In its most recent earnings guidance, Synlait said it expects its first-half 2025 earnings before interest, taxes, depreciation, and amortisation (Ebitda) to be in a range of $58m to $63m.
Acting chief executive Tim Carter said the Synlait team had worked hard to lift productivity and performance in the past six months.
“Today’s announcement demonstrates the huge progress being made and, while we cannot take our foot off the pedal, we are pleased to announce we expect to return to profitability at our upcoming half-year result,” he said.
Forsyth Barr senior analyst Matt Montgomerie said it looked like the ducks were finally lining up for Synlait after a difficult few years.
“It [the update] was light on detail, so it’s hard to say with confidence, but it does look like the early signs of self-help execution – decent cost reduction across the business, which appears to be a focus area for Bright Dairy.
“Cost inflation has been significant in the business over the last five years,” he said.
Synlait said a strong performance of the ingredients business was driven by improved management of foreign exchange and an optimised product mix.
Montgomerie said the reference to ingredients – a problem child last year – improving was a sign margins had recovered.
In terms of Synlait’s two main customers, Abbott and a2 Milk, it did not feel like there had been a step-change in how either of the two were performing.
But costs and ingredient margins look to be the primary drivers for the more positive outlook, he said.
“It’s not definite yet, but the update allays some concerns around the balance sheet that were still apparent, despite the equity raise last year.”
Balance sheet risks were now relatively low provided conditions do not deteriorate, he said.
$10 milk price
Dairy in New Zealand today faces what one economist said was a “dream combo” – a very low New Zealand dollar, firm prices and strong production.
But the challenge for milk processors like Synlait and its much larger competitor, Fonterra, is today’s $10-plus milk price, which is a hefty input cost for processors.
“It’s challenging for Synlait and Fonterra, in the case of their consumer and foodservice businesses, to pass those costs on,” Montgomerie said.
Yet both Synlait and Fonterra look to be doing much better.
“Last year was a very challenging one for Synlait, and it looks like they got it wrong last year, but this year there’s better management of the product mix.”
“And in terms of company-by-company performance, Fonterra is in a very good space – arguably its best space ever.”
Synlait is improving, but it has broader challenges in terms of what will happen if a2 Milk announces a supply chain acquisition, which would clearly leave Synlait exposed if it went down that path.
FPH and Trump
Uncertainty prevails regarding US President Donald Trump’s plans for tariffs.
How that’s going to affect Fisher and Paykel Healthcare (FPH), the NZX’s biggest company, which counts the US as a major market and has a significant manufacturing presence in Mexico, is anyone’s guess.
Craigs Investment Partners has analysed what might be in store for FPH and has come up with three scenarios: a base case where a universal 10% tariff is applied to medical supplies; a mid-case where, in addition, a 25% tariff is applied to Mexico; and a worst case, where a 20% universal tariff is applied.
Around 40% of FPH’s total sales are to the US, with cross-border pricing (to which tariffs would be applied) around 75% of revenue.
Craigs estimates a universal 10% tariff would cost FPH about $60m a year.
“If, in addition, higher tariffs were applied on imports from Mexico, FPH would likely switch from supplying the US from its Tijuana Mexico plant to its Auckland NZ plant, adding additional freight costs of $20m per year.”
Forex cushion
FPH’s hospital segment has a strong market position, and its contracts allow it to pass on tariffs to customers, Craigs says.
“FPH’s market position in OSA [obstructive sleep apnoea] is not as strong, with the ability to pass on tariffs in part depending on the approach of market leader ResMed.
“In both hospital and OSA, we think FPH will likely need to share some of the pain with its customers.
“Our base case is that a 10% tariff can be 75% passed through in hospital and 50% in OSA, which reduces the net profit impact of a 10% tariff to -$23m to -$43m (6-12%).
“The 5% decline in the New Zealand dollar against a weighted basket of currencies since FPH last reported in November further cushions the impact, though [foreign exchange] relief is unlikely to prove permanent, whereas tariffs may do.”
Craigs said recent data suggested a moderate flu season in the US was likely, consistent with the top end of FPH’s $320-370m 2025 net profit guidance range.
“Very strong export data, up 36% over Oct/Nov compared to FPH’s 2H25 guidance of 10%, suggests there may even be guidance upside.”
Craigs said that while FPH may trade down if tariffs are confirmed, on balance it retained its “neutral” rating for the company.
FPH’s chief executive Lewis Gradon said last November, after the company’s annual result, FPH remained focused on the long term, despite the threat of US trade protectionism.
Morningstar bullish on AIA
Research firm Morningstar is bullish on Auckland International Airport.
Morningstar forecasts the total number of passengers handled by Auckland International to grow to more than 25% above pre-Covid levels over the next decade.
“No other airport in the country is likely to outdo Auckland International as an international hub,” it said.
Auckland International handled about 21 million passengers in 2019, more than triple any other airport in New Zealand, and typically handles more than 90% of the country’s long-haul traffic.
The market is concerned about Auckland International’s massive uptick in planned capital expenditure as major projects get under way.
The permanence of recent price hikes, which allow Auckland International to earn fair returns on new investments, is also subject to uncertainty, awaiting a final determination from Commerce Commission New Zealand.
“These concerns are shortsighted and present an attractive entry point into a rare, high-quality asset for investors.
“We think the scale of the capital investment plan is reasonable, a view echoed by the commission itself.
“We expect Auckland International to generate a reasonable return on investment, given proposed airport charges are reasonable in comparison to other airports – globally and domestically,” Morningstar said.
Jamie Gray is an Auckland-based journalist, covering the financial markets and the primary sector. He joined the Herald in 2011.
