New Zealand Professional Investment Services Firm

Forsyth Barr

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).

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New Zealand Professional Investment Services Firm, Forsyth Barr

Equity Bottom-Up

<h2>Synlait Milk<br>FY20 Preview; A Lot Still to Digest</h2>
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<p><strong>NEUTRAL</strong></p>
<p>There is much to be discussed when&nbsp;Synlait&nbsp;Milk (SML) reports its FY20 result on Monday 28 September.&nbsp;SML's&nbsp;longstanding guidance range is wide, which, coupled with low visibility on key drivers,&nbsp;leaves room for differences to market expectations.&nbsp;A lot has&nbsp;changed over the past 12 months including (1) material capital investment for the next phase of growth, (2) a surprise profit warning from&nbsp;SML&nbsp;in February 2020, (3) move into NZ processing from its key customer, The a2 Milk Company, (4)&nbsp;Pokeno&nbsp;Supreme Court hearing, (5) larger move into Everyday Dairy, with the acquisition of&nbsp;Dairyworks&nbsp;and&nbsp;(6)&nbsp;COVID-19. We are interested in an update on all these areas, as well as any progress with new customers and first-time FY21 outlook.</p>
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<h3>Key points of interest</h3>
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<li><strong>FY20 result itself</strong>: Longstanding guidance (first provided in February 2020) is wide, for NPAT of NZ$70–85m (-15% to +3% versus FY19). Our forecast is NZ$80m, slightly below the prior year (-3%).</li>
<li><strong>FY21 outlook</strong>:&nbsp;Growth will be underpinned by the recent&nbsp;Dairyworks&nbsp;acquisition.&nbsp;We look for an update on: Everyday Dairy strategy, plans for capacity utilisation across the group, cost &amp;&nbsp;capex&nbsp;outlook and any insights on its key finished infant formula category (volumes and margins).</li>
<li><strong>Balance sheet</strong>:&nbsp;Is FY20 the gearing peak? This is our view, which we look to test at the result.</li>
<li><strong>Capacity, costs and customers</strong>:&nbsp;Recent expansionary&nbsp;capex&nbsp;is weighing on near-term returns, with cost investment a drag in the early stages until utilisation ramps up.&nbsp;SML&nbsp;has material capacity to fill. We want to see progress with new customers to de-risk recent capital investment, narrow the potential earnings outcomes and show&nbsp;SML&nbsp;can replicate success on its larger asset base.</li>
<li><strong>An update on&nbsp;Pokeno</strong>:&nbsp;How&nbsp;SML&nbsp;utilises capacity can dictate the feasible returns&nbsp;profile. We look for updated insight on how to think about product mix for the site in both the short and longer-term, particularly given recent pressures in infant base powder.&nbsp;SML's&nbsp;legal issues at&nbsp;Pokeno&nbsp;also need resolution, however, that is waiting a Supreme Court decision&nbsp;(hearing was 3/4 June).</li>
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<h3>Conference call&nbsp;— 11am NZ time, Monday 28 September</h3>
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<p>Pre-registration link:&nbsp;<a href="https://s1.c-conf.com/diamondpass/10007351-invite.html" target="_blank" data-saferedirecturl="https://www.google.com/url?q=https://s1.c-conf.com/diamondpass/10007351-invite.html&amp;source=gmail&amp;ust=1600905620162000&amp;usg=AFQjCNGd4Kr9TGfIPRQhFF-Zn34-eCd51g" rel="noopener">https://s1.c-conf.com/di<wbr>amondpass/10007351-invite.html</a></p>
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<div><strong>Chelsea Leadbetter CFA</strong></div>
<div><a href="mailto:chelsea.leadbetter@forsythbarr.co.nz" target="_blank" rel="noopener">chelsea.leadbetter@<wbr>forsythbarr.co.nz</a></div>
<div>+64 4 495 5262</div>
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Synlait Milk FY20 Preview; A Lot Still to Digest

NEUTRAL
There is much to be discussed when&nbsp;Synlait&nbsp;Milk (SML) reports its FY20 result on Monday 28 September.&nbsp;SML's&nbsp;longstanding guidance range is wide, which, coupled with low visibility on key drivers,&nbsp;leaves room for differences to market expectations.&nbsp;A lot has&nbsp;changed over the past 12 months including (1) material capital investment for the next phase of growth, (2) a surprise profit warning from&nbsp;SML&nbsp;in February 2020, (3) move into NZ processing from its key customer, The a2 Milk Company, (4)&nbsp;Pokeno&nbsp;Supreme Court hearing, (5) larger move into Everyday Dairy, with the acquisition of&nbsp;Dairyworks&nbsp;and&nbsp;(6)&nbsp;COVID-19. We are interested in an update on all these areas, as well as any progress with new customers and first-time FY21 outlook.


Key points of interest



FY20 result itself: Longstanding guidance (first provided in February 2020) is wide, for NPAT of NZ$70–85m (-15% to +3% versus FY19). Our forecast is NZ$80m, slightly below the prior year (-3%).
FY21 outlook:&nbsp;Growth will be underpinned by the recent&nbsp;Dairyworks&nbsp;acquisition.&nbsp;We look for an update on: Everyday Dairy strategy, plans for capacity utilisation across the group, cost &amp;&nbsp;capex&nbsp;outlook and any insights on its key finished infant formula category (volumes and margins).
Balance sheet:&nbsp;Is FY20 the gearing peak? This is our view, which we look to test at the result.
Capacity, costs and customers:&nbsp;Recent expansionary&nbsp;capex&nbsp;is weighing on near-term returns, with cost investment a drag in the early stages until utilisation ramps up.&nbsp;SML&nbsp;has material capacity to fill. We want to see progress with new customers to de-risk recent capital investment, narrow the potential earnings outcomes and show&nbsp;SML&nbsp;can replicate success on its larger asset base.
An update on&nbsp;Pokeno:&nbsp;How&nbsp;SML&nbsp;utilises capacity can dictate the feasible returns&nbsp;profile. We look for updated insight on how to think about product mix for the site in both the short and longer-term, particularly given recent pressures in infant base powder.&nbsp;SML's&nbsp;legal issues at&nbsp;Pokeno&nbsp;also need resolution, however, that is waiting a Supreme Court decision&nbsp;(hearing was 3/4 June).



Conference call&nbsp;— 11am NZ time, Monday 28 September


Pre-registration link:&nbsp;https://s1.c-conf.com/diamondpass/10007351-invite.html




Chelsea Leadbetter CFA
chelsea.leadbetter@forsythbarr.co.nz
+64 4 495 5262




Synlait Milk: FY20 Preview; A Lot Still to Digest