AU : Synlait Milk - Focused on near-term execution

FY21 guidance has been lowered to a NPAT loss of NZ$20-30m, compared to March expectations for a broadly breakeven result. Bank covenants have been waived in FY21 and SM1 is working with its banking syndicate to secure sufficient funding in FY22. While SM1 has explicitly stated that it does not intend to undertake a capital raising, we continue to believe gearing levels remain too high. We have lowered our FY21 NPAT forecast to a loss of NZ$25.0m, however FY22/23F revisions are more modest (-3.4%/-1.0%) with today’s issues expected to be largely confined to FY21. While risks remain, we think investors could start to look through these issues if SM1 can start to rebuild confidence in the company’s FY22 earnings recovery at the FY21 result in September. Therefore, we move to a Hold rating.

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