Melbourne law firm Slater and Gordon has announced it is considering undertaking a class action suit against dairy processor Murray Goulburn after the co-op significantly cut its profit expectations.

Murray Goulburn had initially forecast a net profit after tax of $85.8 million dollars for this financial year.

The processor now expects the profit will be between $39 and $42 million, with the company citing weakened growth in China, a strengthening Australian dollar and lower than expected milk production for the following year

Slater and Gordon says its investigations will be centred around whether the guidance provided by Murray Goulburn in its initial product disclosure statements were accurate in regards to achievable profits.

Murray Goulburn revised down its forecast profit in February to $63 million, citing weak dairy commodity prices.

Twice in April the company confirmed that Chinese regulations were tightening controls on imported milk products into China, but denied that the changes would have a material impact on Murray Goulburn’s business.

In 2015, the farmer owned co-operative listed a unit share scheme on the stock exchange to raise $500 million to expand production and build more modern facilities.

Slater and Gordon says the class action will be on behalf of current and former investors who had acquired shares in the unit trust before April 27, 2016.

We are investigating whether the true cause of Murray Goulburn’s downgrade was an aggressively optimistic profit forecaster.

Tim Finney, Slater and Gordon

The shares opened at $2.10 upon listing, and when they returned to trade earlier this week after a price halt, the price dived from $2.14 to $1.23, a drop of more than 40 per cent.

Tim Finney, from Slater and Gordon, said the firm was investigating whether Murray Goulburn had misled the market.

He said Slater and Gordon was investigating whether Murray Goulburn had breached rules for continuous disclosure by failing to announce the downgrade sooner.

“Yesterday’s downgrade was of such a scale that it cannot be explained by the excuses that have so far been provided,” Mr Finney said.

“We are investigating whether the true cause of Murray Goulburn’s downgrade was an aggressively optimistic profit forecaster – built into its Product Discloser Statement – that the company was simply never going to achieve.”

A spokesperson from Murray Goulburn indicated the board was “very comfortable” with the decisions it had made.

“Naturally, in the circumstances they have reflected on the process that led to this week’s announcement and their view is that there is nothing they could have done sooner or differently.”