for 7.5 x EBITDA. So lets start there as a valuation = $135m. Less a discount for being a distressed seller.

Shall we say they could get $80 - $100m for it.

That would be an "earnings decretive" transaction and could knock off around 30% of total EBITDA.

Net debt is $518m So I don't think $100m will be enough.

Which means Dunsandel has to be put on the block. Haven't figured out a value for that yet But with B Corp certification I reckon that will sell at a significant premium.

[Minimoke]

Australia woken up and we are now down 22.4% to NZ$1.65

[Basil]

Coming up to their 10 year anniversary of listing on 23 July 2013.  Was floated nearly a decade ago @ $2.20 and this "growth" company has never paid a dividend since then.

WOW...that's quite a track record for the directors and management to be "proud" of.
I shudder to think how much they have scoffed out of the trough over the last ~ decade while delivering such "wonderful returns" to shareholders.

[Minimoke]

Coming up to their 10 year anniversary of listing on 23 July 2013.  Was floated nearly a decade ago @ $2.20 and this "growth" company has never paid a dividend since then.

WOW...that's quite a track record for the directors and management to be "proud" of.
I shudder to think how much they have scoffed out of the trough over the last ~ decade while delivering such "wonderful returns" to shareholders.

Blah, blah, blah. What do such trivialities like profit, dividend, increased share price mean when you can hold your head up high with your B Corp accreditation.

Take a day off to plant a tree, start your AGM's in Te Reo and colour your world pink. What more could an investor ask for.

A RainbowTick perhaps. Fonterra has Rainbow Tick and Synlaits new People and Culture manager came from there so I reckon investors can look forward to this in 2024!

[winner (n)]

Wonder if Director John Penno feeling rather sick as to what's happened over the last few months

Things really turned to custard since he stepped down from being Chairman a few months ago .....maybe he was inclined to be a little optimistic.

Must be hard seeing something he built up from scratch being close to bankruptcy

[Basil]

LOL, yeah what's the problem Minimoke 
Certified B Corp means that people and planet are on exactly the same level as shareholders so its really people and planet that are important.  Synlait can legitimately trumpet that the significant majority of stakeholders are doing extremely well indeed and therefore they can be incredibly proud of their ESG achievements and I am sure they will continue to trumpet exactly that!   Yeah, a Rainbow tick would be the icing on the cake to make this company a resounding success lol

[KW]

Blah, blah, blah. What do such trivialities like profit, dividend, increased share price mean when you can hold your head up high with your B Corp accreditation.

Take a day off to plant a tree, start your AGM's in Te Reo and colour your world pink. What more could an investor ask for.

A RainbowTick perhaps. Fonterra has Rainbow Tick and Synlaits new People and Culture manager came from there so I reckon investors can look forward to this in 2024!

I don't know about you but I'm excited by the upcoming advertising campaign featuring a transgender man chestfeeding.

[Minimoke]

I don't know about you but I'm excited by the upcoming advertising campaign featuring a transgender man chestfeeding.

It might be a good way of improving the uptake of their recyclable  / swapable milk bottles

[Minimoke]

Youch.$1.60 trade. When was the last time we saw someone lose 25% in a day?

[winner (n)]

From the other side.

Pink ASM preso for ASM hard on the eyes to read but I think I saw ambition to have more than $2.55 billion in revenues in F27 and a return on capital of 15% (F22 ROCE was 5%)

So planning 9% pa revenue growth but big jump in profits ... maybe as high as 30% pa

Share price recovered from that recent dip and at $3.18 back in that 310/350 trading range

With Customer S about to start buying and with what the 'new' team intends to do I reckon share price could be close to $5 by the time of next years ASM

Lot to like about Synlait

Posted early December ...not that many months ago. Such was the enthusiastic response share price shot up to $3.82

Maybe current problems just a hiccup along that path to those F27 targets.

They've had this to say about F23 profit

1 - reported $38m npat in F22 in September
2 - guidance given then was F23 profits will be returning to levels seen pre 2021 (about $75m).
3 - this guidance confirmed at ASM in early December
4 - at ASM pretty enthusiastic promotion of the F27 targets
5 - on December 22 full year guidance maintained but said first half profits will be less than pcp ...but no worries we'll catch up in second half
6 - March 17 and the the 'two your recovery now three years' bombshell with guidance cut to $15m - $25m
7 - March 26 H123 profit of $9m (adjusted) and the $15m-$25m full year guidance confirmed
8 - then month later break even will be an outstanding result.

