PGW - PGG Wrightson

[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 .

4/ Have I missed anything else?





Scenario $157.5m debt repayment


eps {A}2.19c


PGW Rural Rump: Market Valuation {B}20.8c


PE ratio {B}/{A}9.5


Gross Dividend Yield {A}/{B x 0.72}14.6%



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/ The PE ratios are looking fair for this type of business, because I have considered a business cycle average value of earnings.

3/ The potential dividend yield looks fantastic. The lesser than expected capital repayment looks to have made PGWRR debt free going forwards. This could be handy in an industry notorious for 'rural downturns'.

In this low interest rate environment I would be prepared to buy with a gross dividend return of 8.5%. This implies a post capital return share price of:

20.8c x 14.5/8.5 = 35.5c

Post 'capital repayment' and a couple of years down the track into more favourable farming times, I am therefore guessing a capital appreciation of around 15cps, plus dividends of 2cps per year, are on the table, with the share now trading at 52c.

SNOOPY

[Snoopy]

3/ The potential dividend yield looks fantastic. The lesser than expected capital repayment looks to have made PGWRR debt free going forwards. This could be handy in an industry notorious for 'rural downturns'.


From the May 9th 2019 announcement to the market

"On settlement of the Seed and Grain business PGW repaid its bank facilities while the Board assessed the appropriate quantum of the capital return. Prior to making a formal recommendation to shareholders, new bank facilities will be arranged and shareholders will be provided with detailed explanatory information to assess the merits of the proposal. These materials will inform PGW shareholders about the proposed capital distribution and the pro-forma financial position of the company post-distribution."

Given that after a $235m capital repayment to shareholders, PGWRR should be able to run 'debt free'(*), I wonder why they even need new bank facilities?

SNOOPY

(*) Having just sold off the store network, the resultant leases are now - no doubt - waiting to appear on the PGWRR balance sheet as debts, that to the new accounting standards regarding leases has created.

[Snow Leopard]

...Having just sold off the store network, the resultant leases are now - no doubt - waiting to appear on the PGWRR balance sheet as debts, that to the new accounting standards regarding leases has created.

I think that you will find that leases will appear as liabilities (current and non-current?) which are more or less offset on the asset side by 'use of leases' (proper terminology escapes me for the moment and I am not going to look it up).


It is just the latest bit of fiddling about the accountant bodies of the world feel they need to do to make adding up look difficult and thus worth using their services.

[Snoopy]

I think that you will find that leases will appear as liabilities (current and non-current?) which are more or less offset on the asset side by 'use of leases' (proper terminology escapes me for the moment and I am not going to look it up).


Yes, quite correct.



It is just the latest bit of fiddling about the accountant bodies of the world feel they need to do to make adding up look difficult and thus worth using their services.


I don't see the situation quite as cynically as that. If a company, such as PGG Wrightson, operates a retail business, they can make a decision to:

1/ Own their own retail footprint (albeit usually funded by bank debt) OR
2/ Lease a retail premesis, by paying rent to a third party landlord.

The third party landlord may have themselves borrowed money to buy the building. So the rent they will charge to the likes of PGW must at least cover the mortgage for the third party landlord to remain cashflow positive. I say that being cashflow positive is a likely necessary condition, because there is less potential for an equivalent 'loss offsetting capital gain' in the rural town sites, where PGW operates.

For the likes of PGW, up until 1st January 2019, taking path 'number 2' did not result in any increase in debt on the PGW balance sheet. From a cashflow perspective going forwards, it is likely the rent bill paid by PGW will be greater than the alternative mortgage commitments that PGW could have signed up to under 'scenario 1'. Yet from a snapshot balance sheet perspective, 'scenario1' (pre 1st January 2019) is the higher debt option. The historical accounting convention would suggest that 'scenario1' means the company is in a weaker financial position than a company that follows 'scenario 2'. In fact there is very little difference in the financial position going forwards between the two paths. Thus the new accounting standard regarding leases is correcting a significant anomaly.

Notwithstanding the existence of a 'right of use' asset offsetting a 'lease liability' on the balance sheet, the fact remains that future lease liabilities will be brought onto the balance sheet as debts (for that is what a lease liability is). So it will no longer be possible for a company to to claim they are 'debt free' if there are lease liabilities on the balance sheet. And that in my view is as it should be. Yet the new balance sheet lease liabilities could be netted off against extra cash on the balance sheet, if a company such as PGW wants to be seen as 'debt free' after 1st January 2019.

SNOOPY

[Snoopy]

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.


From the 9th May announcement:

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."

