PGW - PGG Wrightson

[kiwico]

Yeah, how about some explanation regarding the Tiger to Leopard situation? The adage goes you felines can't just change spots / stripes, eh?

Maybe he's a Mac fan; Mac OSX (https://en.wikipedia.org/wiki/MacOS)moved from Tiger to Snow Leopard (via Leopard). Watch out for Lion or Mountain Lion next, followed by Mavericks and then Yosemite and its various peaks.

[golden city]

Could be bold ideas. But possible allied farmer could do a capital raising to leverage buy out pgw merger into one entity

[Snow Leopard]

Yeah, how about some explanation regarding the Tiger to Leopard situation? The adage goes you felines can't just change spots / stripes, eh?

It is a long story.

It needs to be told over a good bottle of wine or two, preferably accompanied by a good cheese, and bread. Some olives would be nice too.

Yak momos and Lhasa beer would be more appropiate, but you can get neither of them here.

But if you are lucky I may put up a picture of the rock.


Meanwhile, still no takeover announcement..

[winner69]

Don’t make too much money at the end of the day on those $1.4 billion odd of sales do they

Like how they started with a great story until they used the word ‘however’

Many code words for come and buy us as well

http://nzx-prod-s7fsd7f98s.s3-website-ap-southeast-2.amazonaws.com/attachments/PGW/321251/283243.pdf

[percy]

No mention of the big Swede problem.

[Beagle]

Don’t make too much money at the end of the day on those $1.4 billion odd of sales do they

Like how they started with a great story until they used the word ‘however’

Many code words for come and buy us as well

http://nzx-prod-s7fsd7f98s.s3-website-ap-southeast-2.amazonaws.com/attachments/PGW/321251/283243.pdf

http://www.sharechat.co.nz/article/c88ae729/pgg-wrightson-s-fy-profit-to-halve-as-costs-increase-trading-result-seen-improving.html?utm_medium=email&utm_campaign=PGG%20Wrightsons%20FY%20profit%20to%2 0halve%20as%20costs%20increase%20trading%20result% 20seen%20improving&utm_content=PGG%20Wrightsons%20FY%20profit%20to%20 halve%20as%20costs%20increase%20trading%20result%2 0seen%20improving+CID_c510e66829e599c8ad042ce77a8d d175&utm_source=Email%20marketing%20software&utm_term=httpwwwsharechatconzarticlec88ae729pgg-wrightson-s-fy-profit-to-halve-as-costs-increase-trading-result-seen-improvinghtml
WOW...no way anyone can sugar coat that, what a shocker...run for the hills !
Wonder how they're getting on with their historical issues with the under funded pension liabilities...that's probably another horror story still to unfold.
I would be surprised if anyone now wanted to take this over other than at a real bargain basement price.

[winner69]

http://www.sharechat.co.nz/article/c88ae729/pgg-wrightson-s-fy-profit-to-halve-as-costs-increase-trading-result-seen-improving.html?utm_medium=email&utm_campaign=PGG%20Wrightsons%20FY%20profit%20to%2 0halve%20as%20costs%20increase%20trading%20result% 20seen%20improving&utm_content=PGG%20Wrightsons%20FY%20profit%20to%20 halve%20as%20costs%20increase%20trading%20result%2 0seen%20improving+CID_c510e66829e599c8ad042ce77a8d d175&utm_source=Email%20marketing%20software&utm_term=httpwwwsharechatconzarticlec88ae729pgg-wrightson-s-fy-profit-to-halve-as-costs-increase-trading-result-seen-improvinghtml
WOW...no way anyone can sugar coat that, what a shocker...run for the hills !
Wonder how they're getting on with their historical issues with the under funded pension liabilities...that's probably another horror story still to unfold.
I would be surprised if anyone now wanted to take this over other than at a real bargain basement price.

No worries -- once my mate Snoops normalises everything it will have been a great year ....and extrapolating that forward it'll all look honky dory

Beauty is in the eye of the beholder ...or a prospective buyer

[Raz]

No worries -- once my mate Snoops normalises everything it will have been a great year ....and extrapolating that forward it'll all look honky dory

Beauty is in the eye of the beholder ...or a prospective buyer

Im just amazed they have muddled on for so long, they have what I call the sleeper class shareholders :-)

[BlackPeter]

Im just amazed they have muddled on for so long, they have what I call the sleeper class shareholders :-)

You seem to have a point. This was a brutal profit warning (cutting the expected EPS into nearly half - down from 4.6 cts to 2.6 cts) and the market doesn't react at all. Hard to imagine how big the bang must be to wake these guys up ...

Who knows, maybe they read only the headline and the first paragraph ;);

[Beagle]

No worries -- once my mate Snoops normalises everything it will have been a great year ....and extrapolating that forward it'll all look honky dory

Beauty is in the eye of the beholder ...or a prospective buyer

Yeah no worries...the other hound will get his snout and paws all over this and normalise the #$%& out of it and turn this into explosive profit growth with an extremely robust normalised outlook and then he'll normalise the under funded pension scheme for normalised earnings in a normal year so no worries there and all this will quickly be followed by a normalised takeover offer.

Nothing to worry about unless one thinks this whole normalisation process is a load of ….

[kiora]

What a shocker result.No mention of compensation for swedes either.Go figure.
Why would a client stick with them???
https://www.radionz.co.nz/news/country/359192/swede-seed-mix-up-farmers-still-waiting-on-compensation

[Snow Leopard]

Well, I am impressed and can not wait to find out how they have managed to reduce "the top end of $65M to $70M Operating EBITDA" down to a mere "approximately $20M NPAT".

But then again, it is PGW and the NPAT is always the least consistent thing about their annual results.

[winner69]

This could be an awesome nteresting breakfast seminar

PGG Wrightson one of stars ...talking about innovation

https://www.blincinnovation.com/upcoming-events/2018/8/1/dilemma-disrupt-or-be-disrupted-blinc-innovation-series-breakfast

[percy]

Interesting noting the sale of the seeds business comes to $439mil [including debt] while the market cap for PGW is just over $483mil.

[Balance]

Interesting noting the sale of the seeds business comes to $439mil [including debt] while the market cap for PGW is just over $483mil.

Sum of the parts, W69.

Cannot say that the company has been keeping shareholders and the market in the dark about its worth?

38c pwr share distribution of capital in the offing. :D

[winner69]

Sum of the parts, W69.

Cannot say that the company has been keeping shareholders and the market in the dark about its worth?

38c pwr share distribution of capital in the offing. :D

Yep Balance, sum of the parts always more than the whole for uninspiring companies like PGW with several businesses

Alan looking forward to his distribution

[Balance]

Yep Balance, sum of the parts always more than the whole for uninspiring companies like PGW with several businesses

Alan looking forward to his distribution

Says to me that FBU is undervalued too.

Or is that a bridge too far?

[winner69]

Says to me that FBU is undervalued too.

Or is that a bridge too far?

Didn’t want to bring them up just now to rain on PGWs parade. ...but there are several greater fools out there

With this seeds deal ..I reckon the Danes got a good deal.

[Zeitgeist]

2017 NPAT from Seed & Grain was $27.2m on assets of $388.6m (though the announcement says net assets at 30.6.2018 of $285m).

The strategic review will be interesting to read! Seems like the majority of the business has just been sold.

Is it worth buying now to participate in the (forecasted) capital distribution?

[Snoopy]

XT saw PGW Agritech as rivalling Monsanto and Syngenta as a global arable force in twenty years. Even though those two are more oriented toward seeds and crops. I didn't realise that PGW Agritech was the largest supplier of seeds in the Southern Hemisphere - the largest in the world if considering just forage and grass. Unfortunately NZ investors have much shorter timeframes. I don't think PGW will go very far in the next 12 months. But after that, as the debt straightjacket is loosens, we could see the share price move in about a year. Sadly it seems one year is far too long a timeframe in the New Zealand context.


I wrote the above in 2010.



With this seeds deal ..I reckon the Danes got a good deal.


You are so right Winner. Decades of IP have been lost at the stroke of a pen, and all for a measly $439m. The sell off of seeds was mooted before Mark Dewdney came on board. Mark stopped it. Now Mark is gone 'One PGW' has become 'Two PGW', soon to be 'One much smaller PGW' that will probably be sold off to Elders. And that will end any listed presence on the NZX in this sector. The PGW 'strategiic review' has destroyed the company by selling off the family silver.

Alan Lai has finally got his way...... (not that Alan had much choice as he is in his own debt burdened straight jacket)

Shame on the NZ shareholders if they accept the break up recommendation!

SNOOPY

discl: shareholder

[winner69]

I wrote the above in 2010.



You are so right Winner. Decades of IP have been lost at the stroke of a pen, and all for a measly $439m. The sell off of seeds was mooted before Mark Dewdney came on board. Mark stopped it. Now Mark is gone 'One PGW' has become 'Two PGW', soon to be 'One much smaller PGW' that will probably be sold off to Elders. And that will end any listed presence on the NZX in this sector. The PGW 'strategiic review' has destroyed the company by selling off the family silver.

Alan Lai has finally got his way...... (not that Alan had much choice as he is in his own debt burdened straight jacket)

Shame on the NZ shareholders if they accept the break up recommendation!

SNOOPY

discl: shareholder

Isn’t losing value what happens when you fail to deliver year after year?

[Balance]

You are so right Winner. Decades of IP have been lost at the stroke of a pen, and all for a measly $439m. The sell off of seeds was mooted before Mark Dewdney came on board. Mark stopped it. Now Mark is gone 'One PGW' has become 'Two PGW', soon to be 'One much smaller PGW' that will probably be sold off to Elders. And that will end any listed presence on the NZX in this sector. The PGW 'strategiic review' has destroyed the company by selling off the family silver.

Alan Lai has finally got his way...... (not that Alan had much choice as he is in his own debt burdened straight jacket)

Shame on the NZ shareholders if they accept the break up recommendation!

SNOOPY

discl: shareholder

Don't disagree with you but why is this any different from NZ selling all of our forests and banks to foreigners?

New Zealanders WILL NEVER understand what long term investment is about - it is part of the mindset of the this nation.

Sad but true.

[Balance]

Isn’t losing value what happens when you fail to deliver year after year?

Precisely.

Time to let someone else do a better job.

Gold in the hands of a peasant is but gold. Gold in the hands of an expert jeweler becomes objects of very substantial value.

[winner69]

Precisely.

Time to let someone else do a better job.

Gold in the hands of a peasant is but gold. Gold in the hands of an expert jeweler becomes objects of very substantial value.

Hey mate, that’s fantastic

[ziggy415]

Where is the real balance...the one that posts sharp and direct posts....aliens maybe...or bali outback retreat with the snow leopard

[Snow Leopard]

...or bali outback retreat with the snow leopard

Bali is one of my least favourite parts of Indonesia, too many of the wrong sort of tourist.
I generally only change planes there.

Another big earthquake next door in Lombok yesterday.

Meanwhile at PGW it looks like 2019 NPAT is going to need some serious normalising.




Disc: in Jawa Tengah soon.

[Beagle]

One wonders what happens to the problematic under funded pension scheme if the crown jewel's are sold ?

[James108]

One wonders what happens to the problematic under funded pension scheme if the crown jewel's are sold ?

It’s no longer underfunded? Who am I kidding Alan wants maximum special div.

[percy]

So whose problem is the Swedes.?

[winner69]

So whose problem is the Swedes.?

Doubt it will the Danes

Last time the Swedes played the Danes at football the score was 0-0

[tim23]

Will this deal flush out Elders or another suitor?

[Marilyn Munroe]

Will this deal flush out Elders or another suitor?

Whats left? Wool livestock merchandise and real estate.

None of these are services which compel farmers to deal with the merged Please Give Generously/Wriggle and Snatch entity over alternative suppliers.

Boop boop de do
Marilyn

PS I forgot irrigation but it doesn't change my argument.

[tim23]

[QUOTE=Marilyn Munroe;723688]Whats left? Wool livestock merchandise and real estate.

None of these are services which compel farmers to deal with the merged Please Give Generously/Wriggle and Snatch entity over alternative suppliers.

Boop boop de do
Marilyn
At 68c implies market cap only about $93 million ex payout, seems a bit light to me. I meant maybe another bidder may enter the fray yet given announcement yesterday, it will mean they have to move quicker than they thought they might of have last week.

[percy]

[QUOTE=Marilyn Munroe;723688]Whats left? Wool livestock merchandise and real estate.

None of these are services which compel farmers to deal with the merged Please Give Generously/Wriggle and Snatch entity over alternative suppliers.

Boop boop de do
Marilyn
At 68c implies market cap only about $93 million ex payout, seems a bit light to me. I meant maybe another bidder may enter the fray yet given announcement yesterday, it will mean they have to move quicker than they thought they might of have last week.

Maybe? and then again considering what is left it may be a bit rich.?
Not a lot to like about what is left,as Marilyn Munroe pointed out.

[Onion]

Rob Oram unimpressed yesterday:

https://www.radionz.co.nz/national/programmes/ninetonoon/audio/2018656985/us-business-visas-and-seed-business-sale

[RTM]

Rob Oram unimpressed yesterday:

https://www.radionz.co.nz/national/programmes/ninetonoon/audio/2018656985/us-business-visas-and-seed-business-sale

Thanks for posting this. Appreciated. No longer a holder, sold out end of last year. Was not aware of the value of the seed business.

[percy]

I have had a big change of mind.
From what I can gather the business of PGW, without the seeds, is a lot stronger and in better shape than I thought.
It is being driven by PGW being focussed on their customers.Staying close to their customers, and giving them excellent service/advice.PGW will remain a distributor of seeds.PGW's balance sheet will be very strong,enabling them to take advantage of opportunities that should present themselves.
I brought a small parcel today at .6893 cps,and depending on next week's result, may buy more.

[Pmdv77]

Rod Oram lost all credibility when commenting on rural affairs after his crusade against Fonterra in 2014 saying, and I quote, “they should follow the example of Murray Goldburn and invest more in value add”

[Snow Leopard]

I have had a big change of mind.
From what I can gather the business of PGW, without the seeds, is a lot stronger and in better shape than I thought.
It is being driven by PGW being focussed on their customers.Staying close to their customers, and giving them excellent service/advice.PGW will remain a distributor of seeds.PGW's balance sheet will be very strong,enabling them to take advantage of opportunities that should present themselves.
I brought a small parcel today at .6893 cps,and depending on next week's result, may buy more.

As a holder of a few PGW shares, and sitting on a considerable unrealised profit therefrom, a hope that you see a good return on this investment, and I get to unrealise even more.

I am waiting for the results announcement next week for more current accounts but on the assumption that the deal goes through (I will not be voting in favour) and things are not much different, then the company would have an approximate NTA of $0.58 of which $0.36 would be cash.

Returning the cash and cancelling say 60% of the companies shares does still leave a company that from a customer perspective is essentially un-changed.

But from a shareholder view the remains on what will definitely be a high turnover, low margin business. can hopefully provide at least half the existing profit, which would more than maintain the P/E ratio.

Of course they will have good and bad years and maybe somebody will be interested in buying what is left.

[winner69]

You have to like record beating results ...and ahead of guidance

PGG Wrightson repeats record operating performance

https://www.nzx.com/announcements/322139

[Agrarinvestor]

Hi,

has Agria already sold their stake in PGW?

[Snow Leopard]

Hi,

has Agria already sold their stake in PGW?

https://stocknessmonster.com/news/pgw.nzx/

Nah!

[Agrarinvestor]

https://stocknessmonster.com/news/pgw.nzx/

Nah!

And has the payment be made? Do you received the extra dividend?

"The proceeds of approximately NZ$421 million exceed the book value of PGW Seeds’ net assets (estimatedto be NZ$285 million at 30 June 2018)."

[Snow Leopard]

The proposed sale of the Seeds business has not happened yet, and if it does the if, how & when of any money being returned to shareholders has not been announced.

[Agrarinvestor]

The proposed sale of the Seeds business has not happened yet, and if it does the if, how & when of any money being returned to shareholders has not been announced.


Many thanks for the answer.

[Snoopy]

The proposed sale of the Seeds business has not happened yet, and if it does the if, how & when of any money being returned to shareholders has not been announced.

PGW share price on 03/08/2018 before seed business sale deal announced: 64c.

PGW share price on 06/08/2018 immediately after seed business sale deal announced: 69c.

PGW share price on Friday 05/10/2018 after the market has had some time to think about the implications of the seed business sale: 61c.

So as the NZX50 reaches new highs, the value of PGW shares fall. Is this an indication that the market sees this deal as 'value destroying'? Perhaps I need to vote AGAINST this deal?

SNOOPY

[percy]

I will be voting in favour of the sale.
The sale will result in PGW being a company with a very strong balance sheet,a focussed business,and still enjoying a margin on agency seed sales.

[Snoopy]

I will be voting in favour of the sale.
The sale will result in PGW being a company with a very strong balance sheet,a focussed business,and still enjoying a margin on agency seed sales.


A very strong balance sheet as a result of asset sales in the past has lead to PGW to make some very large gambles (like setting up farms in Uruguay 'the New Zealand way', because we knew better than the locals) and removing the competitive advantage of having an in house finance business (done twice, first selling to Rabobank, then the reinvented finance division sold Heartland years later). PGW are now scrambling to correct the latter with their new 'GoLamb' and 'GoBeef' financing, effectively telling Heartland to 'GoHome' with their financing offers.

The seed business is a jewel which has had several bad years in Australia, largely weather related, that have caused some to see 'seeds' as a dog. I don't see 'seeds' that way. And the results of all previous 'sales of the family silver' have been negative for PGW. "Will it be any better this time?" is the question.

SNOOPY

[percy]

Yes,either go forward or make new mistakes.
As always "we live in interesting times."

[Snow Leopard]

Another good year forecast for PGG Wrightson (https://stocknessmonster.com/announcements/pgw.nzx-325205/)

Bargain at twice the price :t_up: [or is a bargain at half the price ? :)]

Any which way, for Agrarinvestor, Meeting is 30-Oct when Seed & Grain deal put to shareholders.

[waikare]

Should the sale of the Seeds & Grain go through, there will be bugger all left of PGW, think I'll be saying no on the 30 oct.

[percy]

Should the sale of the Seeds & Grain go through, there will be bugger all left of PGW, think I'll be saying no on the 30 oct.

Well I think the "bugger all" will be in very good shape,well focussed and financed,and will still be able to sell a lot of seeds via the agency arrangement.
Coud be a good little earner.paying very good divies.
A big YES vote from me.

[NZSilver]

Is there been any indication what they will do with the proceeds if the sale goes through?

[winner69]

Well I think the "bugger all" will be in very good shape,well focussed and financed,and will still be able to sell a lot of seeds via the agency arrangement.
Coud be a good little earner.paying very good divies.
A big YES vote from me.

Many seem to overlook that PGW will still be selling hundreds of millions of dollars of seeds and still make a decent margin out of doing so, even though not the ‘full’ margin they don’t have all the expenses that go with it either.

Might even be better off selling it

I note Agria haven’t ‘irrevocably’ agreed to sell their share.

[winner69]

Is there been any indication what they will do with the proceeds if the sale goes through?

Probably give you heaps silver

KM talking about $292m ...that’s 38 cents a share

[tim23]

Should the sale of the Seeds & Grain go through, there will be bugger all left of PGW, think I'll be saying no on the 30 oct.
Not quite true in my opinion - real estate, water, merch and Fruitfed - do the mathes they produce about half of profits so quite a good business left and more way more than the market is pricing at moment.

[waikare]

Is there been any indication what they will do with the proceeds if the sale goes through?

Taken from press release Fri, 12th

If it gets approval, the board said Wrightson plans to return up to $292 million through a share cancellation. The remaining cash will repay debt and fund capital expenditure. Wrightson will probably need to shrink its corporate head office and the smaller business may attract less analyst and investor coverage.

[mshierlaw]

Taken from press release Fri, 12th

If it gets approval, the board said Wrightson plans to return up to $292 million through a share cancellation. The remaining cash will repay debt and fund capital expenditure. Wrightson will probably need to shrink its corporate head office and the smaller business may attract less analyst and investor coverage.

Are we are being asked to vote on a proposal where the returns to shareholders have not yet been finalised. :confused:

[Aaron]

Need your votes in re seed sale by 28th Oct.

I'm voting with Snoopy and the shareholders association against this sale. Short term versus long term I guess. Although my shareholding will be hard to count unless you have a lot of decimal points on your calculator.

Am I correct in thinking you need over $4mill in shares or 7,548,488 shares to have a 1% vote.

[Snoopy]

I posted the above on 31st October 2015.

I am now changing my valuation method to reflect the dividends actually paid from years 2012 to 2016 inclusive, representing the whole Alan Lai era.



YearDividends Paid 'per share'Total


FY2012 0.0cps + 0.0cps0cps


FY2013 2.2cps + 1.0cps3.2cps

[/TR]

FY2014 2.0cps + 2.5cps + 1.0cps (s)5.5cps


FY2015 2.0cps + 2.0cps4.0cps


FY20161.75cps + 2.0cps3.75cps


FY2017(f)1.75cps + 2.0cps(f)3.75cps


Average FY2012 to FY2017 inclusive3.37cps



(f) indicates forecast result.
(s) indicates 'special dividend'


My valuation method to reflect the dividends actually paid from years 2012 to 2018 inclusive, representing the whole Alan Lai era.



YearDividends Paid 'per share'Total


FY2012 0.0cps + 0.0cps0.0cps


FY2013 2.2cps + 1.0cps3.2cps

[/TR]

FY2014 2.0cps + 2.5cps + 1.0cps (s)4.5cps


FY2015 2.0cps + 2.0cps4.0cps


FY20161.75cps + 2.0cps3.75cps


FY20171.75cps + 2.0cps3.75cps


FY20181.75cps + 1.25cps3.00cps


Average FY2012 to FY2018 inclusive3.17cps



(f) indicates forecast result.
(s) indicates 'special dividend'. I have decided not to include any special dividend in this dividend model as I consider the special dividend is unlikely to be repeated.

SNOOPY

[Snoopy]

Plugging in a representative yield, one that represents the ups and downs of the farming cycle of PGG Wrightson in its current form, we can now arrive at our 'Capitalised Dividend Model' valuation

(Representative Dividend per Share) / (Acceptable Yield) = Share Price (an algebraeic manipulation of: Dividend per Share / Share Price = Yield )

3.37c / 0.72 x 0.095 = 49.2c

Note that I am using 9.5% as my acceptable gross yield. Some might argue that is high. But I think it is fair given that much of PGW's profit comes from low margin commodities subject to weather event demand. Some years ago PGW paid no dividend at all for several years in a row. This kind of risk is reflected in my selection of a 9.5% acceptable yield, about half as much again more than a tier one utility company.

This 49c valuation is measured at the average point in the business cycle. One might argue that we are now riding high in the business cycle and that this 49c valuation is consequently too low given today's circumstances (sp closed today at 54c). I wouldn't argue with that. If I use my +20% rule of thumb, one might expect a share price of 59c at the top of the business cycle. Likewise 39.5c would be the bottom. Take off the imminent 1.75c fully imputed dividend and PGW doesn't look so overvalued today (remember too that there is a strong case to say that most of the market is slightly overvalued right now). I wouldn't be selling or buying more PGW shares based on these numbers.

discl: hold PGW

Plugging in a representative yield, one that represents the ups and downs of the farming cycle of PGG Wrightson in its current form, we can now arrive at our 'Capitalised Dividend Model' valuation

(Representative Dividend per Share) / (Acceptable Yield) = Share Price (an algebraeic manipulation of: Dividend per Share / Share Price = Yield )

3.17c / 0.72 x 0.095 = 46.3c

Note that I am using 9.5% as my acceptable gross yield. Some might argue that is high. But I think it is fair given that much of PGW's profit comes from low margin commodities subject to weather event demand. Some years ago PGW paid no dividend at all for several years in a row. This kind of risk is reflected in my selection of a 9.5% acceptable yield, about half as much again more than a tier one utility company.

This 46.3c valuation is measured at the average point in the business cycle. One might argue that we are now riding high in the business cycle and that this 46.3c valuation is consequently too low given today's circumstances (sp closed Friday at 57c). I wouldn't argue with that. If I use my +20% rule of thumb, one might expect a share price of 56c at the top of the business cycle. Given agriculture is currently in quite a sweet spot in New Zealand I would say Mr Market has it about right. Likewise 37c would be the bottom. I wouldn't be selling or buying more PGW shares based on these numbers.

Naturally all of this earnings based valuation doesn't reflect any takeover premium that might come to the table as a result of the offer for PGW Seeds, should that offer go through. This is still of interest for those who object to the proposed sale of the seeds business. Such shareholders may be able to invoke minority buy out rights. A buy out price should reflect the company valuation, pre any offer, and this could be below the recent market price for the shares!

SNOOPY

discl: hold PGW

[Snoopy]

Time for a little more snooping, in fact the full 'snoopshot' treatment! How does PGW go when subjected to my four investment selection tests?

1/ Top Three player in chosen market?

