Synlait Milk Limited (ASX: SM1, NZX: SML) released an announcement this morning forecasting higher milk prices for the rest of the financial year. Is it time to buy shares?
About Synlait
Synlait Milk is a New Zealand based dairy processing company which produces a range of milk and milk powder related products such as infant formula.
Synlait also has exclusive supply rights for The a2 Milk Company Limited’s
(ASX: A2M) canned infant formula products in the Australia/New Zealand and China markets. As of March 2019, a2 Milk is a 17.4% shareholder of Synlait.
What Did Synlait Announce?
Synlait released a forecast today for milk prices for the 2018/2019 and 2019/2020 seasons. The forecast for 2018/2019 has been increased from $6.25 kgMS (kilogram of milk solids) to $6.40 kgMS. The price is expected to increase to $7.00 kgMS for the 2019/2020 season.
Synlait CEO Leon Clement said the revised forecasts are due to recovering commodity prices, which have been improving since December 2018.
“The increase to $6.40 kgMS for this season is due to recovering dairy commodity prices since our last update in January 2019,”
he said.
“We’ve seen steady improvements in prices since the start of December, recovering a lot of the ground lost earlier in the season.”
While Mr Clement said the forecasts are realistic due to strong demand, he also warned that they are only forecasts and could be affected by current geopolitical and economic uncertainty.
“These forecasts are based on the best information available to us and we are recommending that our farmers remain cautious in the face of geopolitical and economic uncertainties,” he said.
What Does This Mean for Synlait?
News of higher prices is always good for the company when it can be translated into higher revenue. Forecasts being revised upwards might push the share price higher today. The a2 Milk Company could also stand to benefit from higher milk prices and its significant stake in Synlait.
For other growth ideas, check out the companies in the free report below.
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Disclosure: At the time of writing, Max does not own shares in any of the companies mentioned.