Some readers may have noticed that the number of shares that will be on issue after the 'pro-rated share buyback' (sic) is presently unknown. We don't know how many shares will be bought back and what price per share PGW will pay. One thing that is certain is that the number of shares remaining will be short of 754.048m. So does that make my calculation predicting the price of each PGWRR share after the share buy back meaningless, because I have assumed 754.048m shares still exist?

In a word, no. We only need to know the dollar value of the buyback, and that has been given. If 377.024m shares end up being cancelled (exactly one in two) then the underlying value of the remaining shares will double, to:

20.8c x 2 = 41.6c

Whatever the actual number of shares cancelled, the theoretical post buyback price can be estimated by using this 'proportional method'. And because the theoretical share price going forwards will for a start be determined by the number of shares being cancelled via the buyback, that means the dollar value of the shares that are left ('Pre-break Up Value' minus $235m) does not change. The number of shares cancelled makes no difference to the value of PGWRR post the share cancellation transaction going forwards.

SNOOPY

[Balance]

From the May 9th 2019 announcement to the market

"On settlement of the Seed and Grain business PGW repaid its bank facilities while the Board assessed the appropriate quantum of the capital return. Prior to making a formal recommendation to shareholders, new bank facilities will be arranged and shareholders will be provided with detailed explanatory information to assess the merits of the proposal. These materials will inform PGW shareholders about the proposed capital distribution and the pro-forma financial position of the company post-distribution."

Given that after a $235m capital repayment to shareholders, PGWRR should be able to run 'debt free'(*), I wonder why they even need new bank facilities?

SNOOPY

(*) Having just sold off the store network, the resultant leases are now - no doubt - waiting to appear on the PGWRR balance sheet as debts, that to the new accounting standards regarding leases has created.

May 9th was 6 weeks ago* and still no news whatsoever from PGW re the capital repayment.

So what's happening behind the scenes?

*To put the 6 weeks in perspective, Tower announced a capital repayment in 2012, announcement 29 Nov and update given to market of repayment details 17 Dec - 2 weeks and a bit.

[steveb]

I suspect they have taken a 3 month term deposit and don't want to break it! ho-hum

[Snoopy]

I suspect they have taken a 3 month term deposit and don't want to break it! ho-hum


So Agria are going to use their share of the 3% 3 month term deposit income to pay off the 6%+ bill they are paying on their own borrowings with NZ banks? It doesn't seem a likely motivation!

From the 9th May press release:

------

PGW have promised to produce a full forward looking report:

Prior to making a formal recommendation to shareholders, new bank facilities will be arranged and shareholders will be provided with detailed explanatory information to assess the merits of the proposal. These materials will inform PGW shareholders about the proposed capital distribution and the pro-forma financial position of the company post-distribution. Shareholders will have this information prior to being called to vote in respect of the scheme proposal. Details relating to the dates for dispatch of materials will be announced in the coming weeks.”

-------

'Assessing the merits of the proposal' looks like another job for KordaMentha to me! It will take time to research this and put the detail in front of the board before dispatching the proposal to shareholders.

--------

“The PGW Board is also reviewing the corporate service structure for the business to ensure that we have an efficient model going forward that will best serve our customers and operations. As previously indicated, we will consult with the business in relation to any proposed changes that arise from that review and we would hope to be in a position to announce outcomes from that work-stream before the end of the financial year on 30 June 2019.”

-------

Perhaps something will be released next week?

SNOOPY

[Snoopy]

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:

1/ This period covers the 'modern' era where Mark Dewdney's 'One PGW' philosophy started to permeate the group.


Even for long term shareholders, 'PGGW Rural Rump' is now a new investment prospect. Sometimes to put in context where we are going, it is useful to look back on where we have come from. What follows is a condensed history of 'PGW Rural Rump', as if it had been a stand alone company for the last five years.



YearPGWRR EBITDAAR Commentary


FY2014$24.782m
Record dairy payout Dec 2013. Challenging year for arable farmers - Sept 2013 windstorm damaging irrigators. Wet autumn challenges harvests.
Strong returns from grapes, apples and kiwifruit.
Strong livestock market for dairy and beef cattle with a better market for sheep (+20% yoy per stock unit, despite stock numbers reducing 3.2% yoy).
Wool volume down, profitability not offset by small increase in price.
Like for like revenue for new irrigation systems +4%.
Real Estate Revenue +25%, because of increase in farm sales including dairy conversions.