PGG Wrightson Limited (PGW) was formed in 2005, a result of a merger between two established agricultural supply service leaders: Wrightson Limited and Pyne Gould Guiness. However, the DNA of the operation goes back much further than this. Wright Stevenson & Company was established in Dunedin in 1868. Even they are a new boy on the block though, as Gould Beaumont & Co. had been founded in Christchurch as early as 1851.

Under the leadership of CEO Mark Dewdney, PGW has regrouped under the 'One PGW' mindset. Despite being a diverse company, 'One PGW' is about customer relations in the widest sense: where one division not only looks after their own operations but seeks an awareness of opportunities for the complimentary group businesses. Down to earth people serving down to earth customers succinctly sums up the ethic. The recognised business units as detailed in the annual report are below:

1/ Merchandising (rural themed products): Traditional competitors RD1 (Fonterra owned) and Farmlands (a co-operative) are the two other large players in the game. There are others, but on a smaller scale to 'the big three'.

2/ Livestock Trading: PGW has NZs largest group of livestock representatives, handling 50%+ of transactions nationwide.

3/ Insurance: Commission agents for AON and Vero

4/ Real Estate: Specialising in rural and small town properties. Together with Bayley's, PGW is one of the largest two players in what is a fragmented market.

5/ Water: At last with nationwide coverage through recent 'bolt on' acquisitions, PGW offer turf irrigation, for landscaping and sports use, along with their more traditional 'rural irrigation' and the bread and butter ongoing servicing work that tends to be higher margin. There is a wholesale side of the business too, supplying water and irrigation products. With nearly $85m of turnover in FY2015, PGW stands out as a major national player in a fragmented market.

6/ Wool: PGW manages a substantial portion of the strong wool supply chain in New Zealand , from on farm procurement, freight and logistics through to sales (be they via auction, private sales, export (the Bloch & Behrens brand) and domestic). Higher value finer wool is marketed through the associtaed NZ Merino company.

7/ Seeds: The largest seed producer in the Southern Hemisphere, with interests spread across New Zealand, Australia and South America.

The beachhead of PGW remains in New Zealand. But there is potential to replicate the 'One PGW' model, particularly in South America in the coming years. Uruguay in particular is where PGW is building a strong presence.

Conclusion: Ticks the 'major player' (top three) criterion across all markets in which they operate.


Time to reprise my 'snooping'. How does PGW go when subjected to Buffett's four investment selection tests?

1/ Top Three player in chosen market?

PGG Wrightson Limited (PGW) was formed in 2005, a result of a merger between two established agricultural supply service leaders: Wrightson Limited and Pyne Gould Guiness. However, the DNA of the operation goes back much further than this. Wright Stevenson & Company was established in Dunedin in 1868. Even they are a new boy on the block though, as Gould Beaumont & Co. had been founded in Christchurch as early as 1851.

Under the leadership of new CEO for FY2018 Ian Glasson, PGW has undergone a 'strategic review'. The review is to establish how much capital is required for PGW going forwards and how that capital might be supplied. This could include the divestment of certain business units. PGW is a diverse company. But the 'One PGW' motto of the previous CEO seems to have been dropped. The recognised business units are below:

1/ Merchandising (rural themed products) with 94 stores branded 'PGGW Rural Supplies' and 'Fruitfed Supplies'. Traditional competitors are 'NZ Farm Source', the rebranded RD1 (Fonterra owned) with 71 stores and Farmlands (a co-operative) with over 80 stores. There are others, but on a smaller scale to 'the big three'.

2/ Livestock Trading: PGW has NZs largest group of livestock representatives with 219 representatives across the country , handling 50%+ of transactions nationwide. The core market is sheep and beef cattle. But 'Livestock' will also sell dairy cows and deer velvet. The traditional saleyards are to be supplemented by a sophisticated on-line sales channel.

3/ Finance & Insurance: Commission agents for AON and Vero. Commission agents for Heartland Bank, under the 'PGW Finance' brand (owned by Heartland). PGW finance their own in house livestock transactions via their GO-beef and GO-lamb initiatives.

4/ Real Estate: Specialising in rural and small town properties. Together with Bayley's, PGW is one of the largest two players in what is a fragmented market.

5/ Water: PGW offer turf irrigation, for landscaping and sports use, along with their more traditional 'rural irrigation' and the bread and butter ongoing servicing work that tends to be higher margin. There is a wholesale side of the business too, supplying water and irrigation products. Turnover in FY2018 of $41m is substantial but well down on the FY2015 peak. This business is now loss making at EBITDA level. PGW stands out as a major national player in a fragmented irrigation market. (source: Kord Mentha Independent Appraisal Report section 3.4.2)

6/ Wool: PGW manages a substantial portion of the strong wool supply chain in New Zealand , from on farm procurement, freight and logistics through to sales (be they via auction, private sales, export (the Bloch & Behrens brand) and domestic). Higher value finer wool is marketed through the formerly associated NZ Merino Company. PGW sold their half stake to the growers co-operative in June 2011.

7/ Seeds: The largest seed producer in the Southern Hemisphere, with interests spread across New Zealand, Australia and South America. For seed and grain production PGGWs key competitor is Barenbrug. Barenbrug is a global seed business headquartered in the Netherlands that trades as 'Agriseeds' in NZ and 'Heritage' in Australia Seed and Grain Australian and South American businesses facing challenging climatic conditions over FY2018.

The bedrock of PGW seeds remains in New Zealand. The beachhead in Uruguay in particular is where PGW is building a strong presence. Building the business in neighbouring Argentina and Brazil looks to be the next step. Smaller acquisitions have been made in Australia in recent years.

Conclusion: Ticks the 'major player' (top three) criterion across all markets in which they operate. 'Pass Test'

SNOOPY

[Snoopy]

To be comparable 'year to year', I have removed all evidence of the now sold finance division from the results. This involved splitting the finance division off as if it was 'stand alone', then subtracting the finance division NPAT taking out from the total 'NPAT'. Please note these figures represent operational NPAT, discounting one off earnings effects.

Earnings Per Share here is defined as NPAT / No. shares on Issue at end of year

FY2011 (*): $5.9m/ 754.8m = 0.8c
FY2012 (*): $25.2m/ 754.8m = 3.3c
FY2013 (*): $24.3m/ 754.8m = 3.2c
FY2014 : $33.8m/ 754.8m = 4.5c
FY2015 : $34.8m/ 754.8m = 4.6c

(Asterisked figures have been adjusted to remove the former finance division NPAT profit or loss from that year)

Conclusion: Pass Test





EBITDAadd Associate Profitless D&Aless Net Interestless Income Taxequals NPAT
less Property salesequals Adjusted NPAT {A} No. Shares on Issue {B} eps {A}/{B}




FY2014$58.747m$2.521m$11.242m$6.262m$8.472m$35.312 m
$35.312m754.8m4.7c


FY2015$69.500m$0.181m$7.948m$7.921m$16.172m$37.640 m
$0.960m$36.680m754.8m4.9c


FY2016$70.181m$9.170m$9.016m$8.832m$43.163m
$4.990m$38.173m754.8m5.1c


FY2017$64.499m$10.733m$6.540m$10.428m$36.728m
$8.740m$28.058m754.8m3.7c


FY2018$70.174m$12.974m$9.986m$12.460m$34.754m
$1.700m$33.054m754.8m4.4c



Notes

1/ (New) I have looked at the 'Interest- Finance Income and Expense' note (7 in AR2018) and removed the foreign exchange effects when calculating the net interest bill.
2/ I have removed the contribution of property sales from the result as these are not indicative of operational performance.
3/ Associate profits are included in Operating EBITDA from FY2016 forwards.

After trending upwards for the first three years of our comparative periods, there was a sharp drop in normalized profit in FY2017, after which there has been just a partial recovery. Normalised profit is lower than five years ago.

Conclusion: Fail Test

SNOOPY

[Snoopy]

To be comparable 'year to year', I have removed all evidence of the now sold finance division from the results. This involved splitting the finance division off as if it was 'stand alone', and assigning the given shareholders equity between the finance division and all other divisions, then removing the finance division component from the total equity.


ROE here is defined as: NPAT / End of Year Shareholder Equity

FY2011 (*): $5.9m/ ($604.3m - 0.4171($766.814m)) = 2.13%
FY2012 (*): $25.2m/ ($577.7m - 0.5892($51.736m)) = 4.61%
FY2013 (*): $24.3m/($256.1m - 0.4134($19.155m)) = 9.79%
FY2014 : $33.8m/ $269.7m = 12.5%
FY2015 : $34.8m/ $267.4m = 13.0%

(Asterisked figures have been adjusted to remove the former finance division NPAT profit or loss from that year AND a portion of equity relating to the finance division of that year)

Conclusion: Fail test


ROE here is defined as: (Adjusted NPAT) / (End of Year Shareholder Equity)

FY2014 : $35.312m/ $269.7m = 13.2%
FY2015 : $36.680m/ $267.4m = 13.7%
FY2016 : $38.173m/ $274.3m = 13.9%
FY2017 : $28.058m/ $289.7m = 9.7%
FY2018 : $33.054m/ $287.5m = 11.5%

Conclusion: Fail test

SNOOPY

[Snoopy]

This test does not mean that PGW will always be able to raise margins above the rate of inflation. But it does mean that under certain market conditions it can, thus avoiding an eventual commodity price spiral to the bottom. The revenue associated with the now sold finance division has been removed from the appropriate years

Margin here is defined as NPAT/Sales

FY2011 (*): $5.9m/ ($1,243m - $55m) = 0.50%
FY2012 (*): $25.2m/ ($1,337m - $7m) = 1.91%
FY2013 (*): $24.3m/($1,132m - $2m) = 2.15%
FY2014 : $33.8m/ $1,219m = 2.77%
FY2015 : $34.8m/ $1,103m = 2.89%

(Asterisked figures have been adjusted to remove the former finance division NPAT profit or loss from that year AND the sales revenue relating to the finance division of that year)

Conclusion: Pass Test


This test does not mean that PGW will always be able to raise margins above the rate of inflation. But it does mean that under certain market conditions it can, thus avoiding an eventual commodity price spiral to the bottom. The revenue associated with the now sold finance division has been removed from the appropriate years

Margin here is defined as: (Adjusted NPAT)/(Sales)

FY2014 : $35.312m/ $1,219m = 2.89%
FY2015 : $36.680m/ $1,203m = 3.05%
FY2016 : $38.173m/ $1,182m = 3.23%
FY2017 : $28.058m/ $1,133m = 2.48%
FY2018 : $33.054m/ $1,194m = 2.77%

Three years of improving margins from FY2014 to FY2016 inclusive shows that sustained margin improvement is possible.

Conclusion: Pass Test

SNOOPY

[Snoopy]

We cannot apply a Warren Buffett style growth model to valuing PGW because it has failed test 3, the 'Return on Equity' test. The failure is not unexpected as this is a tough hurdle for companies that must carry a high level of stock and sell that stock a relatively low margins to pass. The risk here of having a large amount of stock on hand that spoils or must otherwise be heavily discounted below cost is very real in companies that sell commodities. This doesn't necessarily mean that one should avoid PGW as an investment though. It means that you should probably use a more conservative evaluation method. The method I prefer in these circumstances is an (at least) five year average of dividend flows, with the underlying assumption of a steady rather than a growing market. I will have a look at that next.


We cannot apply a Warren Buffett style growth model to valuing PGW because it has failed:

a/ test 2, the increasing 'eps' year on year test AND
b/ test 3, the 'Return on Equity' test.

These failures are not unexpected as these are tough hurdles for companies that must

ai/ weather the effects of the weather (sic) AND
bi/ carry a high level of stock and sell that stock a relatively low margins to pass. The risk here of having a large amount of stock on hand that spoils or must otherwise be heavily discounted below cost is very real in companies that sell commodities.

This doesn't necessarily mean that one should avoid PGW as an investment though. It means that you should probably use a more conservative evaluation method. The method I prefer in these circumstances is an (at least) five year average of dividend flows, with the underlying assumption of a steady rather than a growing market. This is otherwise known as the 'Capitalised Dividend Valuation Method'. Luckily for you readers I have already done this (my posts 4310 and 4311).

SNOOPY

[winner69]

Reading all your summaries it does seem strange you hold PGW .....or don’t I get it

[Snoopy]

Reading all your summaries it does seem strange you hold PGW .....or don’t I get it


There are a few reasons why I hold:

1/ PGW has been a good dividend payer since Alan Lai took control. And I make that comment even though dividends may be reduced from time to time (such as the last dividend). Over the business cycle, it is still a good dividend story.
2/ 'Traditionally' (perhaps not at the moment), movements in the PGW share price are not that well correlated with the NZX50. So holding PGW has provided a kind of 'hedging effect' as part of a wider portfolio.
3/ PGW has a diverse earnings base within the broader agricultural sector. Last year when dairy is down, horticulture was up. Likewise, I don't have to guess whether investing in 'sheep' or 'cattle' is the best livestock to finish off. Knowledgeable PGW Livestock buyers will do that for me.
4/ Despite my publicised Buffett test failures, ROE is not totally shabby. PGW are still earning above their cost of capital (9.3% - 9.7% according to the KM report)
5/ Previous CEO Mark Dewdney's 'One PGW' policy seems to be working. The cross selling between business units has yielded positive results and this looks to be continuing under the new CEO. New investments seem much more disciplined than under the old Norgate regime.

I think those are enough reasons to hold for now!

SNOOPY

[Snoopy]

Sensational news on the eve of the AGM!

-------

PGG Wrightson Limited - Retirement of Chair

PGG Wrightson Limited’s (PGW) Chairman Guanglin (Alan) Lai announced today his intent to retire as a Director and Chair effective 30 October 2018.

Mr Lai said “I will always have great fondness for New Zealand and for PGW. The work that Agria has been able to do to benefit PGW and New Zealand is not yet finished, but I think that my time in leading PGW as Chair must come to an end as I need to focus on the next phase in my career and spend more time with my family.

“Leadership always needs to be refreshed and I have done everything within my power to lead and benefit PGW over the last 10 years to greener pastures and to greater success. I believe in this company and this country. I have been a proud caretaker for this iconic New Zealand company and have full confidence in the Board and trust they will continue to serve the shareholders and PGW well into the future."

In the interim, existing Director, Joo Hai Lee has been appointed as Chair effective from 31 October with Trevor Burt continuing as Deputy Chair. Mr Burt said “a review of the Board’s composition and governance would be undertaken and the market would be updated on outcomes in due course.

Mr Burt noted that “the Board wished to offer its sincere thanks to Alan for his leadership and dedication since his appointment as a Director in 2009, and wish him all the very best for the future.

--------

SNOOPY

[Balance]

Sensational news on the eve of the AGM!

-------

PGG Wrightson Limited - Retirement of Chair

PGG Wrightson Limited’s (PGW) Chairman Guanglin (Alan) Lai announced today his intent to retire as a Director and Chair effective 30 October 2018.

Mr Lai said “I will always have great fondness for New Zealand and for PGW. The work that Agria has been able to do to benefit PGW and New Zealand is not yet finished, but I think that my time in leading PGW as Chair must come to an end as I need to focus on the next phase in my career and spend more time with my family.

“Leadership always needs to be refreshed and I have done everything within my power to lead and benefit PGW over the last 10 years to greener pastures and to greater success. I believe in this company and this country. I have been a proud caretaker for this iconic New Zealand company and have full confidence in the Board and trust they will continue to serve the shareholders and PGW well into the future."

In the interim, existing Director, Joo Hai Lee has been appointed as Chair effective from 31 October with Trevor Burt continuing as Deputy Chair. Mr Burt said “a review of the Board’s composition and governance would be undertaken and the market would be updated on outcomes in due course.

Mr Burt noted that “the Board wished to offer its sincere thanks to Alan for his leadership and dedication since his appointment as a Director in 2009, and wish him all the very best for the future.

--------

SNOOPY

Something happening behind the scenes?

Interesting day ahead tomorrow!

[winner69]

PGG Wrightson Seeds was Dulux Group’s Supplier of the Year in recognition of the great efforts they put into supplying grass seed to Yates (a Gulux company) across ANZ

Pretty good eh

[Sideshow Bob]

Seed sale approved by 97% of shareholders

[RGR367]

Seed sale approved by 97% of shareholders

Ouch and boy, I'm really on the minority. Having owned it since '03 and build it up from then, it must be really time to get some money back now as you guys have decided :)

[percy]

Seed sale approved by 97% of shareholders

A very positive vote.

[Aaron]

A very positive vote.
Really? What percentage of shareholders voted?

We know that 50.2% Agria shares would have voted to sell. Sounds like institutional investors are very passive collecting their fees for managing peoples money but not acting like owners in the companys they own.

I assume this is not a major transaction requiring more than 75% of shareholders votes required to approve it. I wonder if publicly listed companies have different rules or if institutional investors are forced to vote one way or another if it is a major transaction.

I thought there might have been an opportunity to make on a wrightsons share purchase today based on the last line of this article.

https://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=12151408


By my calculations the capital return is 39 cents a share ($292,000/754,849) and current market cap is $430,264 (754,849 * .57). I might have something wrong or this could be fake news.

[Balance]

Really? What percentage of shareholders voted?

We know that 50.2% Agria shares would have voted to sell. Sounds like institutional investors are very passive collecting their fees for managing peoples money but not acting like owners in the companys they own.

I assume this is not a major transaction requiring more than 75% of shareholders votes required to approve it. I wonder if publicly listed companies have different rules or if institutional investors are forced to vote one way or another if it is a major transaction.

I thought there might have been an opportunity to make on a wrightsons share purchase today based on the last line of this article.

https://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=12151408


By my calculations the capital return is 39 cents a share ($292,000/754,849) and current market cap is $430,264 (754,849 * .57). I might have something wrong or this could be fake news.

Extremely disgracefully incorrect reporting. Couldn't this reporter just take 5 minutes to read the NZX site and know that PGW's market cap is $437m?

[Ggcc]

Extremely disgracefully incorrect reporting. Couldn't this reporter just take 5 minutes to read the NZX site and know that PGW's market cap is $437m?
I have found that some reporters are terrible with company reports and send information to the public that literally is wrong. Where are the proof readers on these articles?

[percy]

I have found that some reporters are terrible with company reports and send information to the public that literally is wrong. Where are the proof readers on these articles?

It is the reason I had to buy a computer years ago.The Press either did not report agms/results,or when they did they often made big errors.
Today I still find to get the correct information you have to read the announcements,as often ST posters get their facts wrong..

[Snoopy]

Really? What percentage of shareholders voted?




Votes For {A}462,798,990


Votes Against {B}14,688,150


Votes Abstain {C}3,667,296


Total votes [{A}+{B}+{C}] = {D}481,154,436


Total Shares on Issue {E}754,848,774


Percentage of Shares Voted {D}/{E}63.7%



Take out the 50.2% of Agria shares and the other shareholders who voted amounted to:

63.7% - 50.2% = 13.5% of all shares on the registry.

The remaining shares that no-one voted on made up: 100% - 63.7% = 36.3% of all shares



We know that 50.2% Agria shares would have voted to sell. Sounds like institutional investors are very passive collecting their fees for managing peoples money but not acting like owners in the companys they own.


Excluding Agria, the total number of shares that voted 'sell' were: 462,798,990 - 370,068,619 = 92,730,371

92,730,371 / 754,848,774 = just 12.3% of all shareholders in total or

92,730,371 / (754,848,774 - 370,068,619) = 24% or non-Agria shareholders.



I assume this is not a major transaction requiring more than 75% of shareholders votes required to approve it. I wonder if publicly listed companies have different rules or if institutional investors are forced to vote one way or another if it is a major transaction.


Actually it was a major transaction. Total shares voting for were Agria (50.2%) plus others (12.3%) which amounts to 65.2%. Well short of that 75% threshold. But it seems it passed anyway :-(

SNOOPY

[Snoopy]

Seed sale approved by 97% of shareholders


No, the sale was approved by just shy of 97% of shareholder votes cast. But not all shareholders who voted had equal number of votes to cast. I think if you all up the actual number of shareholders who voted for this transaction, the number would be well south of 50%.

SNOOPY

[Balance]

No, the sale was approved by just shy of 97% of shareholder votes cast. But not all shareholders who voted had equal number of votes to cast. I think if you all up the actual number of shareholders who voted for this transaction, the number would be well south of 50%.

SNOOPY

Like any elections, anyone who chooses NOT to vote forfeits their right surely to complain about the vote outcome.

Let's be blunt - we know most shareholders, especially the institutional ones, are simply there for the ride. Nothing wrong with that but investors better be aware!

[Aaron]

Definition in the Companies Act

special resolution means a resolution approved by a majority of 75% or, if a higher majority is required by the constitution, that higher majority, of the votes of those shareholders entitled to vote and voting on the question


If you don't vote you don't count. Actually thinking about it I thought it used to be 75% of the shareholders holding more than 75% of the shares/votes but obviously this is wrong and would be unwieldy in a publicly listed company especially with apathetic institutional investors.

[iceman]

A good and interesting article by Tim Hunter in the NBR (behind paywall) about PGW and it's newly retired Chairman. https://www.nbr.co.nz/analysis/goodbye-and-good-luck-sec

[Snoopy]

Seed sale approved


Although there are still some boxes to tick, it looks like the deconstruction of PGW is going ahead. My question now is, is there an arbitrage opportunity for those buying in today to make on the deal?
To find that out, you need to study the Korda Mentha report on the proposed transaction.

http://nzx-prod-s7fsd7f98s.s3-website-ap-southeast-2.amazonaws.com/attachments/PGW/325209/288491.pdf

The key information potential shareholders should look at may be found on page 36 (or page 49 where the same table is repeated). The table is labelled 'Rural Services Balance Sheet Summary'. The starting point is the 'Consolidated Pro-forma' column on the left. This column is a 'balance sheet' of the company 'pre-split', assuming the split had happened on 30th June 2018 (the most recent balance date).

This left hand column then, should line up with the balance sheet in AR2018. The net assets certainly do ($287.5m in KM report, $287.462m in AR2018). However once you look a little deeper the parallels become puzzlingly murky. The declared debt position is what I am puzzling over the most:



Korda Mentha ReportAnnual Report FY2018


Cash & Cash Equivalents$2.7m$10.926m


Overdraft and Short Term Debt($9.2m)($30.806m)


Long Term Debt($118.0m)($149.205m)


Defined Benefit Superannuation Scheme Provision($9.5m)($9.669m) + ($0.905m)


Total($134m)($179.659m)



Here I come up against the limitations of my tiny dog brain. The debt position of the company should be the same in a balance sheet snapped on the same date. So why is it so different? If any other species reading can untangle this I am all ears (and beagle ears are big ones).

In the meantime I will continue to look at the KM table assuming that it is correct, despite my doubts.

The most important row for shareholders is the one showing 'cash and cash equivalents', because there you can see the $413m cash offer from DLF seeds come into play. If the actual future cashflows match the table, then we shareholders will see long term debt fall from $118m to just $17.5m, with that debt repayment of $100.5m. Or will the long term debt fall from $149.205m to $48.705m, assuming a $100.5m payment?

Whatever happens there will be a big saving on the interest bill going forwards on the 'Rural Rump' that remains. But how much will that saving be?

SNOOPY

[Snoopy]

We shareholders will see long term debt fall from $118m to just $17.5m, with that debt repayment of $100.5m. Or will the long term debt fall from $149.205m to $48.705m, assuming a $100.5m payment?

Whatever happens there will be a big saving on the interest bill going forwards on the 'Rural Rump' that remains. But how much will that saving be?


The problem with estimating an interest rate equivalent for the PGW debt is that company debt quite seasonal, as the table below shows:



FY2018HY2018FY2017


Short Term Debt$30.806m$91.215m$26.719m


Long Term Debt$149.205m$130.634m$110.925m


Total$180.011m$221.849m$137.664m



We can calculate a linear approximation average of the total debt as follows:

($180.011m + $221.849m + $137.664m)/3= $179.834m

Over the year the 'interest funding expense' (AR2018 note 7) was $10.235m. (Note that I am leaving out the foreign exchange changes which I don't believe are representative of true funding costs.)

So the indicative interest rate that PGW pays on the average outstanding balance is:

$10.235m / $179.834m = 5.7%

If as a result of the seeds transaction $100.5m is repaid, then interest will no longer have to be paid on that amount into the future. The total interest saved on an annual basis for 'PGW Rural Rump' will therefore be:

0.057 x $100.5m = $5.73m

How does this saving in interest payments translate to the profitability of 'PGW Rural Rump' going forwards?

SNOOPY

[Snoopy]

0.057 x $100.5m = $5.73m

How does this saving in interest payments translate to the profitability of 'PGW Rural Rump' going forwards?


If the indicative interest rate bill 'before' was $10.235m based on an average debt balance of $179.834m, this implies an indicative interest rate of:

$10.235m / $179.834m = 5.7%

That means the indicative annual interest payments after debt repayment will be:

0.057 x ($179.834m - $100.5m) = $4.522m

For comparison I will also look at an alternative scenario where $118m of debt is repaid:

0.057 x ($179.834m - $118m) = $3.525m




Rural Services ($100.5m debt repayment)Rural Services ($118m debt repayment)


EBITDA$34.567m$34.567m


less DA$12.974m$12.974m


less I$4.522m$3.525m


equals EBT$17.071m$18.069m


x 0.72 equals NPAT {A}$12.291m$13.009m


No. shares on issue {B}754.048m754.048m


eps {A}/{B}1.63c1.73c





There is a complicating factor that comes into my 'greater debt repayment' scenario. If extra debt is repaid then that money will no longer be available to shareholders (as part of any capital repayment). Under the original scenario a capital repayment of $292m was modelled. Under the 'alternative scenario' this capital repayment drops to:

$292m - $18m = $274m

Putting all of this together, how does this effect the forecast future returns of 'PGG Rural Rump' going forwards?

