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Synlait Milk shares set record close, amid dairy market 'confidence'

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Shares in Synlait Milk hit a record closing high as it unveiled "confidence" in the dairy market, forecast a rise in milk prices next season, and revealed a NZ$56.5m deal to acquire packaging group New Zealand Dairy Company.

Shares in Synlait Milk closed up 1.8% at ZN$4.02, their highest finish since the New Zealand-based milk processor was listed in July 2013.

The gain followed the group's announcement that it would, though the acquisition of New Zealand Dairy Company, be able "to substantially lift its blending and canning capacity" to exploit an improved dairy market.

Synlait flagged "increasing confidence that dairy commodity prices are stabilising", after a 2014-16 downturn blamed largely on a downturn in imports by Chinese buyers, in favour of running down inventories.

'Feeling positive'

"Synlait is feeling positive about the current market," said Dr John Penno, the group's chief executive.

"We start the [2017-18] season with some confidence that supply and demand are more balanced," he added, as the group NZ$6.50 per kilogramme of milk solids in its forecast for milk prices paid to producers over season.

The forecast compares with a current estimate of NZ$6.00 per kilogramme of milk solids for the payout for this season, but is in line with a 2017-18 forecast last week from Fonterra, New Zealand's biggest processor.

John Wilson, the Fonterra chairman, said that the co-operative's forecast price rise "reflects the strong fundamentals supporting global dairy markets," evident in a recovery in world prices, and which had come despite larger than expected milk output in New Zealand, the top exporter.

"Stronger production in March and April has partly offset lower peak milk production and collections are now expected to be down 3% for the season, a much better outcome for our farmers than had been anticipated earlier in the year."

'Room to grow'

Synlait, based at Canterbury on New Zealand's South Island, said it had agreed to buy New Zealand Dairy Company for NZ$33.2m, although total investment would reach NZ$55.2m on completion, expected in October, of a blending and canning operation that NZDC is building.

"This purchase will allow us to meet current demand, as well as provide some room to grow with our customers' needs," Mr Penno said.

NZDC will also come with a high specification sachet packaging line "suitable for infant formula and milk powders", a key market for Synlait.

Synlait, which was founded in 2008 and listed in 2013, is 39% owned by Bright Dairy, a subsidiary of China's part state-owned Bright Food Group

By Jamie Day

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