FY2015$29.125m

Reduced dairy forecast from Dec 2014. Reduced arable sector demand for grain and dairy grazing by sheep and beef farmers.
Livestock EBITDA up 15% with export sales bounce back.
Improved returns for grapes, apples and kiwifruit. Summer drought in second half of the year.
Wool flat, higher prices offsetting lower volumes.
Irrigation and Water sales +32%, but margins lower.
Real Estate revenues down 8%.



FY2016$28.319m

Extremely challenging for dairy farmers, with dairy commodity prices at ten year lows (below cost of production for most). Reduced demand for grain and low international prices for arable farmers.
In Livestock, high beef prices offset falling sheep meat prices. 'Go Lamb' and 'Go Beef' in house financing for livestock introduced.
Horticultural sales thriving, with good growing conditions and strong markets. (Sales +$12.9m over previous year record). Irrigation and Water sales well down with delayed or cancelled projects from the dairy downturn.
Wool increased revenue with higher wool prices on a smaller crop, while maintaining Operating EBITDA.
Real Estate increased revenue by 16% and had a 123% EBITDA increase with strong growth in Lifestyle and Residential, and Horticulture, despite limited dairy opportunities.



FY2017$37.454m

Retail increasing market share, not so affected by wet conditions (two tropical cyclones in April 2017) in the final quarter.
Livestock: Record EBITDA due to sheep and cattle prices up on last year, because of sustained international demand for NZ Protein. Better dairy sales, offset by tough conditions for live exports.
Horticultural sales up on previous year, particularly in grapes, kiwifruit, apples and avocados.
Water and Irrigation revenue sank 30%, due to continued slowing of irrigation development on farms.
Collapse of wool crossbred price (price halved over 15 months) has meant less sales and the formation of a grower stock pile. But fine wool prices are up 30%
Good Real estate result similar to FY2016 with resurgence of rural property sales in Southland, Otago, Waikato and the Bay of Plenty, aided by good sales in horticulture, residential and lifestyle.



FY2018$34.567m

Retail continues to target the science of soil management and crop production (agronomy), based on technical advice and service PGW can deliver, delivered at the right time. EBITDA increased by $2.25m.
Dairy export revenues were up 14%. Arable sector had a wet spring delaying planting and a dry hot summer lowering yields.
Meat and wool sector export revenues were up 12%. To date Mycoplasma Bovis has not affected performance of Livestock, which matched last years record EBITDA figures. There were strong beef and lamb prices throughout the year.
Horticulture export revenues increased 6%. Hot summer largely positive for kiwifruit and apples. Company revenues were up again thanks to pip fruit, kiwifruit, grapes and other subtropical crops, and retaining a high market share.
Water and Irrigation has increased EBITDA by $2.25m, despite the lack of on farm development.
Wool business bounced back with an increased number of bales transacted,. Crossbred wool growers are now prepared to reduce their stores to match the much lower market price of a year ago.
Real Estate down with new government regulations on overseas investment and tightened bank lending affecting the first six months, offset by renewed rural sector momentum in the second half.


[/TR]

FY2019$25m (est)

Report not yet published.




SNOOPY

[Balance]

Very useful, Snoopy.

Thanks! :t_up:

[Snoopy]

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!




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.

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 not 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





I am making a small adjustment to my EBITDA figures, adding back into EBITDA the incremental overhead that was an unallocated expense for the sold Seed Division.



Rural Services
($39.5m EOFY cash balance after debt repayment)



EBITDA$29.875m


add Unallocated S&G overhead$1.600m


less DA$6.918m


less I$0.0m


equals EBT$24.557m


x 0.72 equals NPAT {A}$17.681m


No. shares on issue {B}754.048m


eps {A}/{B}2.34c



SNOOPY

[Balance]

I am making a small adjustment to my EBITDA figures, adding back into EBITDA the incremental overhead that was an unallocated expense for the sold Seed Division.



Rural Services ($43.5m 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

Put the stock on a PER of 10X and the current share price of 52c/53c is pretty much bang on.

[Snoopy]

Scenario $157.5m debt repayment


eps {A}2.19c


PGW Rural Rump: Market Valuation {B}20.8c


PE ratio {B}/{A}9.5


Gross Dividend Yield {A}/{B x 0.72}14.6%



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/ The PE ratios are looking fair for this type of business, because I have considered a business cycle average value of earnings.

3/ The potential dividend yield looks fantastic. The lesser than expected capital repayment looks to have made PGWRR debt free going forwards. This could be handy in an industry notorious for 'rural downturns'.

In this low interest rate environment I would be prepared to buy with a gross dividend return of 8.5%. This implies a post capital return share price of:

20.8c x 14.5/8.5 = 35.5c

Post 'capital repayment' and a couple of years down the track into more favourable farming times, I am therefore guessing a capital appreciation of around 15cps, plus dividends of 2cps per year, are on the table, with the share now trading at 52c.