SNOOPY

[Snoopy]

Putting all of this together, how does this effect the forecast future returns of 'PGG Rural Rump' going forwards?




Immediately after the AGM the PGW share price was 57c. If we take this as Mr Market's 'reference figure', then this 57c will be split into a capital payout amount and the remainder which is Mr Market's worth of 'PGW Rural Rump'.

There are 754.048m PGW shares on issue. So working through both scenarios, for each share held, PGW shareholders can expect a capital repayment of either:

$292m / 754.048m = 38.7cps OR $274m / 754.048m = 36.3cps

By simple subtraction from the 57c PGW market value, we can now calculate the market value of 'PGW Rural Rump' after the seeds have split.

57c - 38.7c = 18.3c OR 57c - 36.3c = 20.7c

This gives us the information we need to work out post split PE ratios and dividend yields for both scenarios.

SNOOPY

[Snow Leopard]

...The key information potential shareholders should look at may be found on page 36 (or page 45 where the same table is repeated). The table is labelled 'Rural Services Balance Sheet Summary'. The starting point is the 'Consolidated Pro-forma' column on the left. This column is a 'balance sheet' of the company 'pre-split', assuming the split had happened on 30th June 2018 (the most recent balance date).

This left hand column then, should line up with the balance sheet in AR2018. The net assets certainly do ($287.5m in KM report, $287.462m in AR2018)....

The left hand column is a view of the total company consisting of the details of the financial position of Rural Services who have an investment in Seed & Grain with a net book value of $285M (as per the initial sale announcement).

All the 'discrepancies' you are noting are the equivalent lines of the Seed & Grain financial position being consolidated down to that single $285M figure.

Keep up the good work :)

[Snoopy]

Immediately after the AGM the PGW share price was 57c. If we take this as Mr Market's 'reference figure', then this 57c will be split into a capital payout amount and the remainder which is Mr Market's worth of 'PGW Rural Rump'.

There are 754.048m PGW shares on issue. So working through both scenarios, for each share held, PGW shareholders can expect a capital repayment of either:

$292m / 754.048m = 38.7cps OR $274m / 754.048m = 36.3cps

By simple subtraction from the 57c PGW market value, we can now calculate the market value of 'PGW Rural Rump' after the seeds have split.

57c - 38.7c = 18.3c OR 57c - 36.3c = 20.7c

This gives us the information we need to work out post split PE ratios and dividend yields for both scenarios.




Scenario $100.5m debt repaymentScenario $118m debt repayment


eps {A}1.63c1.73c


PGW Rural Rump: Market Valuation {B}18.3c20.7c


PE ratio {B}/{A}11.212.0


Gross Dividend Yield {A}/{B x 0.72}12.4%11.6%



Notes

1/ In the gross yield calculation I am assuming that all earnings are paid out as dividends. With 'Agria' better capitalized following the capital repayment and with some potential investment to be made on 'PGW Rural Rump' going forwards, this might not happen.

2/ I feel the PE ratios are looking quite high for this type of business. This leads me to believe that at 57c, PGW pre break up is looking quite fully valued.

3/ The potential dividend yield looks fantastic, with the slightly better capitalized version of 'PGW Rural Rump' showing a lower yield. But perhaps that better capitalization could be handy in an industry notorious for 'rural downturns'. And in such downturns I would expect any dividend yield to drop .

4/ Have I missed anything?

5/ I don't seem to be very enthusiastic about getting out my wallet to top up on PGW shares before the split. In retrospect those near 70c prices that Mr Market was paying only a few months back look a bit crazy!

SNOOPY

[Balance]

This left hand column then, should line up with the balance sheet in AR2018. The net assets certainly do ($287.5m in KM report, $287.462m in AR2018). However once you look a little deeper the parallels become puzzlingly murky. The declared debt position is what I am puzzling over the most:



Korda Mentha ReportAnnual Report FY2018


Cash & Cash Equivalents$2.7m$10.926m


Overdraft and Short Term Debt($9.2m)($30.806m)


Long Term Debt($118.0m)($149.205m)


Defined Benefit Superannuation Scheme Provision($9.5m)($9.669m) + ($0.905m)


Total($134m)($179.659m)



Here I come up against the limitations of my tiny dog brain. The debt position of the company should be the same in a balance sheet snapped on the same date. So why is it so different? If any other species reading can untangle this I am all ears (and beagle ears are big ones).

SNOOPY

Page 35 of KM report (Financial Position) 6.2.2 - Seed & Grains taking over $44m worth of debt?

[Snow Leopard]

...
4/ Have I missed anything?
...

As Balance and the KM report says, and I will say it too, you have the debt position of the remaining company wrong.

$44M of debt goes with S&G and the net debt position of new PGW will be $36M2 or, if you insist in paying off an extra $18, about half of that.

Have you factored in the ongoing provision of services to the new owners of S&G ?
Have you also factored in that new PGW will be selling S&G seeds, hopefully for a profit?

[Balance]

Scenario $100.5m debt repaymentScenario $118m debt repayment


eps {A}1.63c1.73c


PGW Rural Rump: Market Valuation {B}18.3c20.7c


PE ratio {B}/{A}11.212.0


Gross Dividend Yield {A}/{B x 0.72}12.4%11.6%



Notes

1/ In the gross yield calculation I am assuming that all earnings are paid out as dividends. With 'Agria' better capitalized following the capital repayment and with some potential investment to be made on 'PGW Rural Rump' going forwards, this might not happen.

2/ I feel the PE ratios are looking quite high for this type of business. This leads me to believe that at 57c, PGW pre break up is looking quite fully valued.

3/ The potential dividend yield looks fantastic, with the slightly better capitalized version of 'PGW Rural Rump' showing a lower yield. But perhaps that better capitalization could be handy in an industry notorious for 'rural downturns'. And in such downturns I would expect any dividend yield to drop .

4/ Have I missed anything?

5/ I don't seem to be very enthusiastic about getting out my wallet to top up on PGW shares before the split. In retrospect those near 70c prices that Mr Market was paying only a few months back look a bit crazy!

SNOOPY

Have had a chance to look closely at the KM report.

I think you have not backed out all the P&L items pertaining to Seeds & Grains.

Eg. Depreciation and Amortisation - total $13m but $6.1m was S&G - so your DA should be only $6.9m rather than the $12.97m you have in your calculations for Rural Rump.

Likewise, I believe your interest expense is too high - should be closer to $2m when you fully back out S&G debts and repayment of debts.

My tens cents' worth.

[Balance]

Have had a chance to look closely at the KM report.

I think you have not backed out all the P&L items pertaining to Seeds & Grains.

Eg. Depreciation and Amortisation - total $13m but $6.1m was S&G - so your DA should be only $6.9m rather than the $12.97m you have in your calculations for Rural Rump.

Likewise, I believe your interest expense is too high - should be closer to $2m when you fully back out S&G debts and repayment of debts.

My tens cents' worth.

Do your own numbers guys.

Rural Rump probably one of the cheapest companies on NZX after the capital repayment from divestment of S&G.

[Snoopy]

Have you also factored in that new PGW will be selling S&G seeds, hopefully for a profit?


First of all thanks to The Ice Cool Cat and the Scales for the feedback. I can see I have a bit more homework to do. I will make a start with the above question.

Here are some quote from AR2017 p19 under the heading 'Rural Supplies'.

-------

"The rural supplies business has a core foundation around owning the agronomy categories of agchem, seed and grain and fertilizer."

<snip>

"This year saw further growth in these key categories."

<snip>

"A key contributor to this growth was our team providing the best product and technical advice, at the right time to our customers. This sits alongside the science of the research that supports our product range."

-----

I read the above as the Rural Supplies division selling seeds and booking those sales through the rural division book already, while the seed division develops the technology. I would guess the seeds are sold to 'Rural Supplies' on an arms length basis. That means if the seeds division is sold, the profits from seed sales through the Rural Supplies division will remain as they are now. I.e. there will be no windfall increase as a result of the seeds division sale.

SNOOPY

[Snoopy]

The left hand column is a view of the total company consisting of the details of the financial position of Rural Services who have an investment in Seed & Grain with a net book value of $285M (as per the initial sale announcement).

All the 'discrepancies' you are noting are the equivalent lines of the Seed & Grain financial position being consolidated down to that single $285M figure.


I present below my reconciliation of the two versions of the PGW balance sheet 'as published'.

'Column 1' {A} represents the balance sheet as published in AR2018.
'Column 2' {B} represents the balance sheet as published in the Korda Mentha deconsolidation report.
'Column 3' represents the difference between 'Column 1' and 'Column 2' ( {A}-{B} )

Effectively Column 3 represents the balance sheet of the 'Seeds & Grain' division as at balance date, prior to any cash injection from any takeover offer. This information was not published in the Korda Mentha report, although a similar table appears on page 33.

Despite all the figures adding up, this exercise may not be entirely correct. The AR2018 balance sheet contains many more categories than the KM balance sheet. This means I had to select what 'box' to post some AR2018 balance sheet items into. In some instances, I may have picked the wrong box. But I have recorded in the table Column 1, the destination box of each balance sheet item. So if anyone thinks that I have made a classification mistake, then the information is there so that they can challenge me on it.

The grand total of Column 3 should be zero. This is because the value of the 'Seed and Grain' 'investment' (pre split) has been included in Column 3 as a negative value to offset the positive 'investment' value of 'Seed & Grain' in Column 1. This is because pre-split, recording 'Seed & Grain' as an investment is an entirely artificial construct that must be eliminated in the consolidated balance sheet (Column 1). The actual total of Column 3 is ($0.174m), not zero. This represents the rounding error that is inherent in parts of the table being rounded up to one decimal place




PGW FY2018 Balance Sheet {A}
Rural Services Balance Sheet with Seeds as Investment {B}
Seed & Grain Balance Sheet {A}-{B}


Trade & Other Receivables
$267.627m+$39.419m+$0.733m= $307.779m
$173.8m
$133.979m


Inventory & WIP
$262.538m+$0.911m= $263.449m
$78.2m
$185.249m


Trade & Other Payables
($267.096m)+($6.741m)= ($273.847m)
($109.6m)
($164.247m)


Accruals & Provisions
($2.121m)
($51.9m)
$49.779m


Other Working Capital
$2.615m+$0.827m+($3.645m)=($0.203m)
($6.7m)
$6.497m


Net Working Capital {A}
$295.057m
$83.8m
$211.257m


Property, Plant & Equipment
$124.220m
$46.2m
$78.020m


Investments
$2.520m+$0.030m+$14.323m= $16.837m
$286.0m
($269.163m)


Intangible Assets
$13.017m+$2.641m= $15.658m
$12.0m
$3.658m


Deferred Tax (Liability) Asset
$16.259m
$12.5m
$3.759m


Other Non-Current Assets (Liabilities)
$0.020m+($0.966m)= ($0.946m)
($18.9m)
$17.954m


Long Term Net Operating Assets {B}
$172.028m
$337.8m
($165.772m)


Cash & Cash Equivalents
$10.926m
$2.7m
$8.226m


Overdraft & Short Term Debt
($30.806m)
($9.2m)
($21.606m)


Long Term Debt
($149.205m)
($118.0m)
($31.205m)


Defined Benefit Superannuation Scheme Provision
($9.669m)+($0.905m) = ($10.574m)
($9.5m)
($1.074m)


Net Cash (Debt) {C}
($179.659m)
($134.0m)
($45.659m)


Net Assets {A}+{B}+{C}
$287.462m
$287.5m
($0.174m)





Page 35 of KM report (Financial Position) 6.2.2 - Seed & Grains taking over $44m worth of debt?


Thank you Balance. As the above table shows, Seed and Grain has $8.226m of cash on hand, and this must be offset against the long ($31.205m) and short term ($21.606m) debt Seed and Grain debt.

$8.226m + ($31.205m) + ($21.606m) = ($44.585m)



As Balance and the KM report says, and I will say it too, you have the debt position of the remaining company wrong.

$44M of debt goes with S&G and the net debt position of new PGW will be $36M2 or, if you insist in paying off an extra $18, about half of that.


'Rural Rump' has $2.7m of cash on hand, and this must be offset against the long ($118.0m) and short term ($9.2m) debt Seed and Grain debt.

$2.7m + ($9.2m) + ($118.0m) = ($124.5m)

The option detailed in the KM report p36 is to repay $100.5m of 'Rural Rump' debt from any money received from the sale of the seed division. If this plan is executed, then the 'Rural Rump' debt will reduce to.

($124.5m) + $100.5m = ($24m)

SNOOPY

[Snoopy]

Have you factored in the on going provision of services to the new owners of S&G ?


Here is a comment from section 1.2.2 of the KM report:

"PGW will continue to provide and recharge at cost a range a range of corporate functions and shared services to Seed and Grain for a transitional period between 12 and 18 months."

The 'at cost' comment (my italics) indicates there will be no extra profit stream into PGW 'Rural Rump' for the supply of transitional services to DLF Seeds, the prospective buyer of 'PGW Seeds'

And a couple of comments from the KM report, this quote from section 9.2.2.

"The level of corporate costs allocated to the Seed and Grain business is relatively low..."

"In FY2018, more than $20m of annual corporate costs related to shared services and these expenses were allocated across to PGWs core operating segments (Seed and Grain, Retail and Water and Agency). At an EBITDA level, this left approximately $10m of overheads within the Corporate segment, which are costs related to head office governance functions. The level of corporate cost is relatively high for what would be a reduced Rural Services business. We understand that PGW management will review the support and governance costs, should the Proposed Transaction proceed, with the objective of reducing costs to the appropriate level to reflect the structure of the remaining Rural Services business."

This does read like 'PGW Rural Rump' are serious about reducing what looks like an over burdensome corporate structure for the business that remains. But it also looks like 'PGW Rural Rump' will be shouldering all of these restructuring costs. That includes any likely redundancy packages and maybe even the abandonment of the head office lease and the associated costs of that if it follows that far less office space is required going forwards. These costs are likely to be significant, albeit one off items.

SNOOPY

[Snoopy]

Have had a chance to look closely at the KM report.

I think you have not backed out all the P&L items pertaining to Seeds & Grains.

Eg. Depreciation and Amortisation - total $13m but $6.1m was S&G - so your DA should be only $6.9m rather than the $12.97m you have in your calculations for Rural Rump.


As Balance has hinted, I need to look at the Segmented Result (p38 AR2018) to see how the Depreciation and Amortisation is allocated between 'Seeds & Grain' and 'Rural Rump'. However, only some of the D&A is segmented. There is a significant amount of D&A falling into the heading 'Other', perhaps mostly relating to head office. When there is no other guidance given on how to allocate 'Other Depreciation & Amortisation' I use a 'rule of thumb' to allocate this in proportion to the revenue of each working division.



Rural RumpSeed & GrainOtherTotal


Revenue FY2018$806.750m (64.2%)$449.495m (35.8%)](100%)


Depreciation & Amortisation FY2018$4.183m$6.056m$2.735m]$12.974m


D&A with 'Other D&A' reallocated FY2018$5.939m$7.035m]$12.974m



Another method would be to assume that because 'Seeds & Grain' D&A is generally lower. Then you could add all the 'Other' D&A' onto 'Rural Rump'. This would produce a 'Rural Rump' Depreciation and Amortisation figure of:

$4.183m + $2.735m = $6.918m

This looks like the method favoured by Balance. And given this D&A figure is higher than the $5.939m that I calculated, the Balance figure is the more conservative assumption.

Balance also has a point on the projected interest payments that I will address below.

SNOOPY

[Snoopy]

If the indicative interest rate bill 'before' was $10.235m based on an average debt balance of $179.834m, this implies an indicative interest rate of:

$10.235m / $179.834m = 5.7%

That means the indicative annual interest payments after debt repayment will be:

0.057 x ($179.834m - $100.5m) = $4.522m

For comparison I will also look at an alternative scenario where $118m of debt is repaid:

0.057 x ($179.834m - $118m) = $3.525m




Rural Services ($100.5m debt repayment)Rural Services ($118m debt repayment)


EBITDA$34.567m$34.567m


less DA$12.974m$12.974m


less I$4.522m$3.525m


equals EBT$17.071m$18.069m


x 0.72 equals NPAT {A}$12.291m$13.009m


No. shares on issue {B}754.048m754.048m


eps {A}/{B}1.63c1.73c



There is a complicating factor that comes into my 'greater debt repayment' scenario. If extra debt is repaid then that money will no longer be available to shareholders as part of a capital repayment. Under the original scenario a capital repayment of $292m was modelled. Under the 'alternative scenario' this capital repayment drops to:

$292m - $18m = $274m



I am going to rework my projected earnings figures with the changes suggested by Balance.

If the indicative interest rate bill 'before' was $10.235m based on an average debt balance of $179.834m, this implies an indicative interest rate of:

$10.235m / $179.834m = 5.7% (use in Step 2)

That means the indicative annual interest payments after debt repayment will be:

Step 1/ Calculate the incremental peak seasonal debt multiplication factor:

PGW has various seasonal funding requirements that are met by taking on extra debt. The seasonal funding requirements are best measured by changes in 'Net Working Capital'. An annual picture of this variation in net working capital is graphed in the 'KordaMentha' October 2018 report on p34, Figure 6.1. Over FY2018, the minimum net working capital required was around $275m on July 1st 2017 peaking at just over $340m in November 2017. If more net cash was on hand through debt repayment, then these funding requirements would be reduced by the amount of that debt repayment.

((340 - 100.5)/(275 -100.5)) = 1.3725 (an increment of 37.25%). Yet averaged over a financial year and using a linear model, the average increase in incremental debt is only half this:

37.25% / 2 = 18.62% => Annual debt incremental factor = 1.1862

Step 2/ Calculate Annual Debt Interest Payment

Using the liabilities in the balance sheet in post 4345:

0.057x([$149.205m+$30.806m-$10.926m]
-[ $21.606m+$31.205m-$8.226m]
-$100.5m) x 1.1862
= $1.623m

For comparison I will also look at an alternative scenario where $118m of debt is repaid:

Step 1/ Calculate the incremental peak seasonal debt multiplication factor:

((340 - 118)/(275 -118)) = 1.4140 (an increment of 41.40%). Yet averaged over a financial year and using a linear model, the average increase in incremental debt is only half this:

41.40% / 2 = 20.70% => Annual debt incremental factor = 1.2070

Step 2/ Calculate Annual Debt Interest Payment

Using the liabilities in the balance sheet in post 4345:

0.057x([$149.205m+$30.806m-$10.926m]
-[ $21.606m+$31.205m-$8.226m]
-$118m) x 1.2070
= $0.4472m




Rural Services ($100.5m debt repayment)Rural Services ($118m debt repayment)


EBITDA$34.567m$34.567m


less DA$6.918m$6.918m


less I$1.623m$0.447m


equals EBT$26.026m$27.202m


x 0.72 equals NPAT {A}$18.739m$19.585m


No. shares on issue {B}754.048m754.048m


eps {A}/{B}2.49c2.60c



There is a complicating factor that comes into my 'greater debt repayment' scenario. If extra debt is repaid then that money will no longer be available to shareholders as part of a capital repayment. Under the original scenario a capital repayment of $292m was modelled. Under the 'alternative scenario' this capital repayment drops to:

$292m - $18m = $274m

SNOOPY

[winner69]

Snoops ..how much of the $450m of seed sales are going to be retained by PGW ....the agency deal?

[Snoopy]

Scenario $100.5m debt repaymentScenario $118m debt repayment


eps {A}1.63c1.73c


PGW Rural Rump: Market Valuation {B}18.3c20.7c


PE ratio {B}/{A}11.212.0


Gross Dividend Yield {A}/{B x 0.72}12.4%11.6%



Notes

1/ In the gross yield calculation I am assuming that all earnings are paid out as dividends. With 'Agria' better capitalized following the capital repayment and with some potential investment to be made on 'PGW Rural Rump' going forwards, this might not happen.

2/ I feel the PE ratios are looking quite high for this type of business. This leads me to believe that at 57c, PGW pre break up is looking quite fully valued.

3/ The potential dividend yield looks fantastic, with the slightly better capitalized version of 'PGW Rural Rump' showing a lower yield. But perhaps that better capitalization could be handy in an industry notorious for 'rural downturns'. And in such downturns I would expect any dividend yield to drop .

4/ Have I missed anything?

5/ I don't seem to be very enthusiastic about getting out my wallet to top up on PGW shares before the split. In retrospect those near 70c prices that Mr Market was paying only a few months back look a bit crazy!


Reworking these calculations with the figures re'Balance'd



Scenario $100.5m debt repaymentScenario $118m debt repayment


eps {A}2.49c2.60c


PGW Rural Rump: Market Valuation {B}18.3c20.7c


PE ratio {B}/{A}7.28.0


Gross Dividend Yield {A}/{B x 0.72}18.9%17.4%



Notes

1/ In the gross yield calculation I am assuming that all earnings are paid out as dividends. With 'Agria' better capitalized following the capital repayment and with some potential investment to be made on 'PGW Rural Rump' going forwards, this might not happen.

2/ The PE ratios are looking fair for this type of business. But remember we are in a favourable time period in the rural cycle.

3/ The potential dividend yield looks fantastic, with the slightly better capitalized version of 'PGW Rural Rump' showing a lower yield. But perhaps that better capitalization could be handy in an industry notorious for 'rural downturns'. And in such downturns I would expect any dividend yield to drop .

4/ Have I missed anything else?

SNOOPY

[Snoopy]

Snoops ..how much of the $450m of seed sales are going to be retained by PGW ....the agency deal?


Are you referring to the $449.495m of 'Seed & Grain' revenue as listed in the Segment Result p39 AR2018?

If you take PGW's claim at face value that 'PGW Rural Rump' will operate only in New Zealand, then we have to subtract from that total all Australian ($76.024m) and South American ($112.036m) sales (figures from p37 AR2018).

$449.495m - $112.036m - $76.024m = $261.435m

My reading of the accounts is that, all else being equal, all of those seed sales will be retained but none of the $261.435m of 'Seed & Grain' revenue. IOW the seeds will be bought at arms length from the owners of PGW Seeds (as now), and 'on sold' at 'agency level' with a mark up via 'PGW Rural Services' (as now).

Of course with the 'seed division' owned outside of PGW ownership, I guess we might expect, over time, that a proportion of what were PGW seed 'family' seed sales would slowly leak out through other competitive rural retailers. A unavoidable consequence of the now 'Two PGW' policy?

SNOOPY

[Balance]

Reworking these calculations with the figures re'Balance'd



Scenario $100.5m debt repaymentScenario $118m debt repayment


eps {A}2.27c2.36c


PGW Rural Rump: Market Valuation {B}18.3c20.7c


PE ratio {B}/{A}8.18.8


Gross Dividend Yield {A}/{B x 0.72}17.2%15.9%



Notes

1/ In the gross yield calculation I am assuming that all earnings are paid out as dividends. With 'Agria' better capitalized following the capital repayment and with some potential investment to be made on 'PGW Rural Rump' going forwards, this might not happen.

2/ The PE ratios are looking fair for this type of business. But remember we are in a favourable time period in the rural cycle.

3/ The potential dividend yield looks fantastic, with the slightly better capitalized version of 'PGW Rural Rump' showing a lower yield. But perhaps that better capitalization could be handy in an industry notorious for 'rural downturns'. And in such downturns I would expect any dividend yield to drop .

4/ Have I missed anything else?

SNOOPY

Ballpark numbers heading in the direction of PGW (post sale of S&G) looking much more attractive.

I have lower interest cost (lower debt = lower interest rate charged by the banks) of around $750k.

Also, I believe corporate costs and overheads will be trimmed back much more than $4m allocated against S&G - more like $8m once S&G is sold.

Up to each poster to play around with the numbers but I end up with PER less than 8X.

[percy]

Ballpark numbers heading in the direction of PGW (post sale of S&G) looking much more attractive.

I have lower interest cost (lower debt = lower interest rate charged by the banks) of around $750k.

Also, I believe corporate costs and overheads will be trimmed back much more than $4m allocated against S&G - more like $8m once S&G is sold.

Up to each poster to play around with the numbers but I end up with PER less than 8X.
Yes PGW should end up a well focussed company,with a strong balance sheet, ready to take advantage of any opportunities that come their way,and the capacity to pay good dividends

[Snoopy]

Also, I believe corporate costs and overheads will be trimmed back much more than $4m allocated against S&G - more like $8m once S&G is sold.


I am doing a little tweaking, trying to refine my company valuation modelling.

There are forecasts given for divisional corporate costs in the KM report.

Turn to page 19 and you will see that 'Total Corporate Functions and Overheads' add up to ($30.5m).

