New Zealand Professional Investment Services Firm, Forsyth Barr

Forsyth Barr

New Zealand Professional Investment Services Firm

We are proud to be a New Zealand owned firm, with 21 offices throughout the country and over 300 employees. We assist personal, institutional and corporate clients providing a full range of investment services.

Forsyth Barr is a foundation New Zealand Exchange firm (NZX) and accredited market participant. We have been confirmed by the Financial Markets Authority as a Qualifying Financial Entity (QFE).

Research is the cornerstone of our advice. We have one of New Zealand's leading teams of analysts. Our global affiliations ensure comprehensive research coverage of all major investment markets.

Equity Bottom-Up

<ul><li>Despite confirming consensus expectations less than three months ago, Synlait Milk's (SML) -60% FY23 NPAT downgrade again highlights (1) the high degree of operating leverage within the business, and (2) transparency on key drivers remains very limited</li><li>Headline valuation multiples (~11x FY24 PE and ~0.9x FY24 EV/IC) are not overly demanding, particularly relative to its own history.</li><li>To justify a change in investment view we require evidence of strategic execution to gain confidence in SML's earnings and returns trajectory.</li></ul>

Despite confirming consensus expectations less than three months ago, Synlait Milk's (SML) -60% FY23 NPAT downgrade again highlights (1) the high degree of operating leverage within the business, and (2) transparency on key drivers remains very limitedHeadline valuation multiples (~11x FY24 PE and ~0.9x FY24 EV/IC) are not overly demanding, particularly relative to its own history.To justify a change in investment view we require evidence of strategic execution to gain confidence in SML's earnings and returns trajectory.

<ul><li>Synlait Milk (SML) has provided first-time FY23 NPAT guidance of NZ$15-25m. This is well below us and market consensus (~NZ$53m).</li><li>SML’s guidance follows its late December 2022 1H23 (six months to January 2023) earnings guidance for NPAT to be &lt;NZ$14.5m.</li><li>SML now expects its two year recovery plan to take three years – implying FY25 NPAT of ~NZ$75m (previously expected to return to these levels in FY24).</li></ul>

Synlait Milk (SML) has provided first-time FY23 NPAT guidance of NZ$15-25m. This is well below us and market consensus (~NZ$53m).SML’s guidance follows its late December 2022 1H23 (six months to January 2023) earnings guidance for NPAT to be &lt;NZ$14.5m.SML now expects its two year recovery plan to take three years – implying FY25 NPAT of ~NZ$75m (previously expected to return to these levels in FY24).

Synlait Milk (SML): FY23 Guidance – Déjà Vu – Another Downgrade

<ul><li>Synlait Milk's (SML) 1H23 guidance for normalised NPAT to be below 1H22 (NZ$14.5m) appears to be a timing issue — it is not quite as the headline suggests</li><li>The positive is there is no change to key medium-term value drivers</li><li>The negative is SML's 1H23 ingredients and lactofferin volumes are well below our prior expectations, which is likely to drive a sequential net debt increase in 1H23 and keep gearing elevated (for now)</li></ul>

Synlait Milk's (SML) 1H23 guidance for normalised NPAT to be below 1H22 (NZ$14.5m) appears to be a timing issue — it is not quite as the headline suggestsThe positive is there is no change to key medium-term value driversThe negative is SML's 1H23 ingredients and lactofferin volumes are well below our prior expectations, which is likely to drive a sequential net debt increase in 1H23 and keep gearing elevated (for now)

<ul><li>Synlait Milk (SML) has provided 1H23 profit guidance to be “down” on 1H22.</li><li>FY23 qualitative guidance is unchanged and SML still expects net debt to EBITDA to be between 2.0x to 2.5x.</li><li>We currently forecast a net debt decline to NZ$301m (from NZ$340m at FY22) and EBITDA of NZ$157m (ND/EBITDA of 1.92x).</li></ul>

Synlait Milk (SML) has provided 1H23 profit guidance to be “down” on 1H22.FY23 qualitative guidance is unchanged and SML still expects net debt to EBITDA to be between 2.0x to 2.5x.We currently forecast a net debt decline to NZ$301m (from NZ$340m at FY22) and EBITDA of NZ$157m (ND/EBITDA of 1.92x).

<ul><li>Synlait Milk (SML) reported a solid FY22 result broadly in-line with our and consensus expectations showing robust execution against what remains a difficult backdrop</li><li>FY22 was SML's first period of positive free cash flow since FY17 as it exits its elevated capex phase</li><li>The key positive in the result was debt reduction ahead of our expectations driven by working capital improvements</li></ul>

Synlait Milk (SML) reported a solid FY22 result broadly in-line with our and consensus expectations showing robust execution against what remains a difficult backdropFY22 was SML's first period of positive free cash flow since FY17 as it exits its elevated capex phaseThe key positive in the result was debt reduction ahead of our expectations driven by working capital improvements

Synlait Milk: FY22 Result — Edging Ahead

New Zealand

Seeka Limited operates as a produce company. The Company produces apricots, cherries, pears, plums, bananas, papaya, kiwiberries, pineapples, kiwifruits, and avocado. Seeka offers professional orchard management services to kiwifruit growers.