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.




$39.5m EOFY cash balance after debt repayment


eps {A}2.34c


PGW Rural Rump: Market Valuation {B}20.8c


PE ratio {B}/{A}8.9


Gross Dividend Yield {A}/{B x 0.72}15.6%



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/ The PE ratios are looking fair for this type of business, because I have considered a business cycle average value of earnings.

3/ The potential dividend yield looks fantastic. The lesser than expected capital repayment looks to have made PGWRR debt free going forwards. This could be handy in an industry notorious for 'rural downturns'.

In this low interest rate environment I would be prepared to buy with a gross dividend return of 8.5%. This implies a post capital return share price of:

20.8c x 15.6/8.5 = 38.2c (c.f. 20.8c pre capital repayment price).

SNOOPY

[Snoopy]

Snoopy wrote: "eps {A}/{B} 2.19c"
Put the stock on a PER of 10X and the current share price of 52c/53c is pretty much bang on.


Using a capital repayment of $235m

$235m / 754.048m = 31.2cps

By simple subtraction from the 52c PGW market value, we can now calculate the 'market value per share' of 'PGW Rural Rump' after the seeds have split.

52c - 31.2c = 20.8c

To calculate the PGWRR PE ratio:

20.8 / 2.19 = 9.5

That is near enough to your PE of 10 Balance for it not to matter. Actually the figures you have used Balance are before I adjusted for the 'Unallocated S&G Overhead'. That makes the PGWRR PE ratio going forwards just 8.9.

I wonder what a suitable PE ratio is for a rural supplies company though? The stereotype is a company of volatile earnings and minimal growth. To me this speaks of a company with a PE of 6 to 8. Yet with all the company debt repaid, that should reduce the volatility of earnings going forwards.

Consider the multi-year history of the PGWRR EBITDA figures, which are not subject to interest rate payments:




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)



The average of $29.875m is 25.4% below the $37.754m multi year peak and 20.6% above the multi year low of $24.782m. Those figures aren't too far out of line from my 'rule of thumb', which says for a no growth company with a reasonably steady outlook, the share price will vary over the business cycle within a range of 20% of the mean (assuming the share variation price reflects the cyclical earnings). On that basis maybe we will see less volatile headline NPAT earnings figures into the future, and a PE of 10 is fair?

In these days of low interest rates, PE seems to have gone out the window and more attention is paid to yield. In all of my analyses, I have assumed that all of the NPAT earnings are paid out as dividends. Going forwards I feel this is unlikely to continue. If the immediate cash needs of Agria are satisfied by the S&G payout, then perhaps more earnings can be retained for growth? The 'GoBeef' and 'GoLamb' livestock financing seems to be a success, but is capital intensive. It might make sense to deploy some retained earnings in that direction?

I suspect the proposed dividend payout ratio will determine the value of PGWRR going forwards. And only the board and senior management will know those figures until the 'Scenario of the future' is released for shareholders to vote on, perhaps as early as this week. My heart tells me I should be stocking up on even more PGW shares right now. My head tells me we are in an 'earnings downturn'. The weaker outlook for PGW for FY2019 (and FY2020?) would suggest my expected handsome capital gains, based on a return to more average EBITDA earnings, may take some years to materialise. So probably the right thing to do is to wait for any seasonal earnings dips before stocking up some more.

SNOOPY

discl: hold PGW and have increased my stake by 50% already since the 'Seeds of Destruction' narrative started.

[Balance]

The average of $29.875m is 25.4% below the $37.754m multi year peak and 20.6% above the multi year low of $24.782m. Those figures aren't too far out of line from my 'rule of thumb', which says for a no growth company with a reasonably steady outlook, the share price will vary over the business cycle within a range of 20% of the mean (assuming the share variation price reflects the cyclical earnings). On that basis maybe we will see less volatile headline NPAT earnings figures into the future, and a PE of 10 is fair?

In these days of low interest rates, PE seems to have gone out the window and more attention is paid to yield.

I can recall using an equity risk premium of 5% to 8% back in the 1990s and 2000s to do financial modelling and stock valuation.

Long term interest rates were then well over 5% and in fact at times, were over 10% - so we were using equity cost of capital at anywhere between 10% to 18%!

The PER of 8X to 10X were widely used back in those days for low growth cyclical stocks like the Wrightsons of the world.

NZ's current 5 and 10 year bond rates are 1.2% and 1.52% respectively - so cost of capital is more like 6% to 10%, depending on how risky you view a stock.