From p29 we can get the 'Corporate Overhead Allocation' for 'Seed and Grain' ($3.6m). From p31 we can get the 'Corporate Overhead Allocation' for 'Retail and Water' ($11.4m) and 'Agency' ($6.3m).



Corporate Overhead Allocation FY2018KM Report Reference


Seed & Grain($3.6m)p29


Retail & Water($11.4m)p31


Agency($6.3m)p31


Total($21.3m)



The difference between the two figures: ($30.5m) - ($21.3m) = ($9.2m) must represent the 'Corporate Costs Unallocated'. No doubt these costs include those associated with the strategic review. I don't think the strategic review costs have ever been separately disclosed: No doubt they are hidden in the 'Other Expenses' classification of 'Other Operating Expenses' (Note 4 AR2018)!

So it looks like Balance may have a point about 'plenty of fat to trim' yet from the on-going corporate costs. However, management seem determined to keep up the spending on outside consultants as the financial review of the company continues. So we may have to wait a little longer for these particular corporate savings costs to be realised.

If we go back to the Segment Reporting information from AR2018 p39, then ($9.355m) of 'Other' operating EBITDA is recorded. This is close to the ($9.2m) of unallocated Corporate Costs that I calculated above. It also suggests that those Corporate Costs that could be directly linked to the EBITDA of the operating divisions of the company have already been removed from the 'head office' basket, and netted off against the respective Segmented Divisional baskets of EBITDA results.

How does one allocate the unallocated corporate costs? One method could be to divide the $9.200m into three equal parts, and add those parts to each of the three customer divisions. However, in this instance we have been told a segmented allocation of overheads that can be separated out already (p19 KordaMentha Report, Fig3.6). I prefer to allocate the so far unbasketed overheads in proportion to that.



Corporate Overhead Allocation FY2018 {A}Percentage
Unallocated Overhead FY2018 {B}
Total Overhead FY2018 {A}+{B}


Seed & Grain($3.6m)
17.4%
($1.6m)($5.2m)


Retail & Water($11.4m)53.6%
($4.9m)($16.3m)


Agency($6.3m)
29.6%
($2.7m)($9.0m)


Total($21.3m)
100%
($9.2m)
($30.5m)



This curious part of all of this I can sum up in a question:

"Why did KM go to the trouble of separating back out head office functions previously grouped with the appropriate business operational business units (and offset in EBITDA terms against those) back into one overall 'head office' where all the costs totalled $30.5m?"

I don't see $30.5m in head office costs mentioned at all in AR2018!

SNOOPY

[Balance]

I am doing a little tweaking, trying to refine my company valuation modelling.

There are forecasts given for divisional corporate costs in the KM report.

Now turn to page 19 and you will see that 'Total Corporate Functions and Overheads' add up to ($30.5m).

The difference between the two figures: ($30.5m) - ($21.3m) = ($9.2m) must represent

Corporate Overhead Allocation FY2018KM Report Reference


Seed & Grain($3.6m)p29


Retail & Water($11.4m)p31


Agency($6.3m)p31


Total($21.3m)



the 'Corporate Costs Unallocated'. No doubt these costs include those associated with the strategic review. I don't think the strategic review costs have ever been separately disclosed: No doubt they are hidden in the 'Other expenses' classification of 'Other operating Expenses' (Note 4 AR2018)!

So it looks like Balance may have a point about 'plenty of fat to trim' yet from the on-going corporate costs. However, management seem determined to keep up the spending on outside consultants as the financial review of the company continues. So we may have to wait a little longer for these particular corporate savings costs to be realised.

If we go back to the Segment Reporting information from AR2018 p39, then ($9.355m) of 'Other' operating EBITDA is recorded. This is close to the ($9.2m) of unallocated Corporate Costs that I calculated above. It also suggests that those Corporate Costs that could be directly linked to the EBITDA of the operating divisions of the company have already been removed from the 'head office' basket, and netted off against the respective Segmented Divisional baskets of EBITDA results.

How does one allocate the unallocated corporate costs? One method could be to divide the $9.355m into three equal parts, and add those parts to each of the three customer divisions. However, in this instance we have been told a segmented allocation of overheads that can be separated out already. I prefer to allocate the so far unbasketed overheads in proportion to that.



Corporate Overhead Allocation FY2018PercentageUnallocated Overhead FY2018


Seed & Grain($3.6m)
17.4%($1.6m)


Retail & Water($11.4m)53.6%
($4.9m)


Agency($6.3m)
29.6%($2.7m)


Total($21.3m)
100%($9.2m)





SNOOPY

Excellent work, Snoopy.

Thanks!

[Snoopy]

The problem with estimating an interest rate equivalent for the PGW debt is that company debt quite seasonal, as the table below shows:



FY2018HY2018FY2017


Short Term Debt$30.806m$91.215m$26.719m


Long Term Debt$149.205m$130.634m$110.925m


Total$180.011m$221.849m$137.664m



We can calculate a linear approximation average of the total debt as follows:

($180.011m + $221.849m + $137.664m)/3= $179.834m

Over the year the 'interest funding expense' (AR2018 note 7) was $10.235m. (Note that I am leaving out the foreign exchange changes which I don't believe are representative of true funding costs.)

So the indicative interest rate that PGW pays on the average outstanding balance is:

$10.235m / $179.834m = 5.7%

If as a result of the seeds transaction $100.5m is repaid, then interest will no longer have to be paid on that amount into the future. The total interest saved on an annual basis for 'PGW Rural Rump' will therefore be:

0.057 x $100.5m = $5.73m

How does this saving in interest payments translate to the profitability of 'PGW Rural Rump' going forwards?


I am never sure in these loan situations whether the banks net off any 'cash in the bank' against any loan commitments when interest rates on company loans are charged. If we assume they do, then I need to rework my interest calculation as follows.

The problem with estimating an interest rate equivalent for the PGW debt is that company debt quite seasonal, as the table below shows:



FY2018HY2018FY2017


Cash$10.926m$24.427m$9.423m


Short Term Debt($30.806m)($91.215m)($26.719m)


Long Term Debt($149.205m)($130.634m)($110.925m)


Total($169.085m)($197.422m)($128.221m)



We can calculate a linear approximation average of the total debt as follows:

($169.085m + $197.422m + $128.221m)/3= $164.909m

Over the year the 'interest funding expense' (AR2018 note 7) was $10.235m. (Note that I am leaving out the foreign exchange changes which I don't believe are representative of true funding costs.)

So the indicative interest rate that PGW pays on the average outstanding balance is:

$10.235m / $164.909m = 6.2%

If as a result of the seeds transaction $100.5m is repaid, then interest will no longer have to be paid on that amount into the future. The total interest saved on an annual basis for 'PGW Rural Rump' will therefore be:

0.062 x $100.5m = $6.23m

How does this saving in interest payments translate to the profitability of 'PGW Rural Rump' going forwards?

Perhaps more important is another question. Is this estimate of the 'interest rate paid of 6.2% better or worse than my prior estimate of 5.7%?

SNOOPY

[Snoopy]

I have lower interest cost (lower debt = lower interest rate charged by the banks) of around $750k.




PGW Debt Position
Consolidated 30-06-2018PGGW Rural Rump 30-06-2018PGGW Seed & Grain 30-06-2018


Cash & Cash Equivalents
$10.926m
$2.7m
$8.226m


Overdraft & Short Term Debt
($30.806m)
($9.2m)
($21.606m)


Long Term Debt
($149.205m)
($118.0m)
($31.205m)


Total
($169.085m)
($124.500m)
($44.585m)


add Debt Repayment

$100.500m



Total

($24.000m)




In my previous post I pondered the question of offsetting the company cash position against debt. On page 35 of the KM report we find the following quote:

"Seed and Grain's net interest bearing debt was $44m (similar to table total above) at 30th June 2018, being $52m of short and long term debt (including finance leases) less $8m of cash on hand."

This suggests KM does consider cash on hand as part of the net debt picture, although it leaves over the question of whether the lending banks think the same.

Yet, assuming the S&G sale goes to plan, the net debt position of 'PGW Rural Rump' will not be $24m except at balance date. If you look at p34 and p35 of the KM report you will see graphs of 'Consolidated Net Working capital' and 'Seed and Grain' net working capital. From these graphs we can see that the 30th June balance date represents the low point in the debt cycle. Peak debt for 'PGW Rural Rump' looks to be October/November (Consolidated debt peaks in September, but S&G debt is already declining by then.)

For November, the working capital required for 'PGGW Rural Rump' (calculated by subtracting Fig 6.2.1 from Fig 6.1) looks to be:

$340m - $200m = $140m

To get a baseline figure, we do the same calculation as of July:

$275m - $170m = $105m

With a simple subtraction we can therefore calculate a likely incremental 'debt peak' at 'PGGW Rural Rump, which is:

$140m -$105m = $35m higher than at balance date.

This in turn means the funding requirements for 'PGG Rural Rump' are not based around the deconsolidated debt repaid $24m as projected in the historical deconsolidated 'PGGW Rural Rump' debt repaid balance sheet. No, the actual peak debt to be managed is:

$24m + $35m = $59m

or more than double the figure given prominence in the KM appraisal report!

Banks tend to like a 'steady debt' from which they can derive interest income. Not a debt that 'jumps around' over the year like this. So I find it difficult to believe that the interest rate charged to 'PGGW Rural Rump' will be lower than before deconsolidation. In fact I would predict the exact opposite. Interest rates at 'PGGW Rural Rump' are likely to be much higher going forwards.

SNOOPY

[Blendy]

A person with no knowledge of shares but knows that I dabble just messaged me to say their friend just got a hot tip from their broker that PGW is about to dramatically go up! (isn't this how a bad investment story starts?!)

Having not followed PGW ever, I read the last few pages of this thread and am amazed at the extremely detailed analysis that this community offers as a resource. Wonderful work, people!

Ok so it's pretty complicated and I didn't understand a lot of it, and I'm not sure whether the consensus is to stockpile this one, but I am somewhat confused why a broker would be calling up saying this is the best deal available right now. Is it?

I've gone back to my friend saying thanks for the hot tip but it's not for me.

[winner69]

A person with no knowledge of shares but knows that I dabble just messaged me to say their friend just got a hot tip from their broker that PGW is about to dramatically go up! (isn't this how a bad investment story starts?!)

Having not followed PGW ever, I read the last few pages of this thread and am amazed at the extremely detailed analysis that this community offers as a resource. Wonderful work, people!

Ok so it's pretty complicated and I didn't understand a lot of it, and I'm not sure whether the consensus is to stockpile this one, but I am somewhat confused why a broker would be calling up saying this is the best deal available right now. Is it?

I've gone back to my friend saying thanks for the hot tip but it's not for me.

Good stuff ...love rumours ...or is it real inside info?

We’ll be kicking ourselves when PGW hits 80 cents eh ....before the big capital return is actually announced

[Balance]

A person with no knowledge of shares but knows that I dabble just messaged me to say their friend just got a hot tip from their broker that PGW is about to dramatically go up! (isn't this how a bad investment story starts?!)

Having not followed PGW ever, I read the last few pages of this thread and am amazed at the extremely detailed analysis that this community offers as a resource. Wonderful work, people!

Ok so it's pretty complicated and I didn't understand a lot of it, and I'm not sure whether the consensus is to stockpile this one, but I am somewhat confused why a broker would be calling up saying this is the best deal available right now. Is it?

I've gone back to my friend saying thanks for the hot tip but it's not for me.

Ask him to ask 'their' friend why the broker thinks it is about to go up dramatically.

NZX brokers are not allowed to give 'tips' or 'recommendations' like that anymore without proper basis - can get the firm sued and the broker disciplined (including NZX membership terminated if the behavour brings ill repute to the NZX).

You never know - the broker could have a good reason.

In any case, if you can show that you rely upon the broker to buy the PGW shares and you lost money, you certainly will get your money back - the brokers piss in their pants these days to receive a visit from the NZX
compliance gestapo.

One of those 'No way you can lose' investment!

[Balance]

Good stuff ...love rumours ...or is it real inside info?

We’ll be kicking ourselves when PGW hits 80 cents eh ....before the big capital return is actually announced

Get opportunity for Blendy?

He will either get a great deal if he follows my advice or he will find out what kind of 'friend' he has got in 'A person'.

Or else, the 'person' will find out what kind of 'friend' their friend really is!

Or their 'friend' will find out what kind of broker they have!

A real 'cannot lose' situation for Blendy!

[winner69]

Get opportunity for Blendy?

He will either get a great deal if he follows my advice or he will find out what kind of 'friend' he has got in 'A person'.

Or else, the 'person' will find out what kind of 'friend' their friend really is!

Or their 'friend' will find out what kind of broker they have!

A real 'cannot lose' situation for Blendy!

By the looks of the action today looks like there are not many friends who believe

[Balance]

By the looks of the action today looks like there are not many friends who believe

Let's do the time warp again! Back to 1987!

Spread rumours and try to get out of a bad position?

:D :D :D

[Blendy]

Hahaha thanks for the chuckles :) I've continued my long standing rule of not acting on 'hot tips' from randoms.

[steveb]

Hahaha thanks for the chuckles :) I've continued my long standing rule of not acting on 'hot tips' from randoms.
And of course what happens tomorrow when you get in to work,there's a trading halt and takeover offer at double the price,and then you look out the window and see some pigs fly by!

[Balance]

And of course what happens tomorrow when you get in to work,there's a trading halt and takeover offer at double the price,and then you look out the window and see some pigs fly by!

Shhhhhh - that's what I am hearing too!

[percy]

Their Chinese walls are certainly working.No leaks so far with only 7,500 traded so far today at 58cents.So it is going to be an exciting day tomorrow?

[Balance]

Commerce Commission throwing a spanner in the works?

https://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=12170286

"DLF Seeds' $434 million acquisition of NZX-listed PGG Wrightson has hit a possible snag after the Commerce Commission sent a "letter of issues" to the Danish co-operative.

A letter of issues is sent if, following initial investigations, the Commission has concerns about potential competition issues that may arise from the proposed acquisition."

[Balance]

A person with no knowledge of shares but knows that I dabble just messaged me to say their friend just got a hot tip from their broker that PGW is about to dramatically go up! (isn't this how a bad investment story starts?!)


I think that it is more that PGW was about to go down?

http://www.scoop.co.nz/stories/BU1812/S00011/dlf-seeds-acquisition-of-pgg-wrightson-seeds.htm

Better check who the broker and friend are - best to put them on your (and our) ignore & avoid list! :D

[Balance]

Let's do the time warp again! Back to 1987!

Spread rumours and try to get out of a bad position?

:D :D :D

Seriously, been a while since I read and saw such a blatant attempt to spread a false rumor by someone (not you, Blendy - you were one of the intended victims) to get out of a bad position.

The Commerce Commission sounds like stopping the deal so it's back to the drawing board for Wrightson if that happens.

http://www.sharechat.co.nz/article/652d1ab9/comcom-wary-of-wrightson-seeds-sale-to-dlf.html

"The commission said the analysis of current market shares probably understates the importance of DLF's research and development programme, which has successfully developed novel ryegrass endophytes and high-performing ryegrass cultivars specifically for New Zealand conditions.

"Our preliminary view is that DLF is a close competitor to PGW Seeds in the market for the production and supply of ryegrass and is generating competitive tension which may not be replicated by other competitors that have relatively small market shares," Commerce Commission senior investigator Andy Gallagher said in the letter.

Because it takes 10 to 15 years to get a product ready for commercial release, the regulator said it was unlikely a new entrant could constrain the enlarged entity.

The commission said it's also assessing whether imported turf seeds are a viable competitor to the combined business."

[Balance]

https://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=12174908

Dodgy accounting, fraud and share price manipulation - Agria & Alan Lai are lucky to get away with just fines.

Good news is that Wrightson is not implicated but next step now for OIO to decide whether Agria and its principals meet the 'good character' test.

If not, could be some cheap shares coming onto the market in 2019?

[Snow Leopard]

Rearranging the deckchairs?

https://www.nzx.com/announcements/328477

https://www.nzx.com/announcements/328478

Next step?

[Balance]

Rearranging the deckchairs?

https://www.nzx.com/announcements/328477

https://www.nzx.com/announcements/328478

Next step?

Means Ngai Tahu has 27.4m shares to sell.

Next stop 45c?

[Snoopy]

Means Ngai Tahu has 27.4m shares to sell.

Next stop 45c?


I am not sure that Ngai Tahu is necessarily a seller. It could be they just want to disentangle themselves from the Agria web of companies. I am surprised that Agria didn't buy Ngai Tahu out. Because:

1/ Now Agria only holds 46.583% of PGW.
2/ And that means PGW will now be deconsolidated from the Agria accounts.
3/ And that means the 'paper losses' that Agria has been holding on their balance sheet (because their average purchase PGW price is above 51c) will now have to go through the Agria profit and loss statement.

If Agria have given up the right to consolidate PGW, does this mean that Agria are now going to (or be forced to) sell their PGW stake? Is there any other explanation for why Agria did not buy out Ngai Tahu for what now looks like an unwinding disaster for Agria?

SNOOPY

Discl: Topped up my PGW holding today, to increase my stake in this 'evolving play'.

[Balance]

I am not sure that Ngai Tahu is necessarily a seller. It could be they just want to disentangle themselves from the Agria web of companies. I am surprised that Agria didn't buy Ngai Tahu out. Because:

1/ Now Agria only holds 46.583% of PGW.
2/ And that means PGW will now be deconsolidated from the Agria accounts.
3/ And that means the 'paper losses' that Agria has been holding on their balance sheet (because their average purchase PGW price is above 51c) will now have to go through the Agria profit and loss statement.

If Agria have given up the right to consolidate PGW, does this mean that Agria are now going to (or be forced to) sell their PGW stake? Is there any other explanation for why Agria did not buy out Ngai Tahu for what now looks like an unwinding disaster for Agria?

SNOOPY

Discl: Topped up my PGW holding today, to increase my stake in this 'evolving play'.

It is no secret that Agria's stake in on the market but there's no indication that there are any buyers? Hence, the decision to sell the Seeds & Grains division to get some much needed $$$ for Agria.

If Seeds & Grains sale does not go through, what is the next step?

[Snoopy]

It is no secret that Agria's stake in on the market but there's no indication that there are any buyers? Hence, the decision to sell the Seeds & Grains division to get some much needed $$$ for Agria.

If Seeds & Grains sale does not go through, what is the next step?


Agria is bankrupted? Then the shares will be put out to tender by the receiver. There will always be a buyer for PGW shares if the price is right!

I value PGW at 46c as a going concern. So buying at 51c is speculative (although my overall average holding price remains below 46c) . I am picking the seed sale will go through but in a modified form, so that competition for rye grass seed is maintained. If that happens, I see some rerating of the 'PGG Rural Rump' business. Are you still on board the PGG train yourself Balance?

SNOOPY

[Balance]

Agria is bankrupted? Then the shares will be put out to tender by the receiver. There will always be a buyer for PGW shares if the price is right!

I value PGW at 46c as a going concern. So buying at 51c is speculative (although my overall average holding price remains below 46c) . I am picking the seed sale will go through but in a modified form, so that competition for rye grass seed is maintained. If that happens, I see some rerating of the 'PGG Rural Rump' business. Are you still on board the PGG train yourself Balance?

SNOOPY

Still long and wrong, my friend - I did reduce my position when the Commerce Commission announced it is investigating the sale of S&G.

Then, there's the OIO decision to come re Agria's 'good character' test - a forgone conclusion Agria will be forced to sell.

https://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=12177017

Comfortable with what I have got and will add when the forced sale down happen - it will be to institutions, I suspect.

[Snoopy]

Still long and wrong, my friend - I did reduce my position when the Commerce Commission announced it is investigating the sale of S&G.

Then, there's the OIO decision to come re Agria's 'good character' test - a forgone conclusion Agria will be forced to sell.


I wouldn't be quite so sure. Lai and Agria haven't done anything wrong in New Zealand. And they have co-operated with the US Authorities in settling the outstanding legal matters in the USA. Also PGW management, at least at board level, seem very supportive of Lai.



https://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=12177017

Comfortable with what I have got and will add when the forced sale down happen - it will be to institutions, I suspect.


Fran O'Sullivan rightly identifies that the initial plan of Lai was to carve out PGGW Seeds and give it a more global reach. There have been many bolt on smaller seed company acquisitions in Australia, and much money spent on upgrading the distribution structure in Uruguay. I guess what changed is that PGW was unable to generate sufficient cash returns to allow Lai's leveraged buy in to PGW to be profitable. Perhaps after ten years Lai's lenders are getting restless? And there is no doubt the best way to raise cash quickly was to sell the crown jewels (the seeds business). So yes, the strategy of Lai has changed. But the failure of PGW seeds to generate sufficient profits outside of NZ to grow the overseas seeds business profitably is a big part of that. Can you blame Lai for that strategic expansion failure? And if not, can you blame Lai for changing his mind on which parts of the business to keep?

Fran also argues that the overwhelming shareholder approval to sell the seeds business is irrelevant. Well, I voted against the seed sale for my shares. But doesn't the collective wishes of shareholders overall deserve to be respected?

SNOOPY

[Snoopy]

Immediately after the AGM the PGW share price was 57c. If we take this as Mr Market's 'reference figure', then this 57c will be split into a capital payout amount and the remainder which is Mr Market's worth of 'PGW Rural Rump'.

There are 754.048m PGW shares on issue. So working through both scenarios, for each share held, PGW shareholders can expect a capital repayment of either:

$292m / 754.048m = 38.7cps OR $274m / 754.048m = 36.3cps

By simple subtraction from the 57c PGW market value, we can now calculate the market value of 'PGW Rural Rump' after the seeds have split.

57c - 38.7c = 18.3c OR 57c - 36.3c = 20.7c

This gives us the information we need to work out post split PE ratios and dividend yields for both scenarios.

SNOOPY


Reworking these calculations with the figures re'Balance'd



Scenario $100.5m debt repaymentScenario $118m debt repayment


eps {A}2.49c2.60c


PGW Rural Rump: Market Valuation {B}18.3c20.7c


PE ratio {B}/{A}7.28.0


Gross Dividend Yield {A}/{B x 0.72}18.9%17.4%



Notes

1/ In the gross yield calculation I am assuming that all earnings are paid out as dividends. With 'Agria' better capitalized following the capital repayment and with some potential investment to be made on 'PGW Rural Rump' going forwards, this might not happen.

2/ The PE ratios are looking fair for this type of business. But remember we are in a favourable time period in the rural cycle.

3/ The potential dividend yield looks fantastic, with the slightly better capitalized version of 'PGW Rural Rump' showing a lower yield. But perhaps that better capitalization could be handy in an industry notorious for 'rural downturns'. And in such downturns I would expect any dividend yield to drop .



The basis for some bargain hunting?

With PGW trading at 51c, the relative market value of 'PGW Rural Rump' has been reduced:

By simple subtraction from the 57c PGW market value, we can now calculate the market value of 'PGW Rural Rump' after the seeds have split.

51c - 38.7c = 12.3c OR 51c - 36.3c = 14.7c

This gives us the information we need to work out post split PE ratios and dividend yields for both scenarios.



Scenario $100.5m debt repaymentScenario $118m debt repayment


eps {A}2.49c2.60c


PGW Rural Rump: Market Valuation {B}12.3c14.7c


PE ratio {B}/{A}4.95.7


Gross Dividend Yield {A}/{B x 0.72}28.1%24.5%



Notes

1/ In the gross yield calculation I am assuming that all earnings are paid out as dividends. With 'Agria', or whoever the cornerstone stakeholder turns of to become, better capitalized following the capital repayment and with some potential investment to be made on 'PGW Rural Rump' going forwards, this might not happen.

2/ The PE ratios are looking low, even for this type of business. But remember the capital repayment will not happen if the Danish deal gets shot down. And it is possible the whole Agria stake may yet be placed elsewhere at a discount.

3/ The potential dividend yield looks fantastic, with the slightly better capitalized version of 'PGW Rural Rump' showing a lower yield. But perhaps better capitalization (keeping some of those earnings as new owner equity) could be handy in an industry notorious for 'rural downturns'. And in such downturns I would expect any dividend yield going forwards to drop. Some might say with the cutting down of the last dividend that this is already happening.

It is these kinds of figures that make the suggestion that PGW is ripe for a market rerating not unreal. However the seed deal is in doubt. And if instead 'Agria' are forced to sell at a discount, then the PGW share price could crash to something like 40c. This is the other side of the coin that has to be born in mind when taking on an 'investment' like this

SNOOPY

[BlackPeter]

The basis for some bargain hunting?

With PGW trading at 51c, the relative value of 'PGW Rural Rump' has been reduced:


By simple subtraction from the 57c PGW market value, we can now calculate the market value of 'PGW Rural Rump' after the seeds have split.

51c - 38.7c = 12.3c OR 51c - 36.3c = 14.7c

This gives us the information we need to work out post split PE ratios and dividend yields for both scenarios.



Scenario $100.5m debt repaymentScenario $118m debt repayment


eps {A}2.49c2.60c


PGW Rural Rump: Market Valuation {B}12.3c14.7c


PE ratio {B}/{A}4.95.7


Gross Dividend Yield {A}/{B x 0.72}28.1%24.5%



This is obviously assuming that the sum of the parts has the same value as the total. Not a given with many company split ups ...

