Synlait Milk Ltd’s (ASX:SM1) shares could rise after doubling profit

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The Synlait Milk Ltd (ASX: SM1) share price is up 0.3% to $11.71 in early trade, after announcing its full-year profit for FY18 grew 89% to $74.6 million, almost double the NPAT of $39.5 million announced for the same period last year.

Earnings before interest, tax, depreciation and amortisation (EBITDA) increased 56% to $138.6 million, while revenue increased by $120 million to $879 in FY18.

Synlait’s final average total milk price for FY18 has been announced at $6.78 per kilogram of milk solids (kgMS).

Acquisitions boosting growth

Synlait says the profit growth was due primarily to an 89% increase in consumer packaged infant formula sales volumes, enabled by a number of investments in the blending and consumer packaging space.

“In November 2017 we completed our second Dunsandel wetmix kitchen, and the same
month commissioned our Auckland blending and consumer packaging facility. Both these
projects have allowed us to increase our finished infant formula capacity,” said Graeme
Milne, Synlait’s Chairman.

Synlait also announced today that it has entered into a conditional agreement to acquire
selected Talbot Forest Cheese assets.

“The proposed acquisition builds on our existing portfolio of high-quality, flexible dairy
manufacturing capabilities that can be tailored to meet customer needs” said Synlait’s new
CEO, Leon Clement.

Mr Clement stepped into the role in August, replacing outgoing CEO John Penno.

Responding to global demand for sustainability

Looking forward, Synlait announced a number of sustainability goals at its annual Synlait Conference in June, encompassing three areas; Environment, People, and Enterprise.

One of the steps taken is the decision to not build another coal-fired boiler, and that Synlait Dunsandel’s new Advanced Liquid Dairy Packaging facility would instead be built with an electrode boiler.

“As well as responding to the increasing global demand for sustainable goods, we
genuinely believe a profitable business has to be built on a robust foundation that supports
economic, environmental and social outcomes,” says Mr Clement.

Outlook

Synlait said its forecast milk price for the current 2018 / 2019 season is now $6.75 kgMS. This is below the opening forecast of $7.00 kgMS due to declining commodity prices.

Synlait shares have climbed almost 131% in the last 12 months, compared to a gain of 8% for the S&P/ASX 200 Index.

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Contributors to this article may own shares in some of the companies mentioned in this article. The Capital Club has a thorough disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.
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Lauren Surplice is a keen follower of the stock market, investing in individual companies and funds. She follows the daily stock market news, covering the ASX stocks that are moving the markets. You can contact Lauren at laurens@thecapitalclub.com.au