PGW at PER of 10X? Very happy to add to my portfolio.

[Snoopy]

I can recall using an equity risk premium of 5% to 8% back in the 1990s and 2000s to do financial modelling and stock valuation.

Long term interest rates were then well over 5% and in fact at times, were over 10% - so we were using equity cost of capital at anywhere between 10% to 18%!

The PER of 8X to 10X were widely used back in those days for low growth cyclical stocks like the Wrightsons of the world.

NZ's current 5 and 10 year bond rates are 1.2% and 1.52% respectively - so cost of capital is more like 6% to 10%, depending on how risky you view a stock.

PGW at PER of 10X? Very happy to add to my portfolio.


So to sum up, your suggestion that PGW is very investable at 52c-53c is largely determined by the fact that interest rates in NZ have gone down so low? Personally, I require a discount in any of my investment 'buy in prices'. This is to build in a safety net to ensure that that my whole income based portfolio won't turn to custard once there is the hint of interest rates rising again.

Having said this, I am starting to agree with you that a PE of 10 for a company like PGW is about right. But if you are looking at current years NPAT earnings of PGWRR, with all the interest costs backed out, then the PE today is rather higher than that:



Rural Services
($39.5m EOFY cash balance after debt repayment)



EBITDA (PGWRR FY2019 forecast)$25.000m


add Unallocated S&G overhead$1.600m


less DA$6.918m


less I$0.0m


equals EBT$19.682m


x 0.72 equals NPAT {A}$14.171m


No. shares on issue {B}754.048m


eps {A}/{B}1.88c



Using a 'capital repayment' of $235m to determine the per share value of the capital return:

$235m / 754.048m = 31.2cps

By simple subtraction from the 52c PGW market value, we can now calculate the 'market value per share' of 'PGW Rural Rump' after the seeds have split.

52c - 31.2c = 20.8c

To calculate the PGWRR PE ratio:

20.8 / 1.88 = 11.1

By this measure the current market price is around 10% ahead of fair value. Although I do note that PE ratios of a cyclical do tend to expand at the bottom the business cycle. But are we at the bottom of the business cycle?

Mycoplasma Bovis was not a factor in the FY2018 Livestock result. In the first half Livestock EBITDA plunged from $4.6m (HY2018) to $1.6m (HY2019) a fall of 65%. A big factor in this was the lack of supply of good quality dairy livestock. Wool is likely to be down as the comparative period included the clearing out on wool bales previously stock piled. Real estate looks OK. But overall, FY2019 does not look to be a good year for 'Agency' and I can't see any significant improvement in FY2020.

The other PGWRR arm of Retail and Water may simply be renamed 'Retail' as the latter bit looks to be 'dead in the Water'. What looked like a great acquisition during the dairy farm expansion era looks to be facing a future that is indefinitely scaled back. In Retail, the defective spray settlement of $1.8m for HY2019 should not be repeated in FY2020. An extra $1.8m flowing into FY2020 profit will be welcome. The rest of Retail seems to be tracking well, particularly in horticulture. But how will Retail be affected by the partial unwinding of the 'One PGW' strategy, with the future outsourcing of seeds?

I think there unknowns here that should see investors seek a 'yield premium' in the rural supply sector. Exactly what that is I believe is up to individual investors. Because the reduction in interest rates I believe will see interest rates lower for longer have I reduced my own required yield for PGW to 8.5% gross, down from 9.5% previously. But I am not comfortable going lower than that from a whole of business cycle perspective.

SNOOPY

[Balance]

So to sum up, your suggestion that PGW is very investable at 52c-53c is largely determined by the fact that interest rates in NZ have gone down so low? Personally, I require a discount in any of my investment 'buy in prices'. This is to build in a safety net to ensure that that my whole income based portfolio won't turn to custard once there is the hint of interest rates rising again.



Rural Services
($39.5m EOFY cash balance after debt repayment)



EBITDA$25.000m


add Unallocated S&G overhead$1.600m


less DA$6.918m


less I$0.0m


equals EBT$24.557m


x 0.72 equals NPAT {A}$17.681m


No. shares on issue {B}754.048m


eps {A}/{B}2.34c



Not really - Low interest rates & a low PER make PGW so much more appealing to invest in for the corporate upside to come.

I have stated and will restate - PGW will not be around as a listed stock by the end of this year imo.

[Snoopy]

discl: hold PGW and have increased my stake by 50% already since the 'Seeds of Destruction' narrative started.

I should note that my reason for increasing my PGW stake was not that I approved of the seed division sale. It was because the destruction of shareholder value as a result of the seed division sale discounted the price of the rest of the business so that it became better value, and henceforth investable.