[Balance]

Not a good trading update. Ouch!

https://www.nzx.com/announcements/328607

Seed & Grain to record a loss (vs profit of $2.6m) for half year ending 31 Dec.

Fortunately, sale of business still on track however according to trading update so buyer still there.

All over to the Commerce Commission now!

[Snoopy]

Not a good trading update. Ouch!

https://www.nzx.com/announcements/328607

Seed & Grain to record a loss (vs profit of $2.6m) for half year ending 31 Dec.

Fortunately, sale of business still on track however according to trading update so buyer still there.


"One seed failure does not a South American summer make."

Or maybe it does in this case? There is something wrong with the way the PGW seed business is being run in my view. If you read back through ten years of annual reports, something like 7 out of 10 years are suffering from 'abnormal weather conditions'. This smacks to me of problems with the weather measuring stick, not the weather. PGW need to embrace whatever the 'new' normal weather is in Australia and Uruguay, and plan around that. It is going to have to be a long game, because you won't derive any profit from farmers on the edge of bankruptcy. But farmers in New Zealand have cultivars that can cope with drought. Perhaps such cultivars in drought hit Australian states need Australian State Government support to establish? Maybe the Uruguayan Government would be up to some intervention too.? All this would be an anathema to NZ Capitalists. But maybe if you want to succed in a foreign market, perhaps you should try to start thinking like foreigners?



All over to the Commerce Commission now!


I still hope the seeds sale is refused. But I am prepared to ride this buck either way.

SNOOPY

[percy]

Your post confirms why the seed business should be sold.

[Balance]

Your post confirms why the seed business should be sold.

Hard to disagree with that comment.

PGW had its time in the sun under Norgate who envisaged a global agricultural powerhouse with a NZ base - much as he saw Fonterra as a global dairy powerhouse.

Its time seems to to be well and truly pass - like all things passed their used by date, time to move on.

Disc. Reality check!

[iceman]

Tim Hunter's article behind paywall on NBR today is a must read for current (and former) shareholders. What a sorry and shady saga this Agria involvement appears to be https://www.nbr.co.nz/story/pgg-wrightson-china-files-0

[Snoopy]

Hard to disagree with that comment.

PGW had its time in the sun under Norgate who envisaged a global agricultural powerhouse with a NZ base - much as he saw Fonterra as a global dairy powerhouse.

Its time seems to to be well and truly pass - like all things passed their used by date, time to move on.

Disc. Reality check!

The PGW seed business has a history that goes back well before the Norgate era. In Uruguay at least ten years before (in the Wrightson era). In New Zealand some 150 years before. Norgate's main mistake was going into Uruguay and telling the local farmers there that he knew better and they should do things 'the New Zealand Way.' I am talking about dairy farming here, but no doubt the same attitude spilled over into the seed business. Seeds is the only 'proprietary intellectual property' that PGW has. For the rest of their business they are simply ticket clipping merchants. There is no unique selling point.

The seed sale document disclosed in detail - detail that has never been disclosed before - that NZ Seeds generates by far the most profits and also sells by far the most company created cultivars. If they could get the sales of proprietary cultivars up in other markets, that would be one key to growing profitability in those markets. Even in New Zealand there is potential for profit to double. Fran O'Sullivan in that Herald article noted that PGW had evidence that the optimal time to resow on a farm was every ten years, yet most farmers only put in new pasture cover every twenty. Hands up who thinks PGW will be able to double their profits in the 'PGW Rural Rump' that remains?

None of the above will be easy, nor will it be immediate. But the alternative future of retreating back home and stumbling along until usurped by your 'Elders' and betters, seems far less palatable to this shareholder at least.

SNOOPY

[Balance]

https://www.radionz.co.nz/news/business/378772/oio-reprimands-pgg-wrightson-shareholder

Dodged one bullet.

[Snoopy]

https://www.radionz.co.nz/news/business/378772/oio-reprimands-pgg-wrightson-shareholder

Dodged one bullet.

So Agria settled claims with the United States Securities and Exchange Commission over allegations.

"It resulted in the company paying $US3 million ($NZ4.4m), and Mr Lai $US400,000, ($NZ590,000) although there were no admissions of liability."

So no admission of fraudulent accounting and market manipulation by Agria and Alan Lai. Yet the OIO in New Zealand has 'forced Agria to reduce its stake' in PGW from 50.2% to 46.6% (on what grounds?).

"The settlement also provided for penalty proceedings to be filed in the High Court, .."

'Penalty proceedings' for doing what exactly? What will the charge be?

It looks now like Ngai Tahu has been working beside their former shareholding partners to appease the NZ legal system. But the combined Agria /Ngai Tahu combination still controls PGW with a combined 50.2% holding as before. I would argue that with 46.6% of the shares directly owned by Agria, that Agria still maintains effective control.

I went to the OIO office website and there was no mention of this OIO decision. Also no mention on the NZX website. This is a very strange 'announcement' brokered by RNZ. I wonder what the source was?

SNOOPY

[Pmdv77]

So at what point does someone ring the bell for the bottom here? Very tempting to top up at 45c...

[Soolaimon]

So at what point does someone ring the bell for the bottom here? Very tempting to top up at 45c...

I remember topping up at 45 cents quite a few years ago and here we are again??

[Agrarinvestor]

PErhaps you remember me. I'm the idiot that has made a direct investment in AGRIA. I thought that Agrias investment in PGW will gurantee that AGRIA will not be a fraudster.
I was completly wrong. Perhaps you have the same anger like me on Adam Li. What do you think will the government of China think about corrupt criminal CEO's?

[waikare]

PErhaps you remember me. I'm the idiot that has made a direct investment in AGRIA. I thought that Agrias investment in PGW will gurantee that AGRIA will not be a fraudster.
I was completly wrong. Perhaps you have the same anger like me on Adam Li. What do you think will the government of China think about corrupt criminal CEO's?

Perhaps you could email Pres. R. Trump, he may have an opinion on China's corrupt criminals.

[iceman]

Agriainvestor there has been a series of good articles on Agria/Lai/PGW in the National Business Review recently. Behind a paywall unfortunately but I think you would find them very interesting. Mr Lai even responded to one of them in the NBR but they did not stop publishing what their investigation found, which is not pretty

[Balance]

PErhaps you remember me. I'm the idiot that has made a direct investment in AGRIA. I thought that Agrias investment in PGW will gurantee that AGRIA will not be a fraudster.
I was completly wrong. Perhaps you have the same anger like me on Adam Li. What do you think will the government of China think about corrupt criminal CEO's?

They execute them over there.

NZ gives the corrupt and criminal CEOs and fraudsters/directors knighthoods and slap them really hard with wet bus tickets.

Mention 'finance company directors' and you know how NZ simply loves crooks.

[Balance]

Perhaps you could email Pres. R. Trump, he may have an opinion on China's corrupt criminals.

You think he has an opinion on American crooks?

Guess he doesn't as he is one, huh?

[Snow Leopard]

Is the seeds sale still a goer? SP suggests not.

[Snoopy]

Is the seeds sale still a goer? SP suggests not.


The assumption here is that the seeds sale will be 'value accretive' to all shareholders. Have you considered that the seed sale will 'save' Agria from their immediate cash problems, but be negative for shareholders in the medium term? After all former CEO's Mark Dewdney's 'One PGW' strategy was heralded as the way forwards at the time and it is unclear why this would have changed.

Another possibility is that although the two largest shareholders (Agria and Ngai Tahu) have rearranged their shareholdings to the extent that combined, they still hold the same combined percentage of shares as before the rearrangement exercise, something has changed. The seed business is no longer 'foreign controlled'. So now the Danish takeover means that the seed business will pass into foreign control from ostensibly NZ control. It could be easier for the OIO to turn down such a deal now, whereas before control was simply passing from one foreign owner to another.

SNOOPY

[Balance]

The assumption here is that the seeds sale will be 'value accretive' to all shareholders. Have you considered that the seed sale will 'save' Agria from their immediate cash problems, but be negative for shareholders in the medium term? After all former CEO's Mark Dewdney's 'One PGW' strategy was heralded as the way forwards at the time and it is unclear why this would have changed.

Another possibility is that although the two largest shareholders (Agria and Ngai Tahu) have rearranged their shareholdings to the extent that combined, they still hold the same combined percentage of shares as before the rearrangement exercise, something has changed. The seed business is no longer 'foreign controlled'. So now the Danish takeover means that the seed business will pass into foreign control from ostensibly NZ control. It could be easier for the OIO to turn down such a deal now, whereas before control was simply passing from one foreign owner to another.

SNOOPY

Actually defination of overseas control = major shareholding of 25% or more (in the absence of a local major 25% or greater stake).

[Snoopy]

Actually defination of overseas control = major shareholding of 25% or more (in the absence of a local major 25% or greater stake).

Thanks for that. Does this mean that the New Zealand OIO forcing Agria to reduce its stake' in PGW from 50.2% to 46.6% is just the beginning of a process to reduce the Agria stake to below 25%? If what you are telling us is correct Balance, and I have no reason to doubt you, then it would seem that Agria reducing its stake' in PGW from 50.2% to 46.6% has no real significance - on its own. There could be a book build going on right now to reduce that stake further. That could be a good enough reason alone to explain the soft PGW share price. Furthermore if that is the reason for the PGW share price fall, it doesn't necessarily mean the sale of the seed business is off?

SNOOPY

[Snow Leopard]

This you Snoopy?

Notice of Acquisition of Shares (http://nzx-prod-s7fsd7f98s.s3-website-ap-southeast-2.amazonaws.com/attachments/PGW/328890/293026.pdf)


"PGG Wrightson Limited (PGW) intends to acquire certain shares from one shareholder pursuant to section 112 of the Companies Act 1993 (the Act). The relevant shareholder voted all of their shares in PGW against the special resolution in relation to the sale of all of PGW’s shares in PGG Wrightson Seeds Holdings Limited to DLF Seeds A/S, which was approved on 30 October 2018. The relevant shareholder subsequently exercised their minority buy-out rights pursuant to Section 110 of the Act."

Must admit I did not know we could do this. :eek2:

[kiora]

Sounds fair enough
http://www.nzlii.org/nz/other/nzlc/report/R74/R74.pdf

[Snow Leopard]

Sounds fair enough
http://www.nzlii.org/nz/other/nzlc/report/R74/R74.pdf

thanks for that

[Snoopy]

PGW share price on 03/08/2018 before seed business sale deal announced: 64c.

PGW share price on 06/08/2018 immediately after seed business sale deal announced: 69c.

PGW share price on Friday 05/10/2018 after the market has had some time to think about the implications of the seed business sale: 61c.

So as the NZX50 reaches new highs, the value of PGW shares fall. Is this an indication that the market sees this deal as 'value destroying'?


On 9th January a 'dissenting to the demerger' shareholder received a full payout on their 9,724 PGW shares of 58c each. I am not clear that this is a result of an 'independent valuation' just before the demerger offer was made. But it does seem to confirm that the board does not work for the benefit of all shareholders. This looks like proof, if any was needed, that the seeds division demerger has destroyed shareholder wealth.

SNOOPY

[Snoopy]

Thanks for that. Does this mean that the New Zealand OIO forcing Agria to reduce its stake' in PGW from 50.2% to 46.6% is just the beginning of a process to reduce the Agria stake to below 25%? If what you are telling us is correct Balance, and I have no reason to doubt you, then it would seem that Agria reducing its stake' in PGW from 50.2% to 46.6% has no real significance - on its own. There could be a book build going on right now to reduce that stake further. That could be a good enough reason alone to explain the soft PGW share price. Furthermore if that is the reason for the PGW share price fall, it doesn't necessarily mean the sale of the seed business is off?


At last the OIO news release is on their own website for all to read.

https://www.linz.govt.nz/news/2018-12/oio-reaches-settlement-after-investigating-agria-singapore

I wonder what these 'penalty proceedings' will be? Can't the OIO release their own accusations? It does seem odd that the OIO can't comment further on what the charges they are taking to court are.

SNOOPY

[Snoopy]

At last the OIO news release is on their own website for all to read.

https://www.linz.govt.nz/news/2018-12/oio-reaches-settlement-after-investigating-agria-singapore

I wonder what these 'penalty proceedings' will be? Can't the OIO release their own accusations? It does seem odd that the OIO can't comment further on what the charges they are taking to court are.



Interesting update from PGW with the announcement that the 'new' PGW Chairman , Joo Hai Lee, is to be removed from his position by the end of the financial year.

https://www.nzx.com/announcements/329732

Joo Hai Lee is listed as a 'non-independent director' appointed by Agria, by dint of being an independent director on the Agria board. Mr Lee is an accountant by trade, although a professional director these days. This coming de-appointment is significant, because it shows that the target of the OIOs review is no longer just Agria Chairman Alan Lai, but the whole of Agria. Is it now more likely that the OIO will now require Agria to place their PGW shares with new owners? And is a discounted placement across multiple new owners in the wind?

SNOOPY

[percy]

Looks as though the seeds sale is well on the way.

[Snoopy]

The Commerce Commission sounds like stopping the deal so it's back to the drawing board for Wrightson if that happens.

http://www.sharechat.co.nz/article/652d1ab9/comcom-wary-of-wrightson-seeds-sale-to-dlf.html

"The commission said the analysis of current market shares probably understates the importance of DLF's research and development programme, which has . successfully developed novel ryegrass endophytes and high-performing ryegrass cultivars specifically for New Zealand conditions

"Our preliminary view is that DLF is a close competitor to PGW Seeds in the market for the production and supply of ryegrass and is generating competitive tension which may not be replicated by other competitors that have relatively small market shares," Commerce Commission senior investigator Andy Gallagher said in the letter.

Because it takes 10 to 15 years to get a product ready for commercial release, the regulator said it was unlikely a new entrant could constrain the enlarged entity.

The commission said it's also assessing whether imported turf seeds are a viable competitor to the combined business."


It looks like on further investigation by the Commerce Commission, that DLFs own program 'to develop novel ryegrass endophytes and high-performing ryegrass cultivars specifically for New Zealand conditions' was not that successful. They have also noted that this ineffective product development has not increased the tension in the market so it doesn't matter if the PGW seed unit is brought 'in house' by DLF to squash their own failed product. Next by using GE techniques, new competitive cultivars can be produced in a couple of years, not fifteen . And finally if it all turns to custard for NZ farmers, they can buy their own cultivars from overseas!

Good stuff commerce commission! You must be right because the Australian Competition and Consumer Commission agrees with you. And now the OIO is the sole significant pillar to be knocked over in the process of privatising decades of NZ taxpayer subsidised seed investment for greedy PGW shareholders!

Having topped up my PGW shareholding over the last couple of months with two baskets of shares, first at 51c and then 48c, I can feel my wallet bulging already. My greed triumphant over our farmers need! Ha ha!

SNOOPY

[winner69]

Snoops ...the way the share price is going today seems the market thinks PGW is worth heaps by selling the seeds division ...or is me market just relieved this might just happen now.

[Snoopy]

Snoops ...the way the share price is going today seems the market thinks PGW is worth heaps by selling the seeds division ...


The market doesn't like uncertainty Winner, and even at 55c the share price is still less than before the seed division sale was announced. I reckon if the seed sale is called off, the share price might bounce even more (upwards in case that wasn't clear).



or is me market just relieved this might just happen now.


You had better ask that question of yourself Winner! I always realised you were a big player. Didn't realise you controlled the whole thing though.

SNOOPY

[steveb]

But if the seed division is losing money at NPAT level as suggested in the last update,I can't see the SP bouncing back up,if the seed sale is called off.It will be interesting to see the half year results in a couple of weeks.

[percy]

Added to our holding at 54 cents just 2 minutes before the downgrade.!!!!

[BlackPeter]

Added to our holding at 54 cents just 2 minutes before the downgrade.!!!!

Good example for a situation where TA could have been deceiving - I guess the trend (all over MA100) looked all looked nice and fluffy, didn't it? On the other hand - it just bounced on Friday at the MA200 ...

Anyway - I hope it was just a small addition. Better focus on your HGH holding - we hope together this will do better (and I am sure, it will ...).

[Snoopy]

Good example for a situation where TA could have been deceiving - I guess the trend (all over MA100) looked all looked nice and fluffy, didn't it? On the other hand - it just bounced on Friday at the MA200 ...


I am not sure why you might expect TA would be any use with PGW right now. PGW is in a special situation where it is waiting on decisions from the Commerce Commission in New Zealand and its equivalent in Australia (these two now confirmed) , and the OIO in New Zealand and various other smaller associate businesses. The 100 day moving average is just a long enough time period so that it would typically cover two or three board meetings. That is just enough for a proposal to be put to the PGW board (for example), researched over a month (or two months) before the next board meeting, a decision made and that decision announced to the market. There could be a short term underlying earnings change based on the farm earnings cycle that could cause the share price to react to current market conditions. But in this instance, any such changes are overwhelmingly dwarfed by the cash potentially coming into the company should the seed business sale go through.

The sale of the seed business was announced on 6th August 2018. The commerce commission(s) OK(s) were announced on 19th February 2019, just over six months later. The OIO has not yet reported back. Certainly none of these organizations are on anything near a 100 day timetable, or for that matter, any predetermined timetable. So on the surface, it would seem to me quite foolish to make a buy/sell decision for PGW based on a 100 day moving average statistic.

SNOOPY

[BlackPeter]

I am not sure why you might expect TA would be any use with PGW right now.

Did you hear me saying that or is that what you read out of my post? Interesting.

Market price is always determined by a huge number of parameters and driven by all sorts of events. Some of them the market can predict with a meaningful likelyhood (and in that case TA is helpful) and others it can not. But we both know that, don't we?

Recent price drop was due to a profit downgrade which would have been predictable for an insider or a market expert, but obviously not enough people closely following the trading conditions - i.e. TA was in this case deceiving ...

That is what I meant.

[Snoopy]

Market price is always determined by a huge number of parameters and driven by all sorts of events. Some of them the market can predict with a meaningful likelyhood (and in that case TA is helpful) and others it can not. But we both know that, don't we?

Recent price drop was due to a profit downgrade which would have been predictable for an insider or a market expert, but obviously not enough people closely following the trading conditions - i.e. TA was in this case deceiving ...

That is what I meant.


Recent price action (over the last couple of months) has seen the share price slip from around 55c to 47c, whereupon the news of the commerce commission tick saw the share price suddenly jump to 55c then creep up to 57c. Upon the trading update, the share price dropped as low as 50c intraday, before bouncing up again to 54c. The way I look at this, the share price, has fallen a net 1c (the 55c to 57c rise being a transient short term reaction) since the profit downgrade was announced, verses an 8c gain with the a significant takeover hurdle being passed.

While the trading update may have indeed been anticipated by insiders and may have been reflected in the share price trend prior to announcement, any effect from that was absolutely dwarfed in the opposite direction by progress towards the seed division sale. The jump reaction on the commerce commission confirmation would suggest this decision as not leaky, and not able to be anticipated by following the 100 day MA price. That was the point I was trying to make.

SNOOPY

[tim23]

If the deal goes though and you get paid say 38c a share - market is trying to value remainder of business.

[steveb]

If the deal goes though and you get paid say 38c a share - market is trying to value remainder of business.
There appears to be a couple of things that will affect the ongoing trading of PGW and that would be the joint venture with DLF over research and development.also the seed distribution agreement with DLF,how will they contribute to the bottom line.Snoopy might have some ideas in this area,but for me I don't have a clue!

[Snoopy]

There appears to be a couple of things that will affect the ongoing trading of PGW and that would be the joint venture with DLF over research and development.


I didn't know there was a joint R&D venture between PGW and DLF! A quick google search yielded this:

"DLF says there is limited overlap between the Wrightson seeds business and its own Canterbury-based offshoot. DLF Seeds NZ was set up in 2004 and now employs 12 people."

Does the 'limited overlap' refer to a joint venture? Or does it just mean they are both in the turf seeds and cool season forage business? Perhaps someone can clarify that?

Would not any joint venture between PGW Seeds and DLF become simply a wholly owned DLF venture under the PGW Seeds acquisition deal?



also the seed distribution agreement with DLF,how will they contribute to the bottom line. Snoopy might have some ideas in this area,but for me I don't have a clue!


Steve, the seeds purchased by 'PGW Retail' are purchased on an arms length basis from the seed division already. That means, in the short term at least, there should be no difference whatsoever in the profitability of 'PGW Retail' as a result of the seed division sale. Longer term, IMO, the 'One PGW' strategy will be weakened because there will be no particular reason why 'PGW Seeds' (or whatever it is renamed) will see 'PGW Retail' as a favoured or optimum channel through which to deliver its seed products.

SNOOPY

[winner69]

Seems to be a pretty good result

But l think I’ll leave it to snoops to work through the detail for me ....especially leaving the discontinued bit out

http://nzx-prod-s7fsd7f98s.s3-website-ap-southeast-2.amazonaws.com/attachments/PGW/331139/295804.pdf

[winner69]

The company releases didn’t look as grim as this article headline

WRIGHTSON PROFIT PLUNGES 99% WITH CONTINUING BUSINESS DOWN 24%

http://www.sharechat.co.nz/article/93cacb83/wrightson-profit-plunges-99-with-continuing-business-down-24.html

[percy]

Big reduction in divie too.

[winner69]

Big reduction in divie too.

But a whopper of a ‘divie’ coming up

Maybe the size of the divie just announced is indicative of what future divies are going to be when seeds finally goes (and some clever clogs could try to value PGW on this basis)

[Snoopy]

My valuation method to reflect the dividends actually paid from years 2012 to 2018 inclusive, representing the whole Alan Lai era.



YearDividends Paid 'per share'Total


FY2012 0.0cps + 0.0cps0.00cps


FY2013 2.2cps + 1.0cps3.20cps

[/TR]

FY2014 2.0cps + 2.5cps + 1.0cps (s)4.50cps


FY2015 2.0cps + 2.0cps4.00cps


FY20161.75cps + 2.0cps3.75cps


FY20171.75cps + 2.0cps3.75cps


FY20181.75cps + 1.25cps3.00cps


Average FY2012 to FY2018 inclusive3.17cps



(f) indicates forecast result.
(s) indicates 'special dividend'. I have decided not to include any special dividend in this dividend model as I consider the special dividend is unlikely to be repeated.


My valuation method to reflect the dividends actually paid from years 2012 to 2019 inclusive, representing the whole Alan Lai era.



YearDividends Paid 'per share'Total


FY2012 0.0cps + 0.0cps0.00cps


FY2013 2.2cps + 1.0cps3.20cps

[/TR]

FY2014 2.0cps + 2.5cps + 1.0cps (s)4.50cps


FY2015 2.0cps + 2.0cps4.00cps


FY20161.75cps + 2.0cps3.75cps


FY20171.75cps + 2.0cps3.75cps


FY20181.75cps + 1.25cps3.00cps


FY20191.25cps + 0.75cps2.00cps


Average FY2012 to FY2019 inclusive3.03cps



(f) indicates forecast result.
(s) indicates 'special dividend'. I have decided not to include any special dividend in this dividend model as I consider the special dividend is unlikely to be repeated.

SNOOPY

[Snoopy]

Plugging in a representative yield, one that represents the ups and downs of the farming cycle of PGG Wrightson in its current form, we can now arrive at our 'Capitalised Dividend Model' valuation

(Representative Dividend per Share) / (Acceptable Yield) = Share Price (an algebraic manipulation of: Dividend per Share / Share Price = Yield )

3.17c / 0.72 x 0.095 = 46.3c

Note that I am using 9.5% as my acceptable gross yield. Some might argue that is high. But I think it is fair given that much of PGW's profit comes from low margin commodities subject to weather event demand. Some years ago PGW paid no dividend at all for several years in a row. This kind of risk is reflected in my selection of a 9.5% acceptable yield, about half as much again more than a tier one utility company.

This 46.3c valuation is measured at the average point in the business cycle. One might argue that we are now riding high in the business cycle and that this 46.3c valuation is consequently too low given today's circumstances (sp closed Friday at 57c). I wouldn't argue with that. If I use my +20% rule of thumb, one might expect a share price of 56c at the top of the business cycle. Given agriculture is currently in quite a sweet spot in New Zealand I would say Mr Market has it about right. Likewise 37c would be the bottom. I wouldn't be selling or buying more PGW shares based on these numbers.

Naturally all of this earnings based valuation doesn't reflect any takeover premium that might come to the table as a result of the offer for PGW Seeds, should that offer go through. This is still of interest for those who object to the proposed sale of the seeds business. Such shareholders may be able to invoke minority buy out rights. A buy out price should reflect the company valuation, pre any offer, and this could be below the recent market price for the shares!

SNOOPY

discl: hold PGW

Plugging in a representative yield, one that represents the ups and downs of the farming cycle of PGG Wrightson in its current form, we can now arrive at our 'Capitalised Dividend Model' valuation

(Representative Dividend per Share) / (Acceptable Yield) = Share Price (an algebraic manipulation of: Dividend per Share / Share Price = Yield )

3.03c / 0.72 x 0.095 = 44.3c

Note that I am using 9.5% as my acceptable gross yield. Some might argue that is high. But I think it is fair given that much of PGW's profit comes from low margin commodities subject to weather event demand. Some years ago PGW paid no dividend at all for several years in a row. This kind of risk is reflected in my selection of a 9.5% acceptable yield, about half as much again more than a tier one utility company.

