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Why did the Synlait (ASX:SM1) share price drop 2% then enter a trading halt today?

Synlait share price has fallen by almost 2%, and its shares put on trading halt, after its biggest customer a2Milk revised its earnings.
The post Why did the Synlait (ASX:SM1) share price drop 2% then enter a trading halt today? appeared first on The Motley Fool Australia. –

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The Synlait Milk Ltd (ASX: SM1) share price was trading down almost 2% at $4.61 this afternoon when the company requested a trading halt of its shares on the ASX.

Today’s drop follows a decrease of nearly 6% in the Synlait share price yesterday.

So what’s happening?

Yesterday’s share price drop prompted Synlait to release an announcement to the market. In that announcement, Synlait noted that one of its biggest customers, the a2 Milk Company Ltd (ASX: A2M), had entered into a trading halt after becoming aware of information affecting its previously issued guidance.

Put simply, the Synlait share price has been impacted by what’s happening to its customer, a2 Milk.

The a2 Milk shares returned from trading halt today, with its share price crashing 23% almost immediately after the company released a revised trading update.

a2 Milk advised that it had experienced a “more significant and protracted disruption in the daigou channel than expected”. Given this channel represents a major proportion of its infant nutrition sales in its ANZ business, this has had a negative impact on its sales.

Correspondingly, a2 Milk now expects to report first half revenue of NZ$670 million with an earnings before interest, tax, depreciation and amortisation (EBITDA) margin of 27%. This compares to its previous guidance of NZ$725 million to NZ$775 million.

For the full year, revenue is expected to be in the range of NZ$1.4 billion to NZ$1.55 billion with an EBITDA margin of 26% to 29%. As a comparison, its previous guidance for the full year was revenue in the range of NZ$1.8 billion to NZ$1.9 billion with an EBITDA margin of 31%.

With a2 Milk being one of Synlait’s biggest customers, the revised earnings will mean that Synlait will also have to revise its own earnings.

Synlait says that it will make an announcement to the market in the next few days.

About the Synlait share price

The Synlait share price has lost around 45% of its value this year. At the current share price, it has a mountain to climb to reach its 52-week high of $8.80.

The company commands a market cap of $1 billion.

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Motley Fool contributor Eddy Sunarto has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

The post Why did the Synlait (ASX:SM1) share price drop 2% then enter a trading halt today? appeared first on The Motley Fool Australia.

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