SNOOPY

[Balance]

I should note that my reason for increasing my PGW stake was not that I approved of the seed division sale. It was because the destruction of shareholder value as a result of the seed division sale discounted the price of the rest of the business so that it became better value, and hence for investable.

SNOOPY

Two different pathways to the same destination? :)

[Balance]

I should note that my reason for increasing my PGW stake was not that I approved of the seed division sale. It was because the destruction of shareholder value as a result of the seed division sale discounted the price of the rest of the business so that it became better value, and hence for investable.

SNOOPY

Suspect you are not the only one who view it the same way.

Elders for one passed on buying PGW last year because the asking price by Agria was too rich.

https://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=12086673

https://www.afr.com/business/where-to-now-for-elders-as-469m-takeover-unites-main-farm-services-rivals-20190310-h1c7ag

At PER of 10X however?

[Snoopy]

Suspect you are not the only one who view it the same way.

Elders for one passed on buying PGW last year because the asking price by Agria was too rich.

https://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=12086673

https://www.afr.com/business/where-to-now-for-elders-as-469m-takeover-unites-main-farm-services-rivals-20190310-h1c7ag

At PER of 10X however?


Takeover deals are usually done on EBIT and EBITDA multiples, rather than PE ratios. If we look at where PGWRR sits today (my post 4516):

EBITDA = $26.500m

EBIT = $24.577m

If we use the residual PGWRR share price that I have calculated at 20.8c. This means the market capitalisation of PGWRR is:

20.8c x 754.048m = $157m

This gives an EBITDA multiple of: $157m / $26.5m = 5.9

This gives an EBIT multiple of: $157m / $24.577m = 6.4

'Enterprise Value' = Market Capitalisation + Total Debt − Cash
= $157m + 0m - $39.5m
= $117.5m

Combine all that information with the Appendix 4 'Valuation Evidence' in the KM report p54 (dated October 2018) and we get the following comparison:



Company
Enterprise value NZD
EBITDA Multiple FY2019
EBIT Multiple FY2019


Ruralco Holdings (Oz)
$465m
5.8x
7.1x


Elders (Oz)
$853m
9.0x
9.6x


PGW Rural Rump (NZ)
$117.5m
5.9x
6.4x



So what does it all mean?

SNOOPY

[Snoopy]

So what does it all mean?


One method that KordaMentha used to evaluate the worth of the seeds division was 'Capitalisation of Earnings'. This consisted of using an appropriate multiple on the normalised EBITDA of the seeds division. This multiple was judged to be 10 to 10.5. This was 9% to 14% above the Australasian industry mean of 9.2 for FY2018, based on a basket of rurally based listed companies (including RuralCo and Elders, both very comparable to PGWRR). KordaMentha suggested that the premium EBITDA multiple was justified because:

1/ A takeover offer should include a control premium AND
2/ Seeds possessed high concentration of proprietary products, the result of an extensive and ongoing R&D program and higher than average profitability.

Clearly point 2 would not apply to the remaining divisions of PGW: 'Retail' and 'Agency' (PGWRR). So I am going to take the lower bound takeover multiple of an EBITDA of 9.5 to 10 to be appropriate for PGWRR.

This would equate to a takeover price of between:

$26.500m x 9.5 = $252m to $26.500m x 10.0 = $265m

Based on 754.048m shares being on issue, this equates to a share price of:

33 to 35 cps

That sounds a good premium to the implied value for PGWRR based on the implied value of 20.8c. 20.8c is consistent with a trading on the market today 52c pre capital return price.

But what if you compare that to the alternative strategy of not accepting such an offer and just waiting for the earnings yield to recover to the medium term average of 2.34c? Then 33-35cps would represent a gross earnings yield of 9.3% to 9.8%. There aren't many places alternative places in the market investors could get a gross yield like that.

I mention this while reminding shareholders that PGW board has destroyed a lot of shareholder value by selling off the seed division. The PGW share price sank after the Danish offer was received and it has never recovered. Recommending a further takeover offer down the track from their 'ELDers and betters' in the near term could see yet more shareholder wealth destroyed. Usually I go along with what the board recommends in a takeover situation. But given the record of the PGW board, I would suggest that PGW shareholders should be vigilant!

SNOOPY

[Balance]

Takeover deals are usually done on EBIT and EBITDA multiples, rather than PE ratios.



Company
Enterprise value NZD
EBITDA Multiple FY2019
EBIT Multiple FY2019


Ruralco Holdings (Oz)
$465m
5.8x
7.1x


Elders (Oz)
$853m
9.0x
9.6x


PGW Rural Rump (NZ)
$117.5m
5.9x
6.4x



So what does it all mean?