This 44.3c valuation is measured at the average point in the business cycle. If I use my +20% rule of thumb, one might expect a share price of 53c at the top of the business cycle. Likewise 35c would be the bottom.

One might argue this valuation is historical and has been overtaken by the Danish offer to buy out the seed business. This dividend / 'sustainable earnings' based valuation doesn't reflect any takeover premium that might come to the table as a result. However, I don't believe yet that the 'seed business sale' is a done deal. In fact, I believe that management have been a little arrogant saying they don't see any impediment to the buyout and expect it to be rubber stamped. It is up the the overseas investment office to see any impediment - not them. The PGW share price weakened off on Friday to leave a 4c buy sell spread at the close (48c buy 52c sell). It looks like someone wanted out. I have been waiting in the wings for just such an opportunity and as a result I topped up my shareholding at 49c.

Even if we take into account the 2c fully imputed dividend over the year, it is clear the plan to sell the seeds business is not liked by the market and significant destruction of shareholder wealth has occurred as a result. I am picking the share price will go up from here if the seed business takeover offer is canned, but it will also go up if the seed business takeover is successful. It is a short term focus on a more difficult operational year and uncertainty as to whether the deal will go through that is keeping the PGW share price below 50c right now.

SNOOPY

discl: hold PGW

[Snoopy]

But if the seed division is losing money at NPAT level as suggested in the last update, I can't see the SP bouncing back up,if the seed sale is called off.It will be interesting to see the half year results in a couple of weeks.



Seems to be a pretty good result

But l think I’ll leave it to snoops to work through the detail for me ....especially leaving the discontinued bit out

http://nzx-prod-s7fsd7f98s.s3-website-ap-southeast-2.amazonaws.com/attachments/PGW/331139/295804.pdf


I wouldn't be leaving the seed division out of this just yet, Yes, that after tax loss for seeds of $8.6m for the half year was a shock. But it seems to be related to the Seed and Grain division acquiring the other half of the joint venture in Uruguay called 'Agrocentro' (otherwise known as 'Aggrocentro'?). PGW's initial 50% stake in 'Agrocentro' was acquired in 31st August 2015 (i.e. during FY2016).

'Agrocentro Uruguay started in early 2007 in the east of Uruguay. It has four business units - retail and distribution of agricultural products, farming, logistics and consulting services - and 120 staff, including 28 agronomists and veterinarians and eight retail branches.'

At the time of acquiring their initial stake, PGW's CEO Mark Dewdney referred to it as a similar but smaller business to PGW. One thing Agrocentro is not, to my knowledge, is a developer of new seeds and cultivars. Agrocentro's Lascano treatment plant offers the conditioning and cleaning of forage seeds and crops and also has a fully equipped laboratory to analyze grains and seeds. But there is no mention on the website (http://www.agrocentro.com.uy) of an in house seed breeding program. So it seems odd that this business unit is being hived off to the Danes of DLF Seeds, who are pure seed and cultivar developers.

From AR2016, page 46, when acquiring 50% of the business the comment was:

"The acquisition required an up front payment and an earn out component of between nil and USD $11.5m (using the exchange rate on acquisition day USD0.6465 = NZD1, this works out at $NZ17.79m) over the next three years, based on the financial performance of the business. The initial investment recorded for the investee is $NZ16.37m, which includes management's estimate of the fair value of the earn out."

I note the earn out payment looks to be potentially a very large part of the total price to be paid for 'Agrocentro', the value already inked in the PGW books (potentially 100%).

In AR2017 p21 we learn that: "South America achieved their FY2017 budget expectations."

By AR2018 p21 we learn that: "The key challenges for FY2018 were related to weather issues and the continuation of the very difficult financial situation facing our farming customers due to the low profitability and adverse climatic events of previous years."

It does sound like the 'earn out component' could end up being a lot lower than originally thought!

PGW has not yet disclosed how much they paid to acquire the 50% of 'Agrocentro' they did not already own during HY2019. Partly that is because it is not material. But after one 'budgeted for tough year' at 'Agrocentro' in FY2017, and no significant improvement in FY2018, it could well have been less than they paid for the first 50% stake. If that happened, that means that first 50% would have been written down in the books to match the second 50% acquisition price. I think that the $8.6m loss for Seeds in the first half very likely includes a significant equity loss in the form of a write down on that initial 'Agrocento' stake. The underlying seeds business should have remained profitable during this period. PGW Seeds is also weighted in earnings terms towards the southern hemisphere autumn. And that means a substantially higher second half operating profit for PGW Seeds.

Meanwhile, half year operating EBITDA for 'Retail and Water' was actually better than last year's $23.6m, if you include the after tax effect of the $1.8m providing for a faulty batch of defective spray that they stocked:

$23.0m + 0.72($1.8m) = $24.2m

This despite the ongoing issues with the 'water' sub-division.

Corporate costs (as part of Seed and Grain & Other = 'New Other' ?) are up from -$4.8m to -$6.8m with a side note that this is explained by an 'Increase due to strategic review costs' and timing of inter-company eliminations." I take that to mean that underlying corporate costs will probably reduce again by at least $2m once the 'takeover effect' has died down?

The HY2018 report, p16, shows EBITDA for 'New Other' to be:

$10.813m (seeds) - $4.895m (Other) = +$5.918m (New Other)

This doesn't line up with the comparative past period EBITDA figure of -$4.8m, referenced on slide 4 in the HY2019 slide show. Why not?

Nevertheless, all this means the underlying first half result is a lot better than the headline figure IMO.

SNOOPY

[Snoopy]

From AR2016, page 46, when acquiring 50% of the business (Agrocentro) the comment was:

"The acquisition required an up front payment and an earn out component of between nil and USD $11.5m (using the exchange rate on acquisition day USD0.6465 = NZD1, this works out at $NZ17.79m) over the next three years, based on the financial performance of the business. The initial investment recorded for the investee is $NZ16.37m, which includes management's estimate of the fair value of the earn out."

I note the earn out payment looks to be potentially a very large part of the total price to be paid for 'Agrocentro', the value already inked in the PGW books (potentially 100%).

In AR2017 p21 we learn that: "South America achieved their FY2017 budget expectations."

By AR2018 p21 we learn that: "The key challenges for FY2018 were related to weather issues and the continuation of the very difficult financial situation facing our farming customers due to the low profitability and adverse climatic events of previous years."

It does sound like the 'earn out component' could end up being a lot lower than originally thought!

PGW has not yet disclosed how much they paid to acquire the 50% of 'Agrocentro' they did not already own during HY2019. Partly that is because it is not material. But after one 'budgeted for tough year' at 'Agrocentro' in FY2017, and no significant improvement in FY2018, it could well have been less than they paid for the first 50% stake. If that happened, that means that first 50% would have been written down in the books to match the second 50% acquisition price. I think that the $8.6m loss for Seeds in the first half very likely includes a significant equity loss in the form of a write down on that initial 'Agrocento' stake. The underlying seeds business should have remained profitable during this period. PGW Seeds is also weighted in earnings terms towards the southern hemisphere autumn. And that means a substantially higher second half operating profit for PGW Seeds.


OK I take the statement I made in bold back. The detailed HY accounts in report form was released to the NZX after all. It is all in note 6 of the half year accounts.



Agrocentro (first 50%)Agrocentro (second 50%)Agrocentro (100%)


Book Value (50% of business) @ EOFY2018$11.83m


less Impairment in Equity Accounted Value($6.00m)


Consideration Paid 2nd 50% of Business @31-08-2018$1.25m


Total$5.83m$1.25m$7.08m



We have quite a large come down in value here. Just 2.5 years ago, Agrocentro as a whole was valued at $23.66m. Today it is only worth $7.08m on the books. Ouch!

But wait, there is more.

PGW also recorded $13.74m of goodwill on the books as this takeover went through. $13.74m is the sum of what must have been 'off balance sheet debt' of $6.66m that must now be taken onto the books along with the equity value of 'Agrocentro' itself: $7.08m. I can only conclude from this that all of Agrocentro's assets are intangible! What a fix we PGW shareholders are in!

But wait, the story isn't over.

There is a white knight riding over the horizon in the form of our Danish friends 'DLF Seeds'. Apparently they are willing to pay us way over the odds for Agrocentro: $12.55m! Yay! But these Agrocentro assets are still on our books at $13.74m. So all we have to do is write off another:

$13.74m - $12.55m = $1.19m

and there will be no more 'Agro' from Agrocentro. What a relief!

If you can't quite follow all of this then you are in good company. I can't quite make head or tail of how much money we PGW shareholders lost in the end either! But I guess if we got rid of Agrcentro as part of this massive seed division 'premium' we have been offered by DLF, it must be good?

SNOOPY

PS After thinking the bold bit through, I think the answer is: $6.00m + $1.19m = $7.19m, although this assumes those Danes took over the $6.66m debt too.

PSS I see we took another South American seed division write down as well, this time in Argentina

-----

Other investments

During the period, the Group recorded an impairment of $1.57 million (USD 1.06 million) against the carrying value of its investments in the South American entities Arauca Seeds Sociedad Anonima and Patagonia Seeds Sociedad Anonima. These investments are held within the Seed and Grain segment and are included within the assets classified as held for sale above.

---------

Total seed division write downs in South America for the half year are now $8.76m! That more than accounts for the $8.6m loss the whole Seed Division experienced in the half year and confirms that the Seed Division is underlyingly profitable!

[Agrarinvestor]

Hallo together,
does anyone know how much NZ$ Agria will receive from the sellling of PGW seeds business?

"These options included making a non-taxable distribution to shareholders of up to $292m. "
https://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=12170286

[BlackPeter]

Hallo together,
does anyone know how much NZ$ Agria will receive from the sellling of PGW seeds business?

"These options included making a non-taxable distribution to shareholders of up to $292m. "
https://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=12170286




Quite easy - Agria owns just over half of PGW, i.e. they would receive just over half of any distribution - i.e. up to $146m.

Obviously - this is IF the sale is approved and IF the subsequent distribution is really that high.

You are thinking about how you could get your share of Agrias potential windfall out of the Cayman Islands jurisdiction ;)?

[Sideshow Bob]

Agria selling down

http://www.sharechat.co.nz/article/feb1128c/cushing-family-s-h-g-to-buy-2-2-wrightson-stake-from-agria.html

[Snow Leopard]

Agria selling down

http://www.sharechat.co.nz/article/feb1128c/cushing-family-s-h-g-to-buy-2-2-wrightson-stake-from-agria.html

That 7.5cps divvy sounds great.
How come they get 10x the rest of us ?

[RTM]

That 7.5cps divvy sounds great.
How come they get 10x the rest of us ?

Is the divie that high ? 0.75c per share according to NZX. ?
:confused:

[waikare]

That 7.5cps divvy sounds great.
How come they get 10x the rest of us ?

Perhaps that should read .75 cps

[Snoopy]

Agria selling down

http://www.sharechat.co.nz/article/feb1128c/cushing-family-s-h-g-to-buy-2-2-wrightson-stake-from-agria.html


This transaction is, on the surface, very odd. The Cushings started with 3.1m PGW shares and add 17m to that - for a total of 20.1m shares. But with 754.8m shares on issue the Cushings still only have a stake of:

20.1m / 754.8m = 2.7% of the company

That isn't enough to do very much on its own. Yet, if you add that holding to the Ngai Tahu stake of 7.2%, then you get 9.9%. That is close to the 10% blocking stake required to thwart a delisting in the event of a third party takeover offer for the company. Given Ngai Tahu and the Cushings have been stakeholders for a while, perhaps they have 'buddied up' in the background, to cover themselves if Agria is forced to liquidate their remaining shareholding?

Another odd thing about the announcement was the following wording

-------

"The transaction will settle either five days after Agria confirms its bankers will let it sell, or 15 business days from the date of the agreement, according to a notice lodged with the NZX."

"If the banks don't agree to the deal within 20 working days, the agreement can be terminated by either party."

-------

This reads like Agria is already in the hands of its bankers, and so is in defacto receivership right now. We knew before today's announcement that Agria has big bank loans that are due to be repaid if/when the capital repayment comes through. We know that if Agria sell shares now, then their share of the capital repayment will reduce. So why would the banks let them sell, if they don't know what the final terms of any capital repayment is? If Agria was in charge of this transaction, would they not have got permission to sell in advance, before any public announcement was required? So if this sale was not initiated by Agria, it must have been initiated by the other party - the Cushings!

As I noted at the start of this post, it makes little sense as a stand alone transaction on its own. So IMO, there is a strong chance that Ngai Tahu are in on it, in some kind of informal way at least.

David Cushing acted as an alternative Wrightson director for Alan Lai in 2010. So we might infer that the Cushings, Alan Lai's Agria and Ngai Tahu are more than likely still on good buddy terms. And that means the sell down by Agria has, to date, been a Clayton's sell down.

As a separate question, I wonder why, given several opportunities, Ngai Tahu do not seem keen on putting more of their own capital into PGW at this point?

SNOOPY

[janner]

This transaction is, on the surface, very odd. The Cushings started with 3.1m PGW shares and add 17m to that - for a total of 20.1m shares. But with 754.8m shares on issue the Cushings still only have a stake of:

20.1m / 754.8m = 2.7% of the company

That isn't enough to do very much on its own. Yet, if you add that holding to the Ngai Tahu stake of 7.2%, then you get 9.9%. That is close to the 10% blocking stake required to thwart a delisting in the event of a third party takeover offer for the company. Given Ngai Tahu and the Cushings have been stakeholders for a while, perhaps they have 'buddied up' in the background, to cover themselves if Agria is forced to liquidate their remaining shareholding?

Another odd thing about the announcement was the following wording

-------

"The transaction will settle either five days after Agria confirms its bankers will let it sell, or 15 business days from the date of the agreement, according to a notice lodged with the NZX."

"If the banks don't agree to the deal within 20 working days, the agreement can be terminated by either party."

-------

This reads like Agria is already in the hands of its bankers, and so is in defacto receivership right now. We knew before today's announcement that Agria has big bank loans that are due to be repaid if/when the capital repayment comes through. We know that if Agria sell shares now, then their share of the capital repayment will reduce. So why would the banks let them sell, if they don't know what the final terms of any capital repayment is? If Agria was in charge of this transaction, would they not have got permission to sell in advance, before any public announcement was required? So if this sale was not initiated by Agria, it must have been initiated by the other party - the Cushings!

As I noted at the start of this post, it makes little sense as a stand alone transaction on its own. So IMO there is a strong chance that Ngai Tahu are in on it, in some kind of informal way at least.

David Cushing acted as an alternative Wrightson director for Alan Lai in 2010. So we might infer that the Cushings, Alan Lai's Agria and Ngai Tahu are more than likely still on good buddy terms. And that means the sell down by Agria has to date been a Clayton's sell down.

Yes. Food for thought.. Who will end up at the dining table ?.
Also is it worth accepting the invitation ?.

[Snoopy]

Yes. Food for thought.. Who will end up at the dining table ?.


I don't think it is any secret that Elders are interested in PGW, but they don't want to pay a big premium for a controlling stake. A lot of that potential premium will be gone if the Seed Business sale goes through. Elders would have to make an offer to all shareholders if they want to own more than 20% of the 'PGW Rural Rump' that remains. A Cushing/ Ngai Tahu alliance could ensure that PGW remains listed in NZ, even if Elders snares a controlling shareholding.


Also is it worth accepting the invitation ?.

Invitations are always price sensitive. The Cushings think that 49c is an acceptable price to gain a meaningful seat at the table.

SNOOPY

discl 1: Bought some more shares at 49c myself the other day (albeit ex dividend).
discl 2: Am not related to the Cushings.

[Balance]

This transaction is, on the surface, very odd. The Cushings started with 3.1m PGW shares and add 17m to that - for a total of 20.1m shares. But with 754.8m shares on issue the Cushings still only have a stake of:

20.1m / 754.8m = 2.7% of the company

That isn't enough to do very much on its own. Yet, if you add that holding to the Ngai Tahu stake of 7.2%, then you get 9.9%. That is close to the 10% blocking stake required to thwart a delisting in the event of a third party takeover offer for the company. Given Ngai Tahu and the Cushings have been stakeholders for a while, perhaps they have 'buddied up' in the background, to cover themselves if Agria is forced to liquidate their remaining shareholding?

Another odd thing about the announcement was the following wording

-------

"The transaction will settle either five days after Agria confirms its bankers will let it sell, or 15 business days from the date of the agreement, according to a notice lodged with the NZX."

"If the banks don't agree to the deal within 20 working days, the agreement can be terminated by either party."

-------

This reads like Agria is already in the hands of its bankers, and so is in defacto receivership right now. We knew before today's announcement that Agria has big bank loans that are due to be repaid if/when the capital repayment comes through. We know that if Agria sell shares now, then their share of the capital repayment will reduce. So why would the banks let them sell, if they don't know what the final terms of any capital repayment is? If Agria was in charge of this transaction, would they not have got permission to sell in advance, before any public announcement was required? So if this sale was not initiated by Agria, it must have been initiated by the other party - the Cushings!

As I noted at the start of this post, it makes little sense as a stand alone transaction on its own. So IMO, there is a strong chance that Ngai Tahu are in on it, in some kind of informal way at least.

David Cushing acted as an alternative Wrightson director for Alan Lai in 2010. So we might infer that the Cushings, Alan Lai's Agria and Ngai Tahu are more than likely still on good buddy terms. And that means the sell down by Agria has, to date, been a Clayton's sell down.

As a separate question, I wonder why, given several opportunities, Ngai Tahu do not seem keen on putting more of their own capital into PGW at this point?

SNOOPY

~~~~~~~~~~~~~

Agria selling is no big surprise indeed as the company has been in the hands of the bankers for quite a while - reason why Agria put up its stake in PGW for sale in 2017 in the first place.

Looks to me like Agria has sold the $8m worth of PGW's stake to cover various 'operating' expenses (fines, legal, admin, fees etc) which is why it needs the permission of the banks.

There have been two delays to the sale of the seeds business - (i) OIO investigation and subsequent censure of Agria as an 'unfit' shareholder over its disgraceful conduct in its US listing (false accounting and market manipulation) and (ii) Commerce Commission competition investigation into the sale of the Seeds Business.

~~~~~~~~~~~~~

Interesting & good thought about Ngai Tahu & Cushing teaming up - possible but the penalty for collusion without market disclosure (formal or informal) is pretty severe these days with the FMA looking to make examples of their vigilance and muscle! Also Agria would be wary of selling a stake which could prove to be a hindrance later to it selling its controlling stake in PGW.

