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Why the Synlait Milk (ASX:SM1) share price was lower today

A2 milk shares
Credit: Benjamin Horn

The Synlait Milk Ltd (ASX: SM1) share price came out of a trading halt today, dropping 9.75% to $5.00 before recovering to $5.25 at the time of writing. The drop in Synlait Milk’s share price came after an announcement that the company would conduct a capital raising.

How will Synlait Milk raise capital?

Synlait Milk announced yesterday that it will raise approximately NZ$200 million. This will consist of a placement to raise NZ$180 million and an underwritten share purchase plan to raise NZ$20 million.

The placement will be conducted at a share price of NZ$5.10, representing a discount of 14% to the company’s trading price before the capital raising was announced. Synlait Milk announced today that the placement was fully subscribed.

The company’s share purchase plan will allow existing shareholders to purchase up to NZ$50,000 worth of Synlait Milk shares. The price of the share purchase plan will be the lower of NZ$2.10 per share or the 5-day volume weighted average price of Synlait Milk shares trading on the New Zealand Stock Exchange in the last 5 days of the SPP offer period. The record date for the share purchase plan was 9 November 2020 and an offer booklet will be sent out to shareholders on 13 November 2020.

According to Synlait Milk, the proceeds of the capital raising will be used to start manufacturing new product lines as part of a recent agreement with a global category leader and to strengthen the company’s balance sheet.

Synlait Milk guidance for FY21

Synlait Milk also released the following guidance for the 2021 financial year:

  • Volumes for consumer packaged infant formulas expected to be lower in FY2021 than FY2020
  • Net profit after tax (NPAT) in the first half of FY2021 to be significantly lower than it was in the first half of FY2020
  • NPAT for the full 2021 financial year expected to be slightly lower than FY2020

About the Synlait Milk share price

Synlait Milk is a New Zealand dairy processor that produces products for infant nutrition and adult nutrition along with everyday dairy and dairy-based products. Synlait Milk has been listed on the ASX since 2016.

The Synlait Milk share price is up 21.25% since its 52-week low of $4.33, however, it is down 39.10% since the beginning of the year. The Synlait Milk share price is down 38.16% since this time last year.

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Motley Fool contributor Chris Chitty 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.