Synlait Milk Ltd (ASX: SM1) has reported its result for the year to 31 July 2019, is the share price a buy?

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 was a 17.4% shareholder of Synlait.

Synlait’s FY19 Report

The dairy business reported that its revenue increased by 17% to NZ$1.02 billion, exceeding NZ$1 billion for the first time.

Sales volume increased by 16% to 149,730 MT and the average milk price was $6.58 per kgMS for the 2018/19 season, made up of a base milk price of $6.40 and an additional $0.18 in incentive payments.

Consumer packaged infant formula volumes continue to grow at a good pace, increasing by 21% to 42,907 MT.

Net profit increased by 10% to NZ$82.2 million. Consensus market expectations had been for a net profit of NZ$88 million, so the company seems to have underperformed to expectations with its result.

Synlait’s expenditure increase was in line with its gross profit growth, but the company explained a lot of this investment in areas that support future opportunities.

During FY19 its growth projects included: the $260 million build of Synlait’s new infant-capable manufacturing facility in Pokeno which is close to commissioning, the $18.9 million expansion of its lactoferrin facility to double manufacturing capacity, the $134 million advanced liquid dairy packaging facility at Dunsandel was designed, built and commissioned in 18 months, and the Talbot Forest Cheese Acquisition was completed on 1 August 2019.

Is The Synlait Share Price A Buy?

Regarding the court case about the Pokeno facility, Synlait said that it’s comfortable that the legal exposure is not substantial.

In FY20 the company expects continued consumer packaged infant formula momentum, a full year operationof its advanced liquid dairy packaging facility and the first sales of long-long products in the second half of FY20 and contributions from its other facilities.

It expects profit growth in FY20 to be at least similar to this year’s (10%), so the further growth is a good compounding effect.

Synlait is making plenty of progress, particularly from its investing. But I’d probably say I’m more attracted to the idea of buying shares of A2 Milk rather Synlait itself.

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Disclaimer: Any information contained in this article is limited to general financial/investment advice only. The information has not taken into account your specific needs, goals or objectives, so please consider consulting a licenced and trusted adviser before acting on the information. Please read The Rask Group’s Financial Services Guide (FSG) for more information. This article is authorised by Owen Raszkiewicz of The Rask Group, which is a corporate authorised representative No. 1264179 of Strawman Pty Ltd (ACN: 610 908 211) (AFSL: 501 223).

At the time of publishing, Jaz does not have a financial interest in any of the companies mentioned.