SNOOPY

I have different figures from you :

1. Ruralco is being taken over by Nutrien for $446m + $117m debt (as at Sept 2018)* with EBITDA of $70.1m = Enterprise multiple of 8 times

2. PGWRR post capital repayment has enterprise value of $117.5m with EBITDA of $26.5m = Enterprise multiple of 4.43 times

* - Ruralco interim results to 31 March 2019 showed flat EBITDA of $37m but net debt was up $20.6m

Anyone taking over PGWRR will have to pay at least 6.5 to 8 times EBITDA

[Snoopy]

I have different figures from you :

1. Ruralco is being taken over by Nutrien for $446m + $117m debt (as at Sept 2018)* with EBITDA of $70.1m = Enterprise multiple of 8 times

* - Ruralco interim results to 31 March 2019 showed flat EBITDA of $37m but net debt was up $20.6m


Those figures you quote for Ruralco are after the Nutrien takeover offer (made in February 2019) . So it isn't surprising they are different to mine. But as we write today, PGWRR is not subject to any takeover offer. I don't see that comparing the market value of Ruralco 'post a takeover' offer and the market value of PGWRR 'pre a takeover' offer is a fair comparison.



2. PGWRR post capital repayment has enterprise value of $117.5m with EBITDA of $26.5m = Enterprise multiple of 4.43 times


My table was perhaps not presented in the most logical way. The EBITDA multiple in my table is:

'Market Capitalization'/ EBITDA

I never worked out any enterprise value multiples because KordaMentha didn't use them for valuation purposes (but thank you for doing so Balance). My reason for putting Enterprise Values in the table was firstly that KordMentha did (in Appendix 4). I guess my own reason for including this figure was to give some idea how much cash would be needed to take over each respective company. PGWRR now looks like a real minnow compared to the others!



Anyone taking over PGWRR will have to pay at least 6.5 to 8 times EBITDA

I was working on 9.5 to 10 times! You really think that PGWRR would be surrendered to takeover at EBITDA multiples as low as 6.5 to 8? Mind you I was assuming that whoever might buy the Agria stake then made an offer for balance of PGWRR would want all PGW shares immediately. The buyer of the Agria stake would only require a small percentage of other shareholders to accept to get over the 50% controlling stake hurdle. Elders isn't as financially strong as it was six months ago. So it might suit any acquirer to make a derisory offer that got them just enough shares for control, but left PGW as NZX listed?

SNOOPY

[Balance]

TI guess my own reason for including this figure was to give some idea how much cash would be needed to take over each respective company. PGWRR now looks like a real minnow compared to the others!

I was working on 9.5 to 10 times! You really think that PGWRR would be surrendered to takeover at EBITDA multiples as low as 6.5 to 8? Mind you I was assuming that whoever might buy the Agria stake then made an offer for balance of PGWRR would want all PGW shares immediately. The buyer of the Agria stake would only require a small percentage of other shareholders to accept to get over the 50% controlling stake hurdle. Elders isn't as financially strong as it was six months ago. So it might suit any acquirer to make a derisory offer that got them just enough shares for control, but left PGW as NZX listed?

SNOOPY

Unlikely that any acquirer of PGWRR will want to leave it as a listed entity - idea will be to restructure away from market scrutiny, strip out layers of costs & overheads and derive synergies & capture value.

Agria is a seller of its 43.3% stake - that's for sure as PGW now serves no purpose for Agria.

Fly in the ointment will be the ability of Ngai Tahu & Cushing with their total shareholding of over 10% - they can block a compulsory full takeover.

So I think you will most likely get your 9.5 times to 10 times in the event of a takeover.

As for Elders, it still has a market cap of A$735m and is trading on a very high EBITDA multiple of 15.4 times (!!!!!) and a PER of 12.8 times.

What a perfect time to takeover PGWRR and add on size & earnings!

[percy]

Cushing's REL will have approx $39 mil at the end of the month from their recent farm sales.
Interesting.

[Snoopy]

Unlikely that any acquirer of PGWRR will want to leave it as a listed entity - idea will be to restructure away from market scrutiny, strip out layers of costs & overheads and derive synergies & capture value.


Oh I agree, eventually. I just meant that an acquirer could take a 50% PGW stake now and do the full acquisition further down the track. It would be a way to 'secure the prize' now, without putting up all the money at once. In the meantime some bulk buying synergies (for example) might be achieved.