Allied Farmers Limited is a New Zealand regional rural servicing company.  The Company offers its clients access to a range rural services including merchandising and bulk farm supplies, advice and trading in livestock, crop advice, wool storage and handling facilities, financial services and specialized regional real estate services.

New Zealand Coastal Seafoods Limited provides and distributes marine products. The Company offers various types of seafood. New Zealand Coastal Seafoods serves customers in New Zealand.

Good Spirits Hospitality Limited operates as an investment company. The Company offers sustainable cash flows, organic growth, and acquisition services. Good Spirits Hospitality serves customers in New Zealand.

New Zealand King Salmon Investments Limited provides fish farming services. The Company produces, grows, and sells salmons products. New Zealand King Salmon Investments serves customers worldwide.

PGG Wrightson Limited is a farm service organization on the South Island, operating in Otago and parts of Southland. The Company's operations include wool scouring and dumping, wool and livestock trading, farming financial services, residential real estate and retail farming merchandising, which includes animal health and nutrition and pasture improvements.

Livestock Improvement Corporation Limited provides herd improvement services to farmers in New Zealand.  The services provided by the Company include herd testing, animal health management, on farm consultancy, progeny testing, DNA analysis, artificial breeding and research and development.

T&G Global Limited is a domestic and international fruit and produce wholesale company. The Company wholesales fruits, vegetables and fresh flowers. The Company also manufactures fruit and vegetable products like juices and other ingredients for the food and beverage industry.

Fonterra Cooperative Group Ltd is a New Zealand multinational dairy co-operative and its farmer shareholders are the suppliers of milk to Fonterra in New Zealand. The Company operates Fonterra Shareholders' Fund, which provides additional financial flexibility for farmer shareholders who would have the opportunity to sell economic rights of shares to the fund.

Sanford Limited owns and manages deepwater and inshore fisheries throughout New Zealand waters.  The Company also operates cool-storage, ship-building, engineering and aquaculture businesses.  The Company exports seafood throughout the world.  The Company's seafood products include orange roughy, squid, hoki, tuna, mussels and salmon.

Honworld Group Limited manufactures and sells cooking wine. The Company offers a mixture of naturally-brewed yellow rice wine and naturally-brewed cooking wine.

Foodwell Corporation processes agricultural products such as peeled chestnuts and produces strawberry syrups.  The Company also manufactures jam, juice, frozen fruits, and canned fruits.

Riverview Rubber Estates Berhad cultivates rubber and oil palm in Malaysia.

Seoul Food Industrial Co., Ltd. produces bakery goods and snacks.  The Company also manufactures animal feedstuff and food waste disposal system.

TS Flour Mill Public Company Limited operates as a flour milling company. The Company produces noodle, bread, biscuit, cake, dough stick, and steamed bun flour. TS Flour Mill serves customers in Thailand.

McLeod Russel India Ltd.  cultivates, manufactures, and markets tea. The Group owns tea estates in Assam and Dooars.

Besunyen Holdings Company Ltd. processes and markets tea.  The Company produces both traditional and herbal teas.

NICHIWA SANGYO CO., LTD. produces mixed feed with poultry feed as its main product line.  The Company also raises livestock for the purpose of bioengineering research.

Global Palm Resources Holdings Limited is an agricultural company. The Company's activities include cultivating oil palms, harvesting of FFB from our oil palm plantation, and processing them (together with purchased FFB) into CPO and palm kernels.

NICHIRYO BAKING CO., LTD. makes and sells bread and pastries.  The Company also operates restaurants and manages real estate.

Synlait Milk Ltd is a milk production company.  The Company produces, processes, markets and distributes milk, milk powder products and ingredients.

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Synlait Milk (SML NZ)

Synlait Milk: As Clear As Milk

Despite confirming consensus expectations less than three months ago, Synlait Milk's (SML) -60% FY23 NPAT downgrade again highlights (1) the high...

Forsyth Barr

Synlait Milk (SML): FY23 Guidance – Déjà Vu – Another Downgrade

Synlait Milk (SML) has provided first-time FY23 NPAT guidance of NZ$15-25m, wherein its guidance follows its late December 2022 1H23 (six months to...

Forsyth Barr

Synlait Milk: Timing Is Everything?

Synlait Milk's (SML) 1H23 guidance for normalised NPAT to be below 1H22 (NZ$14.5m) appears to be a timing issue — it is not quite as the headline...

Forsyth Barr

Synlait Milk (SML): 1H23 Guidance Update

Synlait Milk (SML) has provided 1H23 profit guidance to be “down” on 1H22: We understand this applies to normalised NPAT (NZ$14.5m in 1H22 after...

Forsyth Barr

Synlait Milk: FY22 Result — Edging Ahead

Synlait Milk (SML) reported a solid FY22 result broadly in-line with our and consensus expectations showing robust execution against what remains a...

Forsyth Barr

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