Search by ticker code:
Generic filters

Search by ticker code:
Generic filters

Search by ticker code:
Generic filters

Is it bad news for the A2 Milk (ASX:A2M) share price after Synlait’s (ASX:SM1) downgrade?

The A2 Milk Company Ltd (ASX: A2M) share price will be on watch after a profit downgrade from Synlait Milk Ltd (ASX: SM1).

Synlait’s profit downgrade

The food manufacturer said that it’s continuing to experience significant uncertainty and volatility.

Due to that market disruption, the company has decided to withdraw its full year FY21 guidance.

Synlait reminded investors that the most recent guidance update was released just before Christmas after receiving revised demand forecast from the large shareholder and strategic partner, A2 Milk.

Since then, a number a new factors have emerged which are expected to hurt FY21 profit.

There is ongoing uncertainty of A2 Milk’s expected demand for the rest of FY21 and FY22, as it continues to rebalance its inventory levels and recovers from the impact of COVID-19 on the sale channels of the daigou and CBEC channels.

The resulting impact of the above on Synlait’s manufacturing recoveries, which sees infant formula base powder production dropping significantly as outputs and inventory levels reset to a new outlook.

Another impact has been the disruption on global shipping, causing delays, which is expected to continue for some time and may still further impact the FY21 result.

Finally, there is ongoing volatility in commodity prices.

So what is Synlait expecting?

Given the significant volatility and uncertainty that’s affecting Synlait, the board and management can see that a broad range of outcomes is possible in FY21.

But, it said that the company’s previous guidance, that the overall FY21 net profit result will be approximately half that of the FY20 net profit, will now not be attainable.

What does this mean for A2 Milk and the share price?

Well, it’s not good for a number of reasons. A2 Milk owns a sizeable amount of Synlait shares, so this could mean a reduction in the value of what A2 Milk owns.

It also suggests that things are looking like they’re getting worse rather than better for Synlait and therefore A2 Milk.

A2 Milk shares could yet drift lower than it already has. It’s hard to say when things will recover for A2 Milk, particularly in the daigou and CBEC channels. Brave investors may see an opportunity, but things could continue to be volatile until at least the release of the FY21 result.

$50,000 per year in passive income from shares? Yes, please!

With interest rates UP, now could be one of the best times to start earning passive income from a portfolio. Imagine earning 4%, 5% — or more — in dividend passive income from the best shares, LICs, or ETFs… it’s like magic.

So how do the best investors do it?

Chief Investment Officer Owen Rask has just released his brand new passive income report. Owen has outlined 10 of his favourite ETFs and shares to watch, his rules for passive income investing, why he would buy ETFs before LICs and more.

You can INSTANTLY access Owen’s report for FREE by CLICKING HERE NOW and creating a 100% FREE Rask Account.

(Psst. By creating a free Rask account, you’ll also get access to 15+ online courses, 1,000+ podcasts, invites to events, a weekly value investing newsletter and more!)

Unsubscribe anytime. Read our TermsFinancial Services GuidePrivacy Policy. We’ll never sell your email address. Our company is Australian owned.

Information warning: The information on this website is published by The Rask Group Pty Ltd (ABN: 36 622 810 995) is limited to factual information or (at most) general financial advice only. That means, the information and advice does not take into account your objectives, financial situation or needs. It is not specific to you, your needs, goals or objectives. Because of that, you should consider if the advice is appropriate to you and your needs, before acting on the information. If you don’t know what your needs are, you should consult a trusted and licensed financial adviser who can provide you with personal financial product advice. In addition, you should obtain and read the product disclosure statement (PDS) before making a decision to acquire a financial product. Please read our Terms and Conditions and Financial Services Guide before using this website. The Rask Group Pty Ltd is a Corporate Authorised Representative (#1280930) of AFSL #383169.

At the time of publishing, the author of this article does not have a financial or commercial interest in any of the companies mentioned.
Skip to content