More interesting to me is Cushing buying - I think it is opportunistic and where the willy old fox puts his money, it is usually right to join him!


~~~~~~~~~~~~~~~~

OIO approval is the big issue now facing PGW - there are some quarters objecting to the sale of this most 'precious' IP built up over decades but the Commerce Commission finding that there is sufficient competition in the industry pretty much lays that argument to rest.

Agria will be hoping like mad that the approval comes through so that Cushing does not get to settle the $8m purchase?

[Balance]

I don't think it is any secret that Elders are interested in PGW, but they don't want to pay a big premium for a controlling stake. A lot of that potential premium will be gone if the Seed Business sale goes through. Elders would have to make an offer to all shareholders if they want to own more than 20% of the 'PGW Rural Rump' that remains. A Cushing/ Ngai Tahu alliance could ensure that PGW remains listed in NZ, even if Elders snares a controlling shareholding.



Invitations are always price sensitive. The Cushings think that 49c is an acceptable price to gain a meaningful seat at the table.

SNOOPY

discl 1: Bought some more shares at 49c myself the other day (albeit ex dividend).
discl 2: Am not related to the Cushings.

Agree - Happy to join Cushing at the dining table.

[Snoopy]

Interesting & good thought about Ngai Tahu & Cushing teaming up - possible but the penalty for collusion without market disclosure (formal or informal) is pretty severe these days with the FMA looking to make examples of their vigilance and muscle! Also Agria would be wary of selling a stake which could prove to be a hindrance later to it selling its controlling stake in PGW.


I think David Cushing and Ngai Tahu's Trevor Burt know each other, through representing family/whanau interests as fellow investors in PGW. I wasn't implying any collusion in my comment. In a takeover offer, shareholders would be expected to act independently. But that doesn't stop two or more independent shareholders coming to the same view.

If 10% of the shares on issue or more vote against a full takeover offer, then a full takeover cannot proceed. But that wouldn't stop Agria selling their PGW stake. That transaction would hand effective control to the buyer of the Agria stake. Whoever the buyer was would be forced to offer all other shareholders the same dollar amount per share as they offered Agria, because of the NZ Takeover code. There is a strong chance the buyer would gain 50% of the shares on issue from such an offer. And that would give undisputed control. But as long as more than 10% of shares are not fed into such an offer that still means that PGW remains listed.

SNOOPY

[Snoopy]

Agria selling is no big surprise indeed as the company has been in the hands of the bankers for quite a while - reason why Agria put up its stake in PGW for sale in 2017 in the first place.


Hmmm, I don't recall Agria ever putting their PGW stake up for sale.

Or are you referring to the 'capital review' initiated by PGW to look at the capital needs of the company going forwards? -That was where the Danish DLF Seeds offer for the PGW seed business came from. So your argument Balance is that the 'capital review' was really a sham sales process in disguise?

SNOOPY

[Snoopy]

There have been two delays to the sale of the seeds business - (i) OIO investigation and subsequent censure of Agria as an 'unfit' shareholder over its disgraceful conduct in its US listing (false accounting and market manipulation) and (ii) Commerce Commission competition investigation into the sale of the Seeds Business.

OIO approval is the big issue now facing PGW - there are some quarters objecting to the sale of this most 'precious' IP built up over decades but the Commerce Commission finding that there is sufficient competition in the industry pretty much lays that argument to rest.


IMO the 'competition issue' and the 'overseas ownership' issue are separate arguments.

If:

1/ the PGW Seeds IP is regarded as a 'taonga of the nation' and
2/ there is no counter benefit to the nation to be gained in selling it overseas,

then approval for the PGW Seed Division Sale will not be forthcoming by the OIO. That's the way I see it anyway. Plan B would be to tender the Agria stake to NZ institutional shareholders.

SNOOPY

[Balance]

Hmmm, I don't recall Agria ever putting their PGW stake up for sale.

Or are you referring to the 'capital review' initiated by PGW to look at the capital needs of the company going forwards? -That was where the Danish DLF Seeds offer for the PGW seed business came from. So your argument Balance is that the 'capital review' was really a sham sales process in disguise?

SNOOPY

It was certainly well known in investment banking cycle that Agria was looking for bids for its stake in PGW. The article below affirms what the informed market knew :

https://www.afr.com/business/where-to-now-for-elders-as-469m-takeover-unites-main-farm-services-rivals-20190310-h1c7ag

Excerpt : "Elders and its adviser Macquarie had cast an eye over Ruralco along with about six other potential acquisition targets in the past 18 months, including New Zealand's PGG Wrightson, before Denmark-based DFL stepped up with a $NZ421 million ($406.5 million) offer for the seeds business." "We didn't make an offer for PGG because there was a 14 times earnings offer from DFL and it's not dissimilar to this situation [Nutrien and Ruralco]," Mr Allison said. "We are not interested in destroying shareholder value." What the interest in PGG Wrightson did show was Elders' appetite to diversify.

[Snoopy]

It was certainly well known in investment banking cycle that Agria was looking for bids for its stake in PGW. The article below affirms what the informed market knew :

https://www.afr.com/business/where-to-now-for-elders-as-469m-takeover-unites-main-farm-services-rivals-20190310-h1c7ag

Excerpt : "Elders and its adviser Macquarie had cast an eye over Ruralco along with about six other potential acquisition targets in the past 18 months, including New Zealand's PGG Wrightson, before Denmark-based DFL stepped up with a $NZ421 million ($406.5 million) offer for the seeds business." "We didn't make an offer for PGG because there was a 14 times earnings offer from DFL and it's not dissimilar to this situation [Nutrien and Ruralco]," Mr Allison said. "We are not interested in destroying shareholder value." "What the interest in PGG Wrightson did show was Elders' appetite to diversify."

Thanks for the reference Balance.

What has been obvious for the last few years is that while PGW was making money, the leveraged buyout vehicle for PGW, Agria, was losing money. Yes Agria has had some peripheral write-downs unrelated to its PGW stake. But largely Agria has been losing money, because the dividends received from PGW have not covered Agria's interest bills. We also know that Agria could not partially sell down their stake, because that would require the share price movements of PGW to be consolidated within the Agria accounts. And that means large capital write downs at Agria!

The forced sell down of the Agria stake in PGW to below 50% means that the 'capital loss' chicken has come home to roost. Agria's 'get out of jail' card is the sale of the seed division and an associated large return of capital to all shareholders. Hopefully the 'PGW Rural Rump' share price of what is left will rally so that the market values Agria's total investment in PGW higher than what they paid for it. But this potential share price rally is still an 'if'.

In this sense it is obvious that if Agria were to get a good offer for their PGW stake they would be foolish not to consider selling - to appease their lenders if for no other reason.

However, notwithstanding any inside information you may have Balance, that validates your view: That article says that Elders have been looking various growth options over the last 18 months, and that takes us back to 2017. However, it does not say that each and every growth option on the table have been under the microscope for 18 months. The article listed three preferred growth strategies, none of which involved buying into PGW.

"The first thing is we have to buy well, so we're looking for distressed assets," (Mr Allison of Elders) said.

PGW was not a distressed asset. The share price was too high for an Elders buyout to be 'value accretive'.

"The final criteria, although it did not prevent Elders looking closely at PGG Wrightson, is to buy in Australia, where Elders has a bank of tax credits."

While the article does not rule out Elders being interested in PGW since 2017, it is also consistent with Elder's interest in PGW coming much later (second half of 2018) once the other preferred growth opportunities within Australia had started to fall through.

SNOOPY

[Snoopy]

So Agria settled claims with the United States Securities and Exchange Commission over allegations.

"It resulted in the company paying $US3 million ($NZ4.4m), and Mr Lai $US400,000, ($NZ590,000) although there were no admissions of liability."

So no admission of fraudulent accounting and market manipulation by Agria and Alan Lai. Yet the OIO in New Zealand has 'forced Agria to reduce its stake' in PGW from 50.2% to 46.6% (on what grounds?).

"The settlement also provided for penalty proceedings to be filed in the High Court, .."

'Penalty proceedings' for doing what exactly? What will the charge be?






Agria selling is no big surprise indeed as the company has been in the hands of the bankers for quite a while - reason why Agria put up its stake in PGW for sale in 2017 in the first place.

Looks to me like Agria has sold the $8m worth of PGW's stake to cover various 'operating' expenses (fines, legal, admin, fees etc) which is why it needs the permission of the banks.

Agria will be hoping like mad that the approval comes through so that Cushing does not get to settle the $8m purchase?

17m shares sold at 49c - 0.75c = 48.25c (including dividend foregone) give a cash inflow into Agria of $NZ8.2m. Total US fines add to $NZ4.99m. That was back in December 2018 though. The Cushing share sale would more than cover this bill. Yet, I would have thought to get the US authorities off the back of Agria, any such fines would already have been settled? Would the US Enforcement Authorities really wait 3-4 months to be paid, and be silent about doing that?

Back in NZ, have those 'penalty proceedings' been filed in the high court yet?

I had previously assumed that it was the Cushings that initiated the $17m share sale to themselves. But if it was Agria that initiated the sale, without even knowing if the banks would let them sell, then the CASH position of Agria/ Alan Lai must have become desperate!

SNOOPY

[percy]

Board changes.
Very positive new board members and new chair.

[Snoopy]

Board changes.
Very positive new board members and new chair.

Interesting to see that new chairman Rodger Finlay is deputy chair of Rural Equities Limited, controlled by the Cushings AND a director of Ngai Tahu Holdings. Perhaps this gives substance to the idea mooted by some mutt on this thread that REL and Ngai Tahu could be 'working together', ooops should have said working independently to arrive at a single logical path towards the future!

SNOOPY

[Marilyn Munroe]

... Perhaps this gives substance to the idea mooted by some mutt on this thread that REL and Ngai Tahu could be 'working together'....

SNOOPY

I hope not. Surely the rural sector would have learnt a lesson from the forming of a secret concert party to mount an illegal takeover of Richmond Meat by PPCS(now Silver Fern Farms) and the subsequent punishment handed out by the courts.

Boop boop de do
Marilyn

[percy]

Some times the road to no where does leed to somewhere.
I note the market cap of Rural Equities is $153.5 mil.
PGW's current market cap is $384.9 mil.
Will PGW's market cap be over or under $200 mil once the seeds business is sold and capital returned to shareholders?
Perhaps it would then make sense to merge PGW with REL.?

[Snoopy]

Some times the road to no where does lead to somewhere.
I note the market cap of Rural Equities is $153.5 mil.
PGW's current market cap is $384.9 mil.
Will PGW's market cap be over or under $200 mil once the seeds business is sold and capital returned to shareholders?


The market has not viewed the seed division sale favourably, as the share price has fallen since the seed division sale came to the table. But it may recover a bit when the details of any capital repayment come to light. Initially I would say a market valuation of 'PGW Rural Rump' of around $200m would be a good guess.



Perhaps it would then make sense to merge PGW with REL.?


They would be similar in size in market capitalisation terms. Combining the two might see a 'PGW Rural Equities Rump' getting close to a size that means a return to the NZX50 becomes possible. But I am not sure if merging a 'farming services supplier' with a 'farm owner' would be rurally acceptable. Farming customers might get titchy about buying from a company that is a competing farm owner?

Then again I thought the same about Turners moving into the retail car market, and how that would alienate their wholesale auction customers. Effectively wholesale car customers would only get sold the reject cars that Turners did not want to sell themselves! Nevertheless the Turners transition to becoming a retail seller seems to be a success.

SNOOPY

[percy]

I can not comment on Sarah Brown,however both Rodger Finlay and David Cushing are very welcome .
Both have a wealth of experience and are very astute.
I seem to remember PGW are REL's farm manager.
I think once the seeds business sale receives the all clear, PGW's share price will do a runner.

[Snoopy]

I can not comment on Sarah Brown,however both Rodger Finlay and David Cushing are very welcome .
Both have a wealth of experience and are very astute.


Sarah Brown is a 'proud Southlander' Percy. A real southern 'soul of the soil'. There can be no greater qualification to sit on the PGW board than that. (Plus I have heard through the grape vine, she makes a cracking cup of tea ;-P)



I seem to remember PGW are REL's farm manager.


I didn't know that. But aren't most of REL's farms in Tasmania? Where does PGWs expertise dovetail into that? Or are REL just plugging into PGW's extensive head office skills for processing their results?



I think once the seeds business sale receives the all clear, PGW's share price will do a runner.


Since the seed division sale was announced (and since the PGW share price came down as a result) I have boosted my PGW holding by 50%. So I have money on you being right. Just as long as PGW remembers in which direction to run!

SNOOPY

[percy]

REL's farms are all in NZ.Well they were when I held REL shares.Don't currently hold them.
I am told they are some of NZs best farms..
They made a great deal of money selling their "right to supply shares" in Fonterra,and then started supplying Synlait.Suppliers not required to hold SML shares.
They did hold shares in Tandou [asx] and ended up accepting shares in Websters [asx listed] when they took over Tandou.David Cushing is a director of Websters.
Direction to run will not be a problem with Finlay and Cushing on the board.
I am pleased you added to your holding.

[Snow Leopard]

Occasionally I wake up, discover that this Seeds buy-out has still not happened and then go back to sleep whilst wondering whether it ever will.

[percy]

Wake up.Snow Leopard.
Overseas Investment Office OIO approves seeds sale.
Game on.

[Snoopy]

Wake up.Snow Leopard.
Overseas Investment Office OIO approves seeds sale.
Game on.

From this morning's announcement. Nothing new but a slight change in emphasis (the bracketed bit)

"After the sale proceeds are received on settlement and debt repaid, PGW would expect to have a cash surplus of circa $210 million (subject to transaction completion timing, working capital requirements that can fluctuate materially through the annual cycle and other transaction wash-up items)."

I guess this fixes up the pension plan shortfall that periodically comes up. Big redundancy cheques to come for all those overpaid execs who now find themselves in a much smaller pond, courtesy of we shareholders of course. Redundancy does not apply to any executives with one leg though. They have already been 'right sized' by being chopped in half.

"The options for a capital return to shareholders being contemplated by the Board would allow PGW to reset its debt position and right-size its corporate operations for the business going forward.” Mr Burt said."

Hmm, so maybe not quite as much cash available to shareholders as previously mooted? A very sad day as the benefits of nearly half a century of New Zealand seed research and development are harvested overseas. No doubt plenty of cash still left though, for the greedy short term shareholders such as Snow Leopard, Percy and myself.

SNOOPY

[winner69]

The Pension Plan no doubt still exists

Certain irony that some old timer seeds employees who have retired will still get paid by PGW (along with some who worked for other now defunct parts of PGW who are still enjoying long life’s)

[percy]

From this morning's announcement. Nothing new but a slight change in emphasis (the bracketed bit)

"After the sale proceeds are received on settlement and debt repaid, PGW would expect to have a cash surplus of circa $210 million (subject to transaction completion timing, working capital requirements that can fluctuate materially through the annual cycle and other transaction wash-up items)."

I guess this fixes up the pension plan shortfall that periodically comes up. Big redundancy cheques to come for all those overpaid execs who now find themselves in a much smaller pond, courtesy of we shareholders of course. Redundancy does not apply to any executives with one leg though. They have already been 'right sized' by being chopped in half.

"The options for a capital return to shareholders being contemplated by the Board would allow PGW to reset its debt position and right-size its corporate operations for the business going forward.” Mr Burt said."

Hmm, so maybe not quite as much cash available to shareholders as previously mooted? A very sad day as the benefits of nearly half a century of New Zealand seed research and development are harvested overseas. No doubt plenty of cash still left though, for the greedy short term shareholders such as Some Leopard, Percy and myself.

SNOOPY

More than enough to takeover REL.?..lol.

[Snow Leopard]

Wake up.Snow Leopard.
Overseas Investment Office OIO approves seeds sale.
Game on.

I voted against this sale.

Forecast here is for snow, mostly sub-zero temperatures and a wind-chill factor that says sleep through it.

When they pay me my money, I will look at spending it on a thicker fur coat:
https://encrypted-tbn0.gstatic.com/images?q=tbn:ANd9GcRO8LTfFKYYQy7gWcOvUeGFXH27ZHuad PgAAC4dIz-3sp_uTai3

[Balance]

From this morning's announcement. Nothing new but a slight change in emphasis (the bracketed bit)

"After the sale proceeds are received on settlement and debt repaid, PGW would expect to have a cash surplus of circa $210 million (subject to transaction completion timing, working capital requirements that can fluctuate materially through the annual cycle and other transaction wash-up items)."

I guess this fixes up the pension plan shortfall that periodically comes up. Big redundancy cheques to come for all those overpaid execs who now find themselves in a much smaller pond, courtesy of we shareholders of course. Redundancy does not apply to any executives with one leg though. They have already been 'right sized' by being chopped in half.

"The options for a capital return to shareholders being contemplated by the Board would allow PGW to reset its debt position and right-size its corporate operations for the business going forward.” Mr Burt said."

Hmm, so maybe not quite as much cash available to shareholders as previously mooted? A very sad day as the benefits of nearly half a century of New Zealand seed research and development are harvested overseas. No doubt plenty of cash still left though, for the greedy short term shareholders such as Some Leopard, Percy and myself.

SNOOPY

The commentary is consistent with when PGW reported its interim results in March this year.

The company's debt is always highest around the interim results (peak summer seasonal working capital requirements) and then, drops to a lower level on balance date (winter).

So, I think we can safely assume that PGW's capital repayment will be between $210m (zero debt for PGW) and $292m ($82m of debt at seasonal debt peak level).

Agria will want maximum capital repayment (it desperately needs the cash) while the other shareholders will want a sound operating business (ex S&G) with appropriate leverage.

So what's appropriate leverage?

Using the company's forecast of $25m - $30m EBITDA for F19 = EBIT of $16m - $21m.

Allowing corporate interest rate these days of around 4% pa - 5% pa, it can be seen that PGW can comfortably leverage up to $100m a year.

[freddagg]

The commentary is consistent with when PGW reported its interim results in March this year.

The company's debt is always highest around the interim results (peak summer seasonal working capital requirements) and then, drops to a lower level on balance date (winter).

So, I think we can safely assume that PGW's capital repayment will be between $210m (zero debt for PGW) and $292m ($82m of debt at seasonal debt peak level).

Agria will want maximum capital repayment (it desperately needs the cash) while the other shareholders will want a sound operating business (ex S&G) with appropriate leverage.

So what's appropriate leverage?

Using the company's forecast of $25m - $30m EBITDA for F19 = EBIT of $16m - $21m.

Allowing corporate interest rate these days of around 4% pa - 5% pa, it can be seen that PGW can comfortably leverage up to $100m a year.

So if we take the midpoint of $210m and $292m = $251m and divide by 755m shares would give us a capital return of 33c/share.
The remainder of the company, recapitalized with $41m should be worth about 40 cents so 77 cents all up. I would be happy with that.

[Balance]

So if we take the midpoint of $210m and $292m = $251m and divide by 755m shares would give us a capital return of 33c/share.
The remainder of the company, recapitalized with $41m should be worth about 40 cents so 77 cents all up. I would be happy with that.

Your numbers have lost me.

40c + 33c = 73c

40c = $302m valuation for residual Rural Rump business?

[freddagg]

Yes, I meant 73c. and I was not being too serious about the 40c
What do you think the residual business will be worth? They will have less debt and hopefully while be able to grow the remaining parts of the business.

[Balance]

Yes, I meant 73c. and I was not being too serious about the 40c
What do you think the residual business will be worth? They will have less debt and hopefully while be able to grow the remaining parts of the business.

I have PGW worth 65c based upon FY19 earnings - in total.

One thing for sure - Cushing paid 49c and he is not into 10% or 20% type return.

Obviously as usual, DYOR

[nzspeak]

Settlement of Seed and Grain transaction 1/5/2019, 11:33 am TRANSACT PGG Wrightson Limited (PGW) has today completed settlement of the sale of its Seed and Grain business (PGW Seeds) to Danish based DLF Seeds A/S.
Incoming PGW Chair, Rodger Finlay said “It was very positive news to have completed settlement after a lot of hard work since the deal was announced in August last year. The transaction would deliver significant value for PGW stakeholders while also enabling the PGW Seeds business to benefit from being part of the international DLF Seeds operation.”
Mr Finlay said “The Board wished to acknowledge and thank the staff of the Seed and Grain business for their immense contributions over many years and looked forward to their continued close working relationship with PGW’s Rural Servicing business under the ongoing strategic distribution relationship. With settlement complete, the immediate focus would now turn to ensuring a smooth transition to separate the business structures.”
“Following receipt of the NZ$426 million purchase price (inclusive of interest), PGW has paid off its bank debt in the interim while the Board continues to assess options for the capital return to shareholders. With completion of the transaction now behind us this is a priority. The Board expects it will soon be in a position to make a recommendation to shareholders regarding the proposed capital return. This would allow PGW to reset its debt position and recalibrate its corporate operations for the Rural Servicing business going forward.” Mr Finlay said.
For all media enquiries please contact
Linda Chalmers
Group Communications and Brand Manager
PGG Wrightson Ltd
Mobile: +64 27 405

[Balance]

Settlement of Seed and Grain transaction 1/5/2019, 11:33 am TRANSACT PGG Wrightson Limited (PGW) has today completed settlement of the sale of its Seed and Grain business (PGW Seeds) to Danish based DLF Seeds A/S.
Incoming PGW Chair, Rodger Finlay said “It was very positive news to have completed settlement after a lot of hard work since the deal was announced in August last year. The transaction would deliver significant value for PGW stakeholders while also enabling the PGW Seeds business to benefit from being part of the international DLF Seeds operation.”
Mr Finlay said “The Board wished to acknowledge and thank the staff of the Seed and Grain business for their immense contributions over many years and looked forward to their continued close working relationship with PGW’s Rural Servicing business under the ongoing strategic distribution relationship. With settlement complete, the immediate focus would now turn to ensuring a smooth transition to separate the business structures.”
“Following receipt of the NZ$426 million purchase price (inclusive of interest), PGW has paid off its bank debt in the interim while the Board continues to assess options for the capital return to shareholders. With completion of the transaction now behind us this is a priority. The Board expects it will soon be in a position to make a recommendation to shareholders regarding the proposed capital return. This would allow PGW to reset its debt position and recalibrate its corporate operations for the Rural Servicing business going forward.” Mr Finlay said.
For all media enquiries please contact
Linda Chalmers
Group Communications and Brand Manager
PGG Wrightson Ltd
Mobile: +64 27 405

Ah, to be a fly on the wall as the board discusses the quantum of the capital repayment, and what is likely to happen with the Agria's stake after the capital repayment.

Agria will be pushing for maximum capital repayment - $292m or 39c per share. as it is obviously desperate to get the banks off its back & wants to have funds available for its owner to pursue other interests now that its goal of creating a global rural servicing empire has unraveled in a pretty spectacular fashion.

As still the biggest shareholder in PGW, Agria is likely to get its way and if it comes to a vote, other long suffering minorities are going to side with Agria.

[winner69]

Suppose it doesn’t matter about the earnings guidance downgrade seeing we are going to get 31 cents back

http://nzx-prod-s7fsd7f98s.s3-website-ap-southeast-2.amazonaws.com/attachments/PGW/334292/299541.pdf

[Snoopy]

Ah, to be a fly on the wall as the board discusses the quantum of the capital repayment, and what is likely to happen with the Agria's stake after the capital repayment.

Agria will be pushing for maximum capital repayment - $292m or 39c per share. as it is obviously desperate to get the banks off its back & wants to have funds available for its owner to pursue other interests now that its goal of creating a global rural servicing empire has unraveled in a pretty spectacular fashion.

As still the biggest shareholder in PGW, Agria is likely to get its way and if it comes to a vote, other long suffering minorities are going to side with Agria.



Suppose it doesn’t matter about the earnings guidance downgrade seeing we are going to get 31 cents back


Looks like Agria didn't quite get their wish. 31cps still represents a return of $232m though. But there is still $60m that theoretically could have been returned that will now be used in the restructure of the business. If I was a high paid PGW exec I think I would be fighting to be made redundant to get my share of that pie. Will Ian Glasson having brought his family to Christchurch be staying on our shores so that family life is not disrupted again? I guess so because he may need to work through the eight years that remain in his employment contract.

"(Ian will )assist with a short transition and handover through to the end of his contract.”

'Short' is of course a relative term, and with PGW tracing their roots back well over 100 years, eight years is a mere drip in the corporate evolutionary bucket.

The board has a history of very generous employment contracts with former CEO Tim Miles, I think, still just on the payroll as he winds down his own ten year employment contract term.

Stephen Guerin looks to be a good choice as the new CEO, with retail being such an important part of PGW going forwards.

SNOOPY

[percy]

A very positive announcement.
31cents ps capital return leaves a bit in the kitty.
Stephen Guerin looks to be the right person.
Good board appointments,capital return,and good management means PGW should be a good steady performer,capable of paying reasonable divies.

[winner69]

Snoops ..you forgot that they will still essentially be funding all those pension payments as well.

Some probably worked for Wrightson Bloodstock year’s ago .....remember them?

[percy]

[QUOTE=greater fool;758426]"Proposed Capital Distribution to Shareholders

That says it all to me.
31cps.

[winner69]

"Proposed Capital Distribution to Shareholders
“The Board has also determined that it intends to recommend a capital return of $235 million be made to
shareholders which should equate to approximately 31 cents per share. The proposed capital distribution
would be implemented by way of a pro-rated share buyback pursuant to a court approved scheme of
arrangement............"

I read this as a share buyback, not a per share payout. Not that good IMO.
Think there is a spelling mistake, "pro-rated" perhaps means "pro-rata".

Interesting what this means - could be like current share price of 53 cents they’d buy 58% of your shares (the pro-rated bit) at the 53 cents (still giving you the equivalent of 31 cents per share on all your shares)

But I have no idea


Snoopy will be able to clarify

[steveb]

I suspect Snoops will need more info,their announcement is as clear as mud.What is wrong with a cash payout for goodness sake!!!

[winner69]

I suspect Snoops will need more info,their announcement is as clear as mud.What is wrong with a cash payout for goodness sake!!!

Need it to be ‘tax effective’ I suppose

[BlackPeter]

I suspect Snoops will need more info,their announcement is as clear as mud.What is wrong with a cash payout for goodness sake!!!

I suspect they don't want to crash the share price (which they would with paying out half the SP). Pro rata buy back makes a lot of sense (if properly done) ... maintains the share price and still returns the money. Might be as well advantageous from a tax perspective. IRD used to treat capital returns as taxable income, but if you are selling your shares to the company, than it is clearly no income unless you are a trader.

Discl: not a tax expert - DYOR

[Snoopy]

"Proposed Capital Distribution to Shareholders
“The Board has also determined that it intends to recommend a capital return of $235 million be made to
shareholders which should equate to approximately 31 cents per share. The proposed capital distribution
would be implemented by way of a pro-rated share buyback pursuant to a court approved scheme of
arrangement............"

I read this as a share buyback, not a per share payout. Not that good IMO.
Think there is a spelling mistake, "pro-rated" perhaps means "pro-rata".

You need to keep up with the lingo 'Greater Fool'. "Pro-rated' means the board asked a whole lot of highly paid accountants if they would like to design an extremely complicated way to return shareholder capital at vast expense, instead of just paying the cash out as a straight capital return in the form of a non taxable 'dividend'. Every one of these professionals thought designing such a scheme was a great idea, as did the lawyers required for 'court approval'. Hence the complex pro-rata buyback is 'pro-rated'.

SNOOPY

[Snoopy]

