The Motley Fool

Synlait is ramping up its growth strategy, is the share price a buy?

Is the Synlait Milk Ltd (ASX: SM1) share price a buy for its acquisition and the growth strategy?

Investors haven’t been impressed by the announced acquisition, with the share price down 0.6% at the time of writing.

What is Synlait acquiring? 

This morning Synlait announced the conditional purchase of Dairyworks for NZ$112 million, subject to Overseas Investment Office approval.

Dairyworks has been operating for almost two decades and is based in Christchurch where it supplies almost half of New Zealand’s cheese, a quarter of the country’s butter, milk powder and Deep South ice cream. It also owns the cheese and better consumer brands Dairyworks, Rolling Meadow and Alpine which are supplied to supermarkets in New Zealand and Australia.

The acquisition represents a valuation of 7.5x the earnings before interest, tax, depreciation and amortisation (EBITDA) of the last twelve months.

Synlait said this acquisition will provide with another meaningful move towards the delivery of the company’s ‘Everyday Dairy’ strategy and will work well with its acquisition of cheese manufacturer Talbot Forest.

The CEO of Synlait, Leon Clement said “This is an exciting opportunity for Synlait. This business is a great strategic fit for us and an important step in growing our presence in the Everyday Dairy category.

“Opportunities exist in both businesses to streamline supply chains and enhance our competitiveness. It gives us the ability to optimise how we process milk solids and get the most value from our supply of milk. We’re exciting by this opportunity as we work to capture more value in the dairy market in New Zealand and globally.”

Foolish takeaway

This acquisition diversifies Synlait’s earnings further, although some investors may question if it will be good for long-term profit growth. At only 14x FY21’s estimated earnings it could be a pretty good option today.

But for my own portfolio I like the idea of dividends as well, which is why I’d want these great names building wealth for me.

Want Income From Dividend Shares? Try These 3 Ideas

When Edward Vesely -- our resident dividend expert -- has a stock tip, it can pay to listen. With huge winners like Dicker Data (up 147%) and Collins Food (up 105%) under his belt, Edward is building an enviable following amongst investors that are planning for retirement.

In a brand new report, Edward has just revealed what he believes are the 3 best dividend stocks for income-hungry investors to buy now. All 3 stocks are paying growing fully franked dividends giving you the opportunity to combine capital appreciation with attractive dividend yields.

Best of all, Edward’s “Top 3 Dividend Shares To Buy For 2020” report is totally free to all Motley Fool readers.

Click here now to access this free report.

Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. 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.

NEW. Five Cheap and Good Stocks to Buy in 2019…

Our Motley Fool experts have just released a brand new FREE report, detailing 5 dirt cheap shares that you can buy today.

One stock is an Australian internet darling with a rock solid reputation and an exciting new business line that promises years (or even decades) of growth… while trading at an ultra-low price…

Another is a diversified conglomerate trading near a 52-week low all while offering a 2.8% fully franked yield…

Plus 3 more cheap bets that could position you to profit over the next 12 months!

See for yourself now. Simply click the link below to scoop up your FREE copy and discover all 5 shares. But you will want to hurry – this free report is available for a brief time only.

CLICK HERE FOR YOUR FREE REPORT!