Synlait (SM1) share price lower with margin squeeze

Stock

Synlait Milk (SM1) $8.26 as at 12/09/2019

Event

New Zealand based dairy processing and products company Synlait, a new addition to the S&P/ASX 300 index has seen its shares tumble today on a soft full year report that missed at the profit line by more than 6%.

A small miss on the revenue line was exacerbated at the bottom line as margins were compressed on both sides of the equation. Costs moved higher, with overheads up over 14% as the company focusses on R&D and increase headcount ahead of new facilities coming online. On the price received side, the average milk price per kgMS fell 3% in the year and would have been worse if not for an increase in incentive payments.

The outlook statements for SM1 were behind consensus as well. The company is looking for “profitability increasing at least at a similar rate to that of FY19” which suggests at least 10% profit growth to get $NZ 90.4m, well below current FY20 expectations of $NZ 104m.

Synlait (SYR) Chart

Market Matters Take/Outlook

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