Analyst price targets have just gone to $1.36, and will quite probably climb the steps further in 2016, A2M is still well undervalued in the view of many longies, including this one.
I think you short termers run a great risk jumping in and out and all about when companies are growing rapidly like this, some felt that pain precisely whilst sitting on the sidelines on Friday.
Perhaps some of those are the ones squawking on this thread this weekend, ......, your pain is heard and it's really not too late for you.
Synlait Milk now expects a fourfold increase in canned and finished products, including infant formula, this year, over a year earlier. That was up from an expected threefold increase mentioned in the annual report.
After a big three-year programme of capital development, including a just-commissioned $135 million, third dryer, Synlait was now ready to deliver the earnings part of its nutritionals and infant formula strategy, chairman Graeme Milne and managing director John Penno told shareholders at the annual meeting.
The international dairy market was soft but Synlait was creating value through differentiated nutritionals and infant formula products to achieve margins independent of commodity pricing, Milne said.
Synlait's business-to-business model meant it had relatively few customers but very close relationships with them.
It was unlikely to invest in its own brands. Penno said 60% of the world’s infant formula was sold by five multi-national companies and Synlait worked with four of them.
A feature of the 2015 year's trading was that China took only 10% of Synlait's product, down from 30% a year earlier. China was still the biggest buyer of dairy products but was buying less.
New Zealand sales jumped to 17% of the total, from 6% previously. That reflected the growing business with A2 Milk Co, Penno said. Infant formula was sold to A2 in NZ dollars and distributed to overseas markets from here.
A2 had very strong market growth in Australia, to the extent that stores had at times run out of stocks of the Platiunum brand product made by Synlait.
Each time it had been able to secure extra volumes from the Canterbury plant, A2 managing director Geoff Babidge said, He expected that trend to continue.
After the annual meeting, held at Synlait's manufacturing base at Dunsandel, Milne was confident Synlait could continue to grow in support of A2.
That relied on getting more farmers interested in supplying A2 milk.
Most herds contained cows producing only A2 milk but the cows had to be tested and A2 cows had to be run in their own herds so there was no chance of milk getting mixed up.
Most Synlait suppliers were owners of multiple farms so their herds could be easily separated but at some point the growth needed would require farmers to sell A1 cows and run only A2 animals.
Synlait paid a premium for A2 milk so it was a business decision for farmers, he said.
With the third dryer lifting capacity to 140,000 tonnes of infant formula a year over time, from 90,000 tonnes previously, Synlait believed it had biggest infant formula capacity in the world, Penno said.
"In the US today, grass-fed is regarded as the new organic.”
Synlait had 173 farmers contracted to supply milk this season and year-on-year supply was growing at 7%.
The company had spent an extra $3m last year paying suppliers above the base milk price to help them with cash flow and that had affected group profit.
More than 50% of supply in the 2016 year would receive premium payment, including another 25 farmers supplying grass-fed milk to United States company Munchkin.
That meant cows would not be fed grain or palm kernel and spent all their time outside on grass.
The milk would be sold in the US as a grass-fed standard.
"In the US today, grass-fed is regarded as the new organic,” Penno said.
The milk was regarded as superior to production from grain-fed cows.
Asked by a shareholder how secure the milk supply base was, Milne said the company had built strong relationships, with a number of programmes in place.
"At the end of the day, money talks. We're quite comfortable with our supply situation but we're not overconfident.''
Chief financial officer Nigel Greenwood said Synlait had increased borrowings to $263m during the year, up from $152m, as it continued spending on infrastructure.
Milne, who was re-elected as a director, told shareholders the company was "travelling well” and confirmed the board's earlier comments that the business mix and growth would lead to profits well in advance of what had been achieved previously.
The half-year result would be significantly above the $419,000 profit last year, Penno said.
(20min delay)