SML - Synlait

[Minimoke]

Dismal volumes though

That it was. It will be an interesting week coming up to results day.

But back to the news. Heard on the radio tonight its Abbott who is the mystery international customer. I wonder why SML are so reticent about letting the name out?

[Buzz]

That it was. It will be an interesting week coming up to results day.

But back to the news. Heard on the radio tonight its Abbott who is the mystery international customer. I wonder why SML are so reticent about letting the name out?

That's the AFR I think, reporting that Abbott is possibly the new customer, but they don't/can't substantiate that. No way SML should communicate that if they don't have a signed contract, so that suggests ... they don't, yet.

SML have been to-date rightly rogered good and proper, one could suggest a short term trade may be emerging leading into the results, they've covered the debt situation for the meantime and slammed ATM's contention around supply which will take at least a year or so to resolve, so if they say bingo a new customer, well. They also hold the coveted and extremely important SAMR that ATM relies on. SML aren't going away anytime soon, if they did, both would be farked.

It's technically massively oversold on sustained market pessimism. For the gamblers, this is looking more and more like a nice setup to coin some upside on even a skerrick of good news. Maybe worth a small punt with a tight stop loss.

Pity that we can't even do trailing stop losses on our primitive broker platforms. Let alone any more sophisticated trading strategies.

[Basil]

At best a VERY high risk short term trade only, (maybe you are better off at the Casino on red or black on the roulette wheel even if SKC couldn't care less about problem gamblers), because we have NZX50 exit coming up in December and it will be interesting to see the impact on the share price as this is illiquid at the best of times and index tracking funds dumping significant amounts of stock in the lead-up to the index exit on 15 December, (I expect confirmation of exit by Dow Jones Indices on Saturday 2 December our time and intense selling pressure to build in the following 2 weeks trading leading up to match price close on exit day).

I'm not sure I agree it's been "rogered enough" Fully deserving of penny dreadful status (under 50 cents) in my opinion.  In terms of bringing trouble on themselves it seems the Synlait team simply don't know how to get out of their own way.  I think comms between ATM and SML are very strained at best, probably more accurate to call the parties, now 'hostile"

With no formal announcement yet to this so called major new customer, no announcement on the divestment of assets, approx break even operationally, a very heavily geared balance sheet and tensions in the boardroom at record level's, you'd be a very brave man indeed to be wading in there in any volume at this point in time.  Good luck if you do, I won't be joining in at this stage.

[Crackity]

That's the AFR I think, reporting that Abbott is possibly the new customer, but they don't/can't substantiate that. No way SML should communicate that if they don't have a signed contract, so that suggests ... they don't, yet.

SML have been to-date rightly rogered good and proper, one could suggest a short term trade may be emerging leading into the results, they've covered the debt situation for the meantime and slammed ATM's contention around supply which will take at least a year or so to resolve, so if they say bingo a new customer, well. They also hold the coveted and extremely important SAMR that ATM relies on. SML aren't going away anytime soon, if they did, both would be farked.

It's technically massively oversold on sustained market pessimism. For the gamblers, this is looking more and more like a nice setup to coin some upside on even a skerrick of good news. Maybe worth a small punt with a tight stop loss.

Pity that we can't even do trailing stop losses on our primitive broker platforms. Let alone any more sophisticated trading strategies.

Interesting to ponder whether Pumpkin Patch or Feltex ever looked massively oversold on their charts too?

Hmmmm.....

[Teitei]

Games being played behind the scenes imo.

Market cap currently at $255m which is less than the $280m paid by ATM for 20% of the company.

I have not worked out what Bright Food paid for their 40% but it will be a lot more than $500m.

Now why would ATM deliberately spike their strategic investment in SML?

[winner (n)]

Games being played behind the scenes imo.

Market cap currently at $255m which is less than the $280m paid by ATM for 20% of the company.

I have not worked out what Bright Food paid for their 40% but it will be a lot more than $500m.

Now why would ATM deliberately spike their strategic investment in SML?

Fun and games eh

How does a mere mortal make money out of this?

Buy Synlait and hope for a $2 takeover?

Other ideas

[Teitei]

Fun and games eh

How does a mere mortal make money out of this?

Buy Synlait and hope for a $2 takeover?

Other ideas

One way or the other, SML will be fixed by Bright Foods/ATM as there is too much at stake for both.

The issue for me is one of timing as to when to get in.

At this stage, the big unknown is how much they will get for the asset sales (will get rather than may get imo).

[Ferg]

For sure - you would expect people to park their egos in their pursuit of $$$.  Why pay $2 for something when you can buy it for $1?  I hope for holders sakes this not about egos.

[Teitei]

For sure - you would expect people to park their egos in their pursuit of $$$.  Why pay $2 for something when you can buy it for $1?  I hope for holders sakes this not about egos.

There is such a thing as 'saving face' with the Chinese.  Something to watch out for.

[Basil]

Could be worth a cheap, nasty and risky punt when it gets booted out of the NZX50 in Dec. Would need to be very cheap to get my interest.

[lorraina]

Too much debt for me.

[Minimoke]

As expected a $4.3m loss from a profit of $38.5 last year.

But what of the state they are currently in? So I first head to the asset / liabilities section and I am wondering how they are a going concern.

Cash on hand $9.3m down from $14.5 last year.

And from that they have to pay Account payables which are $281m.
Maybe they are relying on account receivables which are $83m

So on day to day trading they are short $188.7m

And lets just have a look at wages. About $6.7m a month. So cash on hand means they can meet this months payroll.

So, to start it looks like they only have enough cash to pay this months wages without worrying about amounts due to suppliers.

But lets look at the debt. Current loans and borrowings $243.7m. Up from $58.8 last year. Add on long term loans and borrowing s of $179m (bonds) I get $422.7m Up from $354.4m last year.

In the last update Synlait said they had new debt facilities of $480m. But they are now carry  $422.7 in debt and stil need to find $188.7 to pay net payables. Which gives me a short fall of $131m (which excludes paying wages)

If we take the bonds out there is only $48.3m in debt head room

And if we look at current liabilities vs current assets theres a gap of $62m. Which can't be filled by the debt head room

They really, really need to sell Dairy works / Talbot or there's a capital raise on the horizon.

[Minimoke]

I was looking for the forwarward guidance statement. Found it. There is none. So company and shareholders are flying blind.

Is the new "International customer" SAVENCAI group? JOYHANA branded UHT cream sold to them for margin attainment of approx ($0.2 million). Other than that no mention of the new International Customer.

[winner (n)]

They say Operating Cash Flow $39m ....but take interest and lease payments off it goes NEGATIVE

Not good

[Basil]

You guys are right, its uninvestable at any price.
So many lessons already from studying this slow-motion train wreck over recent years.
I suspect Bright Dairy are quite happy to let this fall into receivership in due course and pick up the pieces for cents on the dollar.
I predict this. On Saturday 2 December our time, S&P Global will announce their exit from the NZX50 effective from close of trade on 15 December.
Anyone left holding the baby then is going to find themselves in a world of hurt as serious selling pressure comes on this highly illiquid stock.