The Synlait Milk Ltd (ASX: SM1) share price has gone up 5% after the company gave an update.
Synlait is a nutritional business that’s an important part of the dairy supply chain. The company says that it “was founded to ensure that global consumers were able to access some of the best that New Zealand dairying had to offer. That’s where the name Synlait comes from – synergy and milk.” It has blending and consumer packaging facilities to assist customers, such as A2 Milk Company Ltd (ASX: A2M).
Synlait’s update
Synlait said that it has updated its forecast base milk price for the 2020 / 2021 season to $7.20 per kilo of milk solid (kgMS), up from $6.40 per kgMS.
The company’s decision to increase its forecast base milk price was driven by the strong increase in dairy commodity prices of recent months and the company’s view that commodity prices will remain around current levels for the remainder of the milk season.
Management comments
Synlait national milk supply manager David Williams said: “Despite the wider global uncertainty, dairy commodity prices have remained robust and a higher forecast base milk price will be welcomed by our Synlait farmer suppliers. We are grateful for their continued support.”
Time to jump on Synlait shares?
Synlait said that this is based on the best information available and it will continue to monitor movements and keep its farmer suppliers updated.
The Synlait share price has almost halved over the past year. But shares being lower than the past doesn’t mean it’s better value today.
As a major supplier to A2 Milk, Synlait has been suffering alongside A2 Milk with the drop in local demand and the difficulties it’s facing relating to China.
With volumes expected to be lower, Synlait said that its initial estimates show that overall FY21 net profit after tax (NPAT) is going to be down approximately 50% compared to FY20.
On top of that, A2 Milk is diversifying its manufacturing base, so it will be less reliant on Synlait.
If I were thinking about investing in Synlait shares, I think I’d rather buy A2 Milk shares because of the potential global growth prospects.
Instead of Synlait or A2 Milk, I suggest getting a free Rask account and accessing our full stock reports. Click this link to join for free and access our analyst reports.
