Synlait shares drop after a2 Milk trading halt

Synlait Milk’s share price took a dive after its close ally, a2 Milk, went into a trading halt while it revises its earnings guidance to the market.

The NZX exchange said the trading halt would remain in place until the earlier of an announcement from the company, or the market’s opening on Monday.

Synlait – just under 20 per cent owned by a2 Milk – and a2 Milk’s sole supplier of infant formula, saw its share price drop by 26 cents or 4.8 per cent to $5.14 on the back of a2 Milk’sannouncement.

In a separate statement, Synlait said: “Once an announcement is released by The a2 Milk Company, Synlait will assess this information, and the impact on its own company, and provide a further update to the market if necessary.”

In its statement, a2 Milk said it had become aware of information that may require the company to revise its previously issued earnings guidance to the market.

“We are requesting a trading halt to provide us with additional time to properly consider the current information and to consider new information as it becomes available, and inform the market,” a2 Milk said.

At November’s annual meeting, the company said it still expects group revenue for the first half of $725 million to $775m, down from $805.3m in the previous corresponding half.

Group revenue for 2021 was expected to come to $1.8 billion to $1.90b, up from $1.73b in the 2020 financial year.

The 2021 year’s Ebitda margin was forecast to be in the order of 31 per cent.

“However, due to the volatility arising from Covid-19, and the difficulties this presents with forecasting, naturally there is uncertainty to this forecast,” the company said at the time.

At the annual meeting, the company said it remained committed to the daigou infant formula trade into China, despite it being responsible for clouding its short-term earnings outlook.

Daigou, “buying on behalf of”, covers the unofficial group of individuals who shop and send products to China for a profit.

Over the last three years, the daigou trade in a2 Milk infant formula has developed along corporate lines, with most operators based in Victoria, which has been the hardest hit of any of the Australian states by Covid-19 lockdowns.

A2 Milk shares last traded at $14.12, having dropped by 7.11 per cent over the last 12 months.

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