Immediately after the AGM the PGW share price was 57c. If we take this as Mr Market's 'reference figure', then this 57c will be split into a capital payout amount and the remainder which is Mr Market's worth of 'PGW Rural Rump'.

There are 754.048m PGW shares on issue. So working through both scenarios, for each share held, PGW shareholders can expect a capital repayment of either:

$292m / 754.048m = 38.7cps OR $274m / 754.048m = 36.3cps

By simple subtraction from the 57c PGW market value, we can now calculate the market value of 'PGW Rural Rump' after the seeds have split.

57c - 38.7c = 18.3c OR 57c - 36.3c = 20.7c

This gives us the information we need to work out post split PE ratios and dividend yields for both scenarios.


They say the market doesn't like uncertainty. So why does the share price of PGW continue to sink, the more details on the capital repayment are made public? Since the 9th May announcement of a likely $235m capital return, the 57c share price has sunk to 50c. Prior to this, we shareholders had voted on a likely $292m capital return (see p36 of the KM report evaluating the seed division sale). So shareholders have some reason to be disappointed in that they will only receive 80% of the money that PGW suggested they would get (a $57m shortfall). But why are investors considering themselves disappointed so slowly? On the NZX we are used to seeing shares 'bid up' or 'sold down' on a whim.

To be fair that $292m proposed capital return was never cast iron guaranteed. But it is disappointing to be asked to vote on a particular restructuring deal, when the reality of that deal turns out to be a little different. So what will the $57m that we shareholders aren't going to be getting do exactly? The proforma balance sheet for 'PGGW Rural Rump' shows 'Long Term debt of $17.5m, short term debt of $9.2m and a defined superannuation plan debt provision of $9.5m. This totals $36.2m. But $57m is more that enough to pay the company debts off. What will PGGW Wrightson do with the $20m they still have in the bank over and above this? I will take a wild guess. The Finance Division of the firm will re-emerge, officially!

SNOOPY

[percy]

SNOOPY,
Have you read last Friday's NBR with the article by Tim Hunter about how naughty a boy was former chairman Alan Lai.?

Perhaps one of Tim Hunter's best.

[Snoopy]

But if the seed division is losing money at NPAT level as suggested in the last update,I can't see the SP bouncing back up, if the seed sale is called off.It will be interesting to see the half year results in a couple of weeks.


I wanted to further examine the spin being put out by PGW management, that they are getting rid of a useless loss maker in selling the 'Seed and Grain' division.



I wouldn't be leaving the seed division out of this just yet, Yes, that after tax loss for seeds of $8.6m for the half year was a shock. But it seems to be related to the Seed and Grain division acquiring the other half of the joint venture in Uruguay called 'Agrocentro' (otherwise known as 'Aggrocentro'?). PGW's initial 50% stake in 'Agrocentro' was acquired in 31st August 2015 (i.e. during FY2016).

PGW has not yet disclosed how much they paid to acquire the 50% of 'Agrocentro' they did not already own during HY2019. Partly that is because it is not material. But after one 'budgeted for tough year' at 'Agrocentro' in FY2017, and no significant improvement in FY2018, it could well have been less than they paid for the first 50% stake. If that happened, that means that first 50% would have been written down in the books to match the second 50% acquisition price. I think that the $8.6m loss for Seeds in the first half very likely includes a significant equity loss in the form of a write down on that initial 'Agrocento' stake. The underlying seeds business should have remained profitable during this period. PGW Seeds is also weighted in earnings terms towards the southern hemisphere autumn. And that means a substantially higher second half operating profit for PGW Seeds.


The first half report reveals the missing 'write down' information.



From AR2016, page 46, when acquiring 50% of the business the comment was:

"The acquisition required an up front payment and an earn out component of between nil and USD $11.5m (using the exchange rate on acquisition day USD0.6465 = NZD1, this works out at $NZ17.79m) over the next three years, based on the financial performance of the business. The initial investment recorded for the investee is $NZ16.37m, which includes management's estimate of the fair value of the earn out."

I note the earn out payment looks to be potentially a very large part of the total price to be paid for 'Agrocentro', the value already inked in the PGW books (potentially 100%).

In AR2017 p21 we learn that: "South America achieved their FY2017 budget expectations."

By AR2018 p21 we learn that: "The key challenges for FY2018 were related to weather issues and the continuation of the very difficult financial situation facing our farming customers due to the low profitability and adverse climatic events of previous years."

It does sound like the 'earn out component' could end up being a lot lower than originally thought!


From p27 of HYR2019:

"Following an impairment of $6.00m (USD 3.64m, - which implies an exchange rate of NZD1 =60.67c), the fair value of the Group's pre-existing equity accounted interest in the AgroCentro Uruguay Group was $5.83m (USD3.95m - which implies an exchange rate of NZD1= 67.75c). This fair value was supported by the value attributed to the AgroCentro Uruguay Group as part of a conditional sale of PGG Wrightson Seed Holdings Ltd.. Consideration provided for the remaining 50% of the investment amounted to $1.25m (USD 0.85m, which implies an exchange rate of NZD1=USD0.68c)."

If I interpret that correctly the current book value for AgroCentro Uruguay Group is USD3.95m + USD0.85m = USD4.8m

Note that the second half of the business is valued at less than the first half on the same valuation date. This seems odd, until you remember that the first half valuation included an earn out payment and was valued at the time at USD11.5m. Subtract from this the value of today's USD3.64m write down and the residual USD3.95m value and I get an 'earn out payment' on the books back in FY2016 of USD3.91m.

This means that of the goodwill reflected on the books today:

1/ The earn out payment has had to be written off.
2/ The future value of the Uruguayan business of USD4.8m is way down on the FY2016 valuation of:

2x(USD11.5m - USD3.91m) =USD15.2m

That means that since PGW became involved in AgroCentro Uruguay Group, the wealth destruction has been disastrous. However, only a small part of AgroCentro Uruguay Group is actually involved in seeds. So to put all of this disaster under the 'Seed and Grain' mast head is very unrepresentative of how the Seed and Grain business is trading in Uruguay.

There is one additional 'poison seed' to swallow from the South American escapade though. Further down on p27

"During the period the group recorded an impairment of of $NZ1.57m (USD1.06m) against the carrying value of South American entities 'Arauca Seeds Sociedad Anonima' and 'Patagonia Seeds Sociedad Anonima.' ''

Adding together the two capital write downs (in bold above): $US3.64m +$US1.06m = $US4.70m

At half year balance date, the exchange rate was NZD1.00 equals USD0.6707

$US4.70 / 0.6707 = $NZ 7.01m

This is a capital loss that has come straight off the 'Seed and Grain' bottom line. The quoted loss for the 'Seed and Grain' division net of tax was $8.703m (HYR2019, Note 3). Weirdly 'Seed and Grain' has paid $1.691m in tax in arriving at this loss. I am guessing this tax payment must relate to a prior earnings period, so I am removing it from the half year result.

($8.703m) - ($1.691m) = ($7.01m)

By co-incidence, this figure is exactly equal to the capital write downs which I converted to NZD above. This means that from an operational perspective absolutely no money was lost by 'Seeds and Grain' over the last half year. The whole 'get rid of the loss making division' was IMO a fiction, no doubt dreamed up to make PGW management look better!

From Note 9 HYR2019 on 'Seasonality':

"Seed and Grain revenues reflects the fact the group operates in geographical zones that suit Autumn harvesting and sewing."

It hasn't been the best year for Seeds. Nevertheless we can expect full year NPAT for the 'Seed and Grain' division to be somewhere near $NZ10m.

SNOOPY

[Snoopy]

SNOOPY,
Have you read last Friday's NBR with the article by Tim Hunter about how naughty a boy was former chairman Alan Lai.?

Perhaps one of Tim Hunter's best.


Tim Hunter has certainly had it in for Alan Lai and Agria for a long time. I liked his two part expose titled "The China Files", run over two issues (December 14th and December 21st 2018). The latter issue contained Alan Lai's 'right of reply' too.

Then there was the 30th November 'Shoeshine' column on Lai titled: "Investing is war - watch out for self serving double agents"

All good stuff. I guess the latest article you reference helps explain why Tim Hunter was so well informed.

The problem with all these articles is that Alan Lai did not commit any of these alleged misdemeanours in New Zealand. Lai has paid fines but never admitted any wrong doing. And no alleged wrong doings relate directly to PGG Wrightson. His main 'crime' if you want to think of it that way is that he does not have enough money to support PGW further. Selling the seeds business is the fix, for him. Unfortunately that same 'fix' is profoundly negative for other shareholders.

I was interested to see from your referenced article Percy, that Mr Fixit, turned whistleblower, suggested to Lai that he write off every part of the Agria business except their stake in PGW!

SNOOPY

[Snoopy]

I don't think it is any secret that PGW is structured to be 'an efficient user of equity'. Non-core assets will be put up for sale if doing so improves the overall financial strength of the company. Particularly so in this era of 'building depreciation' being disallowed as an expense.

Big advert on page C9 of the Press today. Oamaru, Gore, Fairlie, Tapanui, Kurow, Roxburgh and Tuatapere branches of PGW, all up for tender! I wonder if this big property sell down has a mirror image sale going on for PGW's North Island branches?


A comment of concern is listed under Note 16 in HYR2019 under the sub heading:

"Standards and Interpretations That Have Been Issued or Amended But Are Not Yet Effective"

The quote is a follows:

"The group does not plan to adopt IFRS 16 early. An initial review has determined that this new standard will likely have a significant financial impact on both the balance sheet and profit and loss given the extent of operating leases that the group is exposed to."

This standard is apparently effective right now (from 1st January 2019)

The new standard requires lessees to recognise most leases on their balance sheets as lease liabilities with corresponding right-of-use assets. Having just sold off their retail footprint, this means a substantial new debt will appear on the balance sheet of PGW, albeit offset with a corresponding 'right of use' asset. But I guess a debt is a debt and that new debt must be included in any banking covenant calculations? Anyone know?

I wonder if this is behind the reduction in capital return , from $292m down to $235m, that has now been announced?

There seems to have been a significant deterioration in the balance sheet too, over the last six months. Yes I know some of that is seasonal. But even since the equivalent half year period last year, that debt ratio has significantly sickened:

Debt Ratio HYR2018

$551.180m / $845.314m = 0.652 ( 65.2% )


Debt Ratio FY2018

$471.164m / $758.626m = 0.621 ( 62.1% )


Debt Ratio HYR2019

$657.285m / $931.355m = 0.706 ( 70.6% )

SNOOPY

[Agrarinvestor]

Hi,

i still own my Agria shares, and wonder if it will be possible to sell my shares in the future. Always thought in the past that AGRIA will be different as other chinese stocks. But i have learned that they are all the same.
The replies i received so far from Agrias CFO are not helpful. If there is a significant development regarding sale of PGW share i think that this thread will be updated, right?

[Snow Leopard]

Hi Agrarinvestor

You are in a position I would not like to be in, but have been in the past. I hope some good comes of it for you.

As you probably know we are waiting for the formal announcement of the special meeting to approve, or not, the capital return which has been indicated will be a share buy-back at the equivalent of about $0.31 a share currently held.

When it happens I am sure it will illicit a few posts (of assorted emotions) on this thread.

[whatsup]

I wonder what the pending Govt action of banning all livestock overseas sales will have on PGW ?

[Snow Leopard]

I wonder what the pending Govt action of banning all livestock overseas sales will have on PGW ?

It will add $47.19 to their annual profit after tax.

[Balance]

Logic & observations point to things happening behind the scene.

You read it here first. :)

[Snoopy]

I wonder what the pending Govt action of banning all livestock overseas sales will have on PGW ?


New CEO Stephen Guerin was interviewed on Natrad this morning on this very issue. IIRC he said that livestock exports were not in the PGGW Business plan going forwards and there hadn't been a significant trade going through the livestock division for some time. My interpretation of that is, while any reduction in demand is not positive, not exporting live animals through the PGW livestock channel won't significantly affect 'Livestock Business Unit' profits going forwards.

SNOOPY

[Snoopy]

Although there are still some boxes to tick, it looks like the deconstruction of PGW is going ahead. My question now is, is there an arbitrage opportunity for those buying in today to make on the deal?


One of the more interesting stock exchange announcements today was that although 'PGG Wrightson' will not change their name, 'post seed sale', the stock ticker will become 'PGWRR' - the last two letters standing for 'Rural Rump'. By having the longest ticker on the NZX, this will increase the company's 'sense of importance' and help justify the rather 'high salaries for less work' situation that many of the corporate team now enjoy.

With the seed business gone, expectations will have to be reset. As an exercise I have gone through the last few years results and removed 'Seed & Grain' EBITDA from the Operating EBITDA. Here is the multi-year earnings picture that results:




Combined EBITDA
less Seed & Grain EBITDA
equals PGWRR EBITDA


FY2014$58.747m$33.965m$24.782m


FY2015$69.631m$40.506m$29.125m


FY2016$70.181m$41.862m$28.319m


FY2017$64.499m$37.045m$37.454m


FY2018$70.174m$35.607m$34.567m


FY2019$25m (est)


Average$29.875m (est)



1/ This period covers the 'modern' era where Mark Dewdney's 'One PGW' philosophy started to permeate the group.
2/ I have used only 'Operating EBITDA'. That metric Leaves out all 'Equity Accounted Investee Profit', and consequently removes the profit contribution from 'Agimol', representing the 50% interest in 'Agricentro' in Uruguay, an equity investment that was subsequently fully taken in house (FY2019) and latterly sold (EOFY2019). Equity accounted New Zealand based investments retained, being a 50% interest in 'Canterbury Saleyards' and a now 33% interest in 'Agri Optics New Zealand', I do not consider have contributed materially to EBITDA.
3/ Results for FY2014 to FY2018 inclusive include the full head office corporate costs. I have not quantified any potential EBITDA benefits to PGWRR shareholders from any future reduction in the corporate cost base, as a result of no longer having to service overseas offices, and any unique corporate seed related expenses. Such savings are liable to be significant: several million dollars per year. However the expense of 'right sizing' the corporate head office will also be significant, yet is unknown as I write this. I have therefore decided not to account for any long term reduction in head office employee numbers, until the real effect of this 'corporate restructure' becomes clear.

(Disclaimer: due to estimates, small divisional restructures or general research tomfoolery, at least one point highlighted in this post may be inaccurate.)

SNOOPY

[Snoopy]

I am going to rework my projected earnings figures with the changes suggested by Balance.

If the indicative interest rate bill 'before' was $10.235m based on an average debt balance of $179.834m, this implies an indicative interest rate of:

$10.235m / $179.834m = 5.7% (use in Step 2)

That means the indicative annual interest payments after debt repayment will be:

Step 1/ Calculate the incremental peak seasonal debt multiplication factor:

((340 - 100.5)/(275 -100.5)) = 1.3725 (an increment of 37.25%). Yet averaged over a financial year and using a linear model, the average increase in incremental debt is only half this:

37.25% / 2 = 18.62% => Annual debt incremental factor = 1.1862

Step 2/ Calculate Annual Debt Interest Payment

Using the liabilities in the balance sheet in post 4345:

0.057x([$149.205m+$30.806m-$10.926m]
-[ $21.606m+$31.205m-$8.226m]
-$100.5m) x 1.1862
= $1.623m

For comparison I will also look at an alternative scenario where $118m of debt is repaid:

Step 1/ Calculate the incremental peak seasonal debt multiplication factor:

((340 - 118)/(275 -118)) = 1.4140 (an increment of 41.40%). Yet averaged over a financial year and using a linear model, the average increase in incremental debt is only half this:

41.40% / 2 = 20.70% => Annual debt incremental factor = 1.2070

Step 2/ Calculate Annual Debt Interest Payment

Using the liabilities in the balance sheet in post 4345:

0.057x([$149.205m+$30.806m-$10.926m]
-[ $21.606m+$31.205m-$8.226m]
-$118m) x 1.2070
= $0.4472m




Rural Services ($100.5m debt repayment)Rural Services ($118m debt repayment)


EBITDA$34.567m$34.567m


less DA$6.918m$6.918m


less I$1.623m$0.447m


equals EBT$26.026m$27.202m


x 0.72 equals NPAT {A}$18.739m$19.585m


No. shares on issue {B}754.048m754.048m


eps {A}/{B}2.49c2.60c



There is a complicating factor that comes into my 'greater debt repayment' scenario. If extra debt is repaid then that money will no longer be available to shareholders as part of a capital repayment. Under the original scenario a capital repayment of $292m was modelled. Under the 'alternative scenario' this capital repayment drops to:

$292m - $18m = $274m



Previously I have speculated how large the capital return will be, that we PGW shareholders are due to receive. It has now been announced that it will be $235m; somewhat lower than the $292m shown in the projected balance sheet that we shareholders all voted on! Of the originally projected capital injection, $100.5m was shown to be used to retire debt, leaving just $17.5m of debt remaining inside 'PGW Rural Rump'. Yet because the projected capital return will be $57m lower, that means the amount of money available for debt to be retired is consummately higher - by $57m.

From an end of June 2018 balance sheet perspective, the maximum debt that can be retired is $100.5m + $17.5m = $118m. This means that with all debt retired, we still have:

$57m - $17.5m = $39.5m

of net cash on the balance sheet, after the $235m capital repayment has been made.

A smaller amount of debt outstanding means our indicative interest bill going forwards needs to be reworked:

If the indicative interest rate bill 'before' was $10.235m based on an average debt balance of $179.834m, this implies an indicative interest rate of:

$10.235m / $179.834m = 5.7% (use in Step 2)

That means the indicative annual interest payments after debt repayment will be calculated as per the steps below:

Step 1/ Calculate the incremental peak seasonal debt multiplication factor:

PGW has various seasonal funding requirements that are met by taking on extra debt. The seasonal funding requirements are best measured by changes in 'Net Working Capital'. An annual picture of this variation in net working capital is graphed in the 'KordaMentha' October 2018 report on p34, Figure 6.1. Over FY2018, the minimum net working capital required was around $275m on July 1st 2017 peaking at just over $340m in November 2017. If more net cash was on hand through more capital going to debt repayment, then the funding requirements of the working capital, via interest payments, would be consummately reduced.

The half year balance sheet reported to the NZX for FY2019 (my post 4499) shows working capital requirements $29m higher that at the EOFY2018. However, based on the previous year, the half yearly reported debt is still $10m below annual peak debt. The annual peak debt of $29m + $10m = $39m will therefore be wiped out by the $39.5m of new net cash on the balance sheet. PGWRR can effectively be debt free all the year round going forwards

This means there is no longer any need to calculate 'incremental debt' over a business year: All interest payments should be wiped out going forwards.

Step 2/ Calculate Annual Debt Interest Payment

Answer: zero

In a departure from the previous calculation, this time I am going to use average EBITDA over the business cycle, as worked out in post 4486.



Rural Services ($39.5m EOFY cash balance after debt repayment)


EBITDA$29.875m


less DA$6.918m


less I$0.0m


equals EBT$22.975m


x 0.72 equals NPAT {A}$16.529m


No. shares on issue {B}754.048m


eps {A}/{B}2.19c



SNOOPY

[winner69]

Aren’t PGW still going to sell seeds through their outlets ..presuming buying them from the company they sold it to.

Have you factored this in ...not that clear from your workings.

[Snow Leopard]

Previously I have speculated how large the capital return that PGW shareholders are due to receive. It has now been announced that it will be $235m, somewhat lower than the $292m shown in the projected balance sheet that we all voted on. Of that originally projected capital return, $100.5m was shown to be used to retire debt. But because the projected capital return will be $57m lower, that means the amount of long term debt to be retired is very likely consummately lower:

$100.5m - $57m = $43.5m

...

Hi Snoopy

If the great & good directors of PGW have in their infinite wisdom decided to keep an extra $57m in the company instead of giving it to us then that is an extra $57m to pay down debt with.

But probably there have their eye open to launch out in some wonderful new money earning direction with that extra.

[percy]

Hi Snoopy

If the great & good directors of PGW have in their infinite wisdom decided to keep an extra $57m in the company instead of giving it to us then that is an extra $57m to pay down debt with.

But probably there have their eye open to launch out in some wonderful new money earning direction with that extra.

Most probably the later.

[Balance]

Previously I have speculated how large the capital return that PGW shareholders are due to receive.

eps -1.69c


SNOOPY

I have forecast EPS at 1.86c - 10% higher than yours.

I don't think PGW will get to see F20 however.

[winner69]

I have forecast EPS at 1.86c - 10% higher than yours.

I don't think PGW will get to see F20 however.

If that happened Snoops would have heaps of spare time ...it would be like losing one of your best mates

[percy]

I have forecast EPS at 1.86c - 10% higher than yours.

I don't think PGW will get to see F20 however.

Interesting,you could be RELly right.

[Snoopy]

Aren’t PGW still going to sell seeds through their outlets ..presuming buying them from the company they sold it to.

Have you factored this in ...not that clear from your workings.


From p10 of the KordaMentha Report:

"The (Seed & Grain) business is the global leader in the $2 billion temperate forage seeds market, trading in New Zealand under both the 'PGG Wrightson' and 'Agricom' brands."

I take this to mean that, as there are no 'Agricom' shops, what is being referenced here is two 'wholesale brands' that are being retailed by others.

From p5
"PGW and Seed and Grain (under DLF ownership) will enter into a long term distribution for PGW to continue to distribute seed and grain products through NZ retail stores."

If distribution through retail stores is set to 'continue', then it must have been happening before the seed business was sold.

From p15 of the Korda Mentha Independent Appraisal Report:

"The retail business operates across a number of product categories including agricultural chemicals, seeds and grain, fertilizer, fencing, stockfood, animal health and general merchandising."

So the PGG Wrightson branded retail business is already described as selling 'seeds and grain'. Furthermore on p39 of AR2018, we learn that 'Seed and Grain' has sold $63.652m of intrasegment sales. That means that we know that a certain proportion of 'Seed & Grain' sales are made internally between divisions. However there are no intrasegment sales from the Retail division. This would seem to rule out profits from seeds sold via the Retail division being fed back into the 'Seed and Grain' business unit for divisional reporting purposes.

Putting together all of these quotes, my conclusion on the operation of 'Seed & Grain' is as follows. 'Seed & Grain' are wholesalers who sell their product at arms length to 'PGW Retail' as an 'in house' retail customer. (If the sales were not at arms length then the alternative seed brand 'Agricom' could not be sold by other NZ retailers as they would always be outcompeted by the competitor PGW retail chain: IOW 'Agricom' could not exist). The seed and grain revenue in the segmented result is in effect 'wholesale revenue'. The seed and grain mark up, earned by the 'PGW Retail' chain is incorporated into the retail chain revenue and is not individually itemised out within the retail division. Thus the PGW Retail EBITDA includes a contribution from retailing seed and grain. Because the seeds have been purchased at arms length from the wholesaler, the retail proportion of profit from selling seeds will continue into the future as now and is incorporated in the projected EDITDA figures for 'PGW Rural Rump.'

SNOOPY

[winner69]

From p15 of the Korda Mentha Independent Appraisal Report:

"The retail business operates across a number of product categories including agricultural chemicals, seeds and grain, fertilizer, fencing, stockfood, animal health and general merchandising."

SNOOPY

So I assume seed sales (ongoing) are already included in retail business

Wonder if the margin changes?

[Snoopy]

So I assume seed sales (ongoing) are already included in retail business

Wonder if the margin changes?


You replied before I had added this bit:

------

'Seed & Grain' are wholesalers who sell their product at arms length to 'PGW Retail' as an 'in house' retail customer. (If the sales were not at arms length then the alternative seed brand 'Agricom' could not be sold by other NZ retailers as they would always be outcompeted by the competitor PGW retail chain: IOW 'Agricom' could not exist).

-----

If the wholesale seed sales were at arms length before the seed division sale, then the retail seed sale margins should not change as a result of the sale. Of course that does not rule out other market factors changing margins in the future.

SNOOPY

[Snoopy]

Hi Snoopy

If the great & good directors of PGW have in their infinite wisdom decided to keep an extra $57m in the company instead of giving it to us then that is an extra $57m to pay down debt with.

But probably there have their eye open to launch out in some wonderful new money earning direction with that extra.

You are quite correct Snow Leopard. I knew something was screwed up in my post 'Seeds of Destruction: Part 3.2 - NPAT of 'PGW Rural Rump' going forwards' which is why I left it as a 'work in progress'. However, the light in my dog kennel is dim. matching the condition of my tiny dog brain. So I am going to have to sleep on it tonight so that I can figure out what it all means.

My main conundrum is that if we take the forecast PGGW Rural Rump balance sheet at face value (p49 of the KordaMentha report), then the total amount of debt left after a $292m capital return amounts to:

($9.2m) + ($17.5m) = ($26.7m)

An extra $57m retained to pay down debt would wipe out all of this and more. So where does the extra:

$57m - $26.7m = $30.3m, appear on the PGW Rural Rump balance sheet?

SNOOPY

[winner69]

You replied before I had added this bit:

------

'Seed & Grain' are wholesalers who sell their product at arms length to 'PGW Retail' as an 'in house' retail customer. (If the sales were not at arms length then the alternative seed brand 'Agricom' could not be sold by other NZ retailers as they would always be outcompeted by the competitor PGW retail chain: IOW 'Agricom' could not exist).

-----

If the wholesale seed sales were at arms length before the seed division sale, then the retail seed sale margins should not change as a result of the sale. Of course that does not rule out other market factors changing margins in the future.

SNOOPY

Thanks

Looks like Retail bought about $63m of stuff from seeds last year

[Snoopy]

The problem with estimating an interest rate equivalent for the PGW debt is that company debt quite seasonal, as the table below shows:



FY2018HY2018FY2017


Short Term Debt$30.806m$91.215m$26.719m


Long Term Debt$149.205m$130.634m$110.925m


Total$180.011m$221.849m$137.664m



We can calculate a linear approximation average of the total debt as follows:

($180.011m + $221.849m + $137.664m)/3= $179.834m

Over the year the 'interest funding expense' (AR2018 note 7) was $10.235m. (Note that I am leaving out the foreign exchange changes which I don't believe are representative of true funding costs.)

So the indicative interest rate that PGW pays on the average outstanding balance is:

$10.235m / $179.834m = 5.7%

If as a result of the seeds transaction $100.5m is repaid, then interest will no longer have to be paid on that amount into the future. The total interest saved on an annual basis for 'PGW Rural Rump' will therefore be:

0.057 x $100.5m = $5.73m

How does this saving in interest payments translate to the profitability of 'PGW Rural Rump' going forwards?


The seasonal variation in historical company debt continues, as the table below shows:



HY2019FY2018HY2018FY2017


Short Term Debt$79.635m$30.806m$91.215m$26.719m


Long Term Debt$130.000m$149.205m$130.634m$110.925m


Total Debt {A}$209.635m
$180.011m
$221.849m$137.664m


Half Year Increment+$29.624m

+$84.185m



It is insightful to compare the changes in debt with the variation in 'Net Working Capital' over the same period.



Net Working Capital Calculation


HY2019FY2018HY2018FY2017


Trade & Other Receivables$423.242m$267.627m$365.924m$230.022m


Finance Receivables$0m$0.733m$0m$0m


Go Livestock Receivables$30.958m$39.419m$28.683m$32.371m


Inventories$281.627m$262.538m$242.677m$253.600m


Biological Assets$8.079m$0.911m$1.957m$1.611m


Accounts Payable and Accruals($353.572m)($267.296m)($301.837m)($253.600 m)


Income Tax Payable($0m)($6.751m)($8.115m)($4.115m)


Net Working Capital {B}$390.334m$297.181m$329.289m$259.889m



Total Debt/Net Working Capital



HY2019FY2018HY2018FY2017


{A}/{B}53.7%60.6%67.4%53.0%



The unanswered question is, will the extra $57m that it was suggested be paid out to shareholders as a capital return, now be ploughed back into the company, in addition to the $100.5m previously set aside for debt repayment to enable a genuine all season 'lack of interest' going forwards?

SNOOPY

[Snoopy]

Immediately after the AGM the PGW share price was 57c. If we take this as Mr Market's 'reference figure', then this 57c will be split into a capital payout amount and the remainder which is Mr Market's worth of 'PGW Rural Rump'.

There are 754.048m PGW shares on issue. So working through both scenarios, for each share held, PGW shareholders can expect a capital repayment of either:

$292m / 754.048m = 38.7cps OR $274m / 754.048m = 36.3cps

By simple subtraction from the 57c PGW market value, we can now calculate the market value of 'PGW Rural Rump' after the seeds have split.

57c - 38.7c = 18.3c OR 57c - 36.3c = 20.7c

This gives us the information we need to work out post split PE ratios and dividend yields for both scenarios.


Closing PGW share price was 52c today. If we take this as Mr Market's 'reference figure', then this 52c will be split into a capital payout amount and the remainder which is Mr Market's worth of 'PGW Rural Rump'.

There are 754.048m PGW shares on issue. So working through both scenarios, for each share held, PGW shareholders can expect a capital repayment of either:

$235m / 754.048m = 31.2cps

By simple subtraction from the 52c PGW market value, we can now calculate the market value of 'PGW Rural Rump' after the seeds have split.

52c - 31.2c = 20.8c

This gives us the information we need to work out the post split PE ratio.

SNOOPY