Synlait Milk shares and profit jump

Shares in dairy company Synlait Milk jumped after the company posted a record firsthalf net profit on increases in the manufacture and sales of high-margin products and its relationship with a2 Milk.

Profit jumped to $40.7 million in the six months ended January 31, from $10.6m a year earlier, the Rakaiabased company said.

Revenue jumped to $439.3m from $288.7m in the prior period.

Looking ahead, Synlait said the second half is not expected to be as strong as the first half due to lower sales margins but “we continue to forecast strong overall earnings growth for the full year. Looking forward into FY19, ongoing growth in infant formula volumes are expected to continue to grow earnings.”

The company’s shares closed up 14.09 per cent at $9.23, after briefly touching a record $9.50 as the result and the forward-looking guidance helped allay any concerns investors might have had after a2 announced a new supply arrangement with dominant dairy company Fonterra Cooperative Group in February.

That deal prompted a joint release from a2 and Synlait stating the new relationship did not change Synlait’s exclusive infant formula supply arrangements with a2. The stock was sold down heavily on the February announcement but yesterday’s “fantastic result and the fact that they reaffirmed future growth has soothed investors concerns”, said Hamilton Hindin Greene broker Grant Williamson.

Synlait’s chief executive John Penno said the company’s relationship with a2 Milk “continues to strengthen where we remain their exclusive manufacturer for the important Australia, New Zealand and China market”.

“The growth trajectory of canned infant formula has continued with total consumer packaged volumes almost tripling from the same period last year and up 36 per cent on the second half of last year.” — BusinessDesk