Synlait Milk May Downgrade Its Current Milk Price Expectation

  • Nov 28, 2018 AEDT
  • Team Kalkine
Synlait Milk May Downgrade Its Current Milk Price Expectation

Synlait Milk shares surged on the day of its 2018 Annual General Meeting as its stock price edged up by 3.145% to last trade at $8.200 on 28 November 2018.

In 2018 Annual General Meeting, Synlait Milk signaled that the company may adjust its current in-market milk price going forward.

Synlait’s new Chief Executive Officer Leon Clement told that “the forecast for FY19’s in-market milk price at $6.75 kgMS seems to be a challenge for the company about its current market conditions. Mr. Clement added that the company’s next update slated to be released by the end of January 2019 may unveil the lower in-market milk price guidance. 

For Fiscal Year 2018, Synlait Milk Limited (ASX: SM1) almost doubled the profit year-on-year to $74.6 million, ahead of all previous results. Moreover, its earnings before interest, tax, depreciation and amortization (EBITDA) increased 56% to $138.6 million for the year ended 31 July 2018.

The substantial growth in earnings and profit of the company is by 89% increase in consumer-packaged infant formula sales volumes along with an uplift in dairy commodity prices. But due to this shift to consumer-packaged products, the company has been hit by the restrictions that limits the amount of milk, the company can process in peak production months. As a result, its total sales volume was down 9.0% over FY17 to 128,637 MT and on production end total milk processed fell to 60.8 million kgMS in FY18, from 65.0 million kgMS in Fiscal 2017.

During 2018 the company has strengthened its relationship with the a2 Milk Company with the extension of supply agreement which translates an increase of a2 Milk’s shareholding in Synlait which reaffirmed their long-term supply agreement for infant formula and other nutritional products.

On capital projects front, the company confirmed that its new dairy processing factory at Pokeno will be commissioned in 2019 or 2020 milk season. However, the company’s advanced liquid dairy facility is reportedly on track to become fully operational in March 2019 followed by the completion of Talbot Forest Cheese acquisition in August 2019.

Driven by the sound operating cash flow and debt facilities available with the company, the total of $103.8 million was deployed into company’s five growth initiative projects during FY18. However, despite incurring these expenditures the net debt to EBITDA ratio was maintained at low level of 0.8x compared to 0.9x in FY17.

Looking into full Fiscal Year 2019, Synlait Milk expects continued growth in a2M volumes and future growth in Munchkin’s Grass Fed ANZ sales across both domestic and cross-border channels. In the AGM presentation, the company reported that all approvals required for Anew Hope’s Akara and Bright Dairy’s Pure Canterbury brands are expected to come in Fiscal Year 2019.

Over the past one year, (ASX: SM1) stock has witnessed a positive performance change of 15.22% but has fallen by 27.79% on ASX in three months.


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