Video | Agriculture | Confidence | Economy | Energy | Employment | Finance | Media | Property | RBNZ | Science | SOEs | Tax | Technology | Telecoms | Tourism | Transport | Search


Morgans picks 18% lift in Synlait profit on growing sales

Morgans picks 18% lift in Synlait profit on growing formula sales

By Rebecca Howard

Sept. 9 (BusinessDesk) - Morgans expects Synlait Milk to report a 17.5 percent lift in full-year profit this week, underpinned by strong growth in infant formula volumes, a bigger contribution from lactoferrin, and slightly larger ingredients volumes.

The forecast is largely driven by a 23 percent increase in canned infant formula volumes to 43,750 tonnes, Morgans' analysts Kurt Gelsomino and Belinda Moore said in a note.

A2 Milk's 47 percent lift in formula sales and "the strong Lyttelton Port data suggests the company is on track to hit the higher end of this range," they said. Total formula exports from Lyttelton to Australia, China and Hong Kong rose 38.4 percent for the 12 months to June 30, and 29.6 percent for the 12 months to July 31.

Synlait has forecast production of 41,000-45,000 tonnes of canned infant formula in the year to July 31.

Morgans also said Synlait has doubled its lactoferrin production capacity to around 36 tonnes and Synlait has forecast production of around 27 tonnes in the year to July 31.

With pricing reportedly strengthening since the first half result, Morgans expects the second half gross profit margin to be around $550,000 per tonne and FY19 lactoferrin gross profit of $12.2 million compared to $4.4 million in FY18.

"Lactoferrin comprises around 6 percent of our FY19 gross profit forecast and the favourable pricing environment is providing an earnings tailwind," Morgans said.

It also forecasts 7 percent growth in Synlait's annual ingredient sales volumes.

Synlait is due to report on Thursday but has not provided earnings guidance. It said profitability is expected to increase at a slower pace than the prior year's 89 percent jump to $74.6 million.

Morgans said it expects Synlait to provide guidance on infant formula sales volumes for the current financial year. The research house forecasts 51,600 tonnes for the 2020 year, up 18 percent.

Morgans predicts Synlait will report a net profit of $104.5 million for the current financial year, up 19 percent, rising to $126.7 million in the 2021 financial year.

The researchers lowered their price target for Synlait to A$9.60 from A$10.10, due to the weaker New Zealand dollar. The stock recently traded at A$8.80 on the ASX and at $9.44 on the NZX.

"We remain attracted to Synlait's position as a leading manufacturer of value-added dairy products, its strong value chain, positive leverage to A2 Milk’s infant formula growth in China, capacity to capitalise on a favourable lactoferrin pricing environment and solid return on capital profile, particularly relative to other dairy peers," the analysts said.

They also expect an update on Pokeno's commissioning timeline after the company appealed the reinstatement of land covenants on the site.

Synlait's February 2018 land purchase there was conditional on the seller, Stonehill Trustee, procuring the removal of the covenants which restrict the site's use to grazing, lifestyle farming or forestry. A High Court decision in November removed the covenants and then Synlait took the title of the land.

However, the owner of adjacent land, Ye Qing, won an appeal in the Court of Appeal in May which overturned the decision to remove the covenants.

Synlait filed an application to appeal to the Supreme Court to have the decision overturned in June. A hearing has been scheduled on Oct. 21 to consider whether leave for an appeal will be granted.

Synlait has reiterated that Pokeno’s timeline remains unchanged and that it expects to commission the plant in line with its original target of late September.

It has also said it does not expect the current legal proceedings will impact the company’s ownership or future use of the plant and believes the market has ‘overestimated’ the cost of any potential settlement.

However, "clearly, the issue is overhanging the stock and we continue to see a timely and cost-effective resolution as an important catalyst to de-risk Synlait's growth outlook and support a re-rating," said Morgans.


© Scoop Media

Business Headlines | Sci-Tech Headlines


Economy: COVID-19 Lockdown Has Widespread Effects On Labour Market

In the June 2020 quarter, the seasonally adjusted unemployment rate fell to 4.0 percent, down from 4.2 percent last quarter, while underutilisation rose, Stats NZ said today. More>>


NZ Post: New Research By NZ Post Shows Online Shopping Grew 105% In Alert Level 3

New research by NZ Post into how the COVID-19 response has impacted the way Kiwis shop online, shows online shopping increased 105%* when the country moved into Alert Level 3, and may have changed the way Kiwis shop permanently. Online spend peaked ... More>>


Banking: Westpac NZ Lowers Merchant Fees For Small Businesses

Westpac NZ is rolling out a new merchant fee pricing structure that will lead to cost savings for more than 10,000 small and medium Kiwi businesses, and could make contactless transactions more widely available for customers. On 1 September, most ... More>>

REINZ: Million Dollar Plus Property Sales Increase 11.7% Nationally

The number of properties sold around the country for one million dollars or more during the first half (H1) of 2020 increased by 11.7% compared to H1 2019, with 5,426 million-dollar plus properties sold (up from 4,858 in H1 2019) according to the Real ... More>>

Waste: Government To Regulate Plastic Packaging, Tyres, E-Waste

The Government is stepping up action to deal with environmentally harmful products – including plastic packaging, tyres and e-waste – before they become waste. As part of the wider plan to reduce the amount of rubbish ending up in landfills, ... More>>


Bankers Association: Banking Becomes First Living Wage Accredited Industry

Banking has become New Zealand’s first fully living wage accredited industry, leading to nearly 1800 employees and contractors moving onto the living wage and gaining greater economic independence for them and their families. As of today, all ... More>>


QV Valuations: July House Price Index Illustrates Market Resilience

According to the July 2020 QV House Price Index (HPI) results out today , property values recorded a marginal increase, up 0.2% over the month. This is somewhat of a turnaround from June, after the national index edged 0.2% lower. More>>


Property: Queenstown Rents Experience Biggest Drop In Seven Years

Rental prices in the Queenstown-Lakes district saw the biggest annual percentage drop in seven years after falling 28 per cent on June last year, according to the latest Trade Me Rental Price Index. Trade Me Property spokesperson Aaron Clancy said ... More>>

Seismology: The Quiet Earth

As many daily activities came to a halt during lockdown, the Earth itself became quiet, probably quieter than it has been since humans developed the technology to listen in. Seismologists have analysed datasets from more than 300 international ... More>>

RNZ: James Shaw Says Kiwibank, Not Ministers Should Decide On Investors

Climate Change Minister James Shaw says Kiwibank's decision to stop doing business with companies dealing in fossil fuels is the right one. More>>


FMA: Kiwis Confident Financial Markets Will Recover From COVID-19, Plan To Increase Investments

Despite the majority (60%) of investors experiencing losses as a result of COVID-19, the outlook on investing remains positive, according to a Financial Markets Authority (FMA) survey. Most Kiwis (71%) were optimistic that the pandemic will pass eventually ... More>>

FIRST Union: Warehouse Using Covid For Cover As Extensive Restructure Makes Everyone Worse Off

(FIRST Union comments on The Warehouse consultation and proposed restructure) 'Unfortunately the Warehouse have done the disappointing thing and used Covid-19 to justify a bunch of operational business decisions that will leave hundreds of workers without jobs ... More>>


Stats NZ: Mixed Performance By Regions Leaves National Emissions Picture Unchanged

Approximately two-thirds of New Zealand’s regions recorded decreases in their total greenhouse gas emissions, while one-third of regions saw increases between 2007 and 2018, Stats NZ said today. “While some regions reduced their emissions, ... More>>