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Why Synlait Milk shares are on watch this morning

Kenneth Hall
A2 Milk share price higher

Synlait Milk Ltd (ASX: SM1) shares are on watch this morning after the company’s latest round of debt raising.

What did Synlait announce today?

Synlait is set to raise $150 million with the option for a further $50 million of oversubscriptions.

The money will come from unsecured, subordinated fixed rate bonds to be listed on the New Zealand Exchange (NZX).

The Kiwi dairy company is looking to diversify its funding sources to support Synlait’s growth strategy. The net proceeds will be advanced to Synlait Milk Finance Ltd and used to paydown existing bank debt.

The Synlait share price will be on watch this morning as the company looks to continue its strong growth trajectory.

Synlait surpassed $1 billion in revenue for the first time in FY 2019 and recorded a 10% increase in net profit to $82.2 million.

The dairy group’s revenue has grown at a constant annual growth rate (CAGR) of 25% since FY 2009. Synlait is investing $470 million to major growth projects and execution remains a key priority.

Operating cash flow is strong and climbed 39% in FY 2019 to $136.7 million. Despite troubles for the Aussie dairy industry, New Zealand dairy is continuing to perform strongly.

The average milk price for the 2018/2019 season was $6.58 per kilogram of milk solids, which helped boost revenues higher.

Synlait also completed its acquisition of Talbot Forest Cheese on 1 August 2019 as it kicked off FY 2020 with a bang.

Are Synlait shares good value right now?

Synlait shares have had a volatile year and have edged just 1.29% higher since 2 January.

This is in stark contrast to both A2 Milk Company Ltd (ASX: A2M) and Bellamy’s Australia Ltd (ASX: BAL).

A2 Milk shares are up 39.42% this year largely thanks to strong earnings and its continued success in China. Meanwhile, Bellamy’s shares have shot a whopping 73.52% higher on the back of a takeover deal by China Mengniu Dairy Company Ltd.

The post Why Synlait Milk shares are on watch this morning appeared first on Motley Fool Australia.

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Motley Fool contributor Kenneth Hall has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of A2 Milk. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

The Motley Fool's purpose is to help the world invest, better. Click here now for your free subscription to Take Stock, The Motley Fool's free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson. 2019