That's some story they have told ....maybe not intentional but jeez one would have to say almost bordering on the irresponsible (and some might describe it in even worse terms)

I've asked NZRegco for their views of events

hope nobody on here got caught out after that spike up to $3.82 ......I feel guilty in being sucked in by their bull **** and saying things like 'a lot to like about Synlait' but don't worry about me cause I made a few bucks at the time

[Minimoke]

From the other side.

Posted early December ...not that many months ago. Such was the enthusiastic response share price shot up to $3.82

Maybe current problems just a hiccup along that path to those F27 targets.

They've had this to say about F23 profit

1 - reported $38m npat in F22 in September
2 - guidance given then was F23 profits will be returning to levels seen pre 2021 (about $75m).
3 - this guidance confirmed at ASM in early December
4 - at ASM pretty enthusiastic promotion of the F27 targets
5 - on December 22 full year guidance maintained but said first half profits will be less than pcp ...but no worries we'll catch up in second half
6 - March 17 and the the 'two your recovery now three years' bombshell with guidance cut to $15m - $25m
7 - March 26 H123 profit of $9m (adjusted) and the $15m-$25m full year guidance confirmed
8 - then month later break even will be an outstanding result.

That's some story they have told ....maybe not intentional but jeez one would have to say almost bordering on the irresponsible (and some might describe it in even worse terms)

I've asked NZRegco for their views of events

hope nobody on here got caught out after that spike up to $3.82 ......I feel guilty in being sucked in by their bull **** and saying things like 'a lot to like about Synlait' but don't worry about me cause I made a few bucks at the time

SML sure have some explaining to do. And they can't blame SAP implementation.

If people think ambulance chasers have a case against A2M for their reporting then I reckon they will have a much stronger case against SML - whose reporting appears to be so off the mark it is reckless. I wonder how the auditors are feeling.

Even today I don't think they are being honest. Seems to me a majors customer  has pulled the plug. In the absence of other information I presume it is the "New International Customer" (rumored to be Abbot - why the secrecy. Though if it is Abbot I can see why they wouldn't want that train wreck highlighted) whom SML have invested $million in plant to meet future demand. Wil that investment be written off?

[Basil]

You guys make some very fair points and my goodness, this feels like a re-run of the ATM downgrade fiasco which we know is the subject of at least 2 class action lawsuits.  Definitely a prima facie case to answer here.  Another class action lawsuit coming ?
In this case the question appears to be, by the time any such potential action proceeded through the courts, would there be any funds left for SML to settle ?

These guys stating targets for FY27 is some kind of sick joke.  They can't even see past the end of their own nose, let alone 4 years out. 

If they don't spend a lot more time navigating around the icebergs directly in front of them, they'll end up hitting one for sure.  Meanwhile all they appear to be doing is rearranging the deck chairs on the Titanic...     Yesterday's share price reaction was people starting to run for what few lifeboats remain. 


 

[Minimoke]

Lets have some fun and simply recklessly speculate.

A2M have approx. $800m in cash.

SML trading this morning at $1.52 with a market cap of $332m.

Lets say A2 make a takeover over.

A2 already own approx. 20%. So 80% of $332m is $266m. So they could offer all other shareholders this to allow them a safe exit at what could be a premium price (if you think this will continue to get worse - I do!) or a discount because things are going to get much better quicker (and for you I have a bridge to sell.)

Part of the deal would be a long term supply agreement via Bright Dairy to allow the Chinese to keep a stake in their nutrition supply plans.

And you put Pokeno on the block for say $100m. Yiili clearly have cash, Chinese are into long term investments so this could be a good buy for them.

So net A2M have to stump up with $166m. This would leave them $634m in cash. This will keep SML's current bankers very happy. Covenants would no longer be an issue.

A2 now get a SAMR certified factory producing  product at zero margin. They can create business synergies (say through SAP) between dunsandell and Mataura, as well as logistic port efficiencies and power supply efficiencies.

Sml shareholders are happy because they exit the train wreck with no further loss of capital.
Chinese are happy because they have long term supply arrangements
A2 shareholders are happy because of efficiencies and no further degradation of their SML capital investment
A2 customers are happy because there is tons of potential and guaranteed supply
NZ government happy because a company stays on NZ hands
NZ Famers happy because they now have a stable manufacturer.
Banks are happy because interest earnt on A2 cash deposits pays the interest on their loans
Bond holders are happy because SML hasn't gone into receivership.

Could Bright be the buyer. I don't think the govt would allow another chinese company to take over a south island dairy manufacturer. Chinese already have various stakes down here.

Could other buyer being interested. They may well be, but none have shown an interest in A2, and A2/Bright may block their buy.

[mcdongle]

Hasnt Pokeno been set up to supply Abbott??