Agria is a seller of its 43.3% stake - that's for sure as PGW now serves no purpose for Agria.


PGWRR could still be a good dividend cash cow for Agria. I am not sure that all of Agria's debts will be settled by the coming capital repayment. Where are Agria going to get a better dividend yield with which to pay their bills? Why would Alan Lai want to turn Agria into a shell?



Fly in the ointment will be the ability of Ngai Tahu & Cushing with their total shareholding of over 10% - they can block a compulsory full takeover.


Assuming Cushing has bought a few more shares on market so that the combined stake with Ngai Tahu is now over 10% - then yes.



So I think you will most likely get your 9.5 times to 10 times in the event of a takeover.


Where else could I get a debt free rural sector investment with a gross yield of over 10%? I am not sure that if I got an offer at 9.5 to 10 times EBITDA that I would accept it!



As for Elders, it still has a market cap of A$735m and is trading on a very high EBITDA multiple of 15.4 times (!!!!!) and a PER of 12.8 times.

What a perfect time to takeover PGWRR and add on size & earnings!


Wait until your own shares are priced at a high multiple. Then almost anything you acquire will be 'earnings per share accretive' !

SNOOPY

[Balance]

Cushing's REL will have approx $39 mil at the end of the month from their recent farm sales.
Interesting.

Think REL may attempt a merger with PGWRR?

[Balance]

Oh I agree, eventually. I just meant that an acquirer could take a 50% PGW stake now and do the full acquisition further down the track. It would be a way to 'secure the prize' now, without putting up all the money at once. In the meantime some bulk buying synergies (for example) might be achieved.



PGWRR could still be a good dividend cash cow for Agria. I am not sure that all of Agria's debts will be settled by the coming capital repayment. Where are Agria going to get a better dividend yield with which to pay their bills? Why would Alan Lai want to turn Agria into a shell?

SNOOPY

Agria & Alan Lai bought PGW for the seeds business, and they have been proven right that the seeds business is the one with real international growth potential.

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

Excerpt : "Buried deep in a Grant Samuel report at the time was the pivotal sentence: "It is likely that PGW's substantial seed business is the primary attraction to Agria."

With the seeds business gone, PGWRR has no further purpose for Agria & Alan Lai.

Also, he is persona non grata as far as the markets are concerned and will be much better off to do deals away from the public eye.

Hence, why he will sell Agria's stake in PGWRR.

[percy]

Think REL may attempt a merger with PGWRR?

Looks a possibility.Why else would REL be selling some farms.?
Findlay [pgw chairman] has been a REL director for a long time.
Cushings sold Williams and Kettle into PGW.
Father and son have both had a long associaton with PGW.
I am sure PGW manage some of REL's farms.
REL are also shareholders in our old mate Chris Corrigan's WBA.

[Snow Leopard]

So the $64 question is:
When you get your share of the $235M, do you spend the whole $64 buying more PGWRR shares and at up to what price?

PGWRR used without permission from Snoopy Research & Speculation Unlimited.

[percy]

So the $64 question is:
When you get your share of the $235M, do you spend the whole $64 buying more PGWRR shares and at up to what price?

PGWRR used without permission from Snoopy Research & Speculation Unlimited.

I have been trying to work out whether it is better to buy now or not.?????.{Have a modest holding].
For: You know you will get a well directored/managed smaller business,with low debt and acquistion opportunities.
Against:, The smaller business is a "good" business,but not a "great" business,plenty of opposition and low margins.and limited growth.
Being a rural business there are a great number of variables which mean fluctuating earnings.

[RTM]

Your "againsts" are what is keeping me out Percy. Especially the "plenty of opposition".
In their store up here, they have little to distinguish themselves from other similar suppliers.
In the even of a major downturn, there could be some consolidation in the industry. They might be a casualty.
Hence I am out.

[Snoopy]

Agria & Alan Lai bought PGW for the seeds business, and they have been proven right that the seeds business is the one with real international growth potential.

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

Excerpt : "Buried deep in a Grant Samuel report at the time was the pivotal sentence: "It is likely that PGW's substantial seed business is the primary attraction to Agria."

With the seeds business gone, PGWRR has no further purpose for Agria & Alan Lai.


Agria and Alan Lai first came onto the PGW scene ten years ago. I am aware of that history you document above Balance. The question you need to ask yourself is, do you think Alan Lai would have modified his views and intentions ten years on, after ten years in the PGW business?

I think Alan has realised that integrating PGW seeds into his own seed and crop business in China was fanciful. He quite rightly went along with ex-CEO Mark Dewdney's in house 'PGW Seeds' further expansion into the seed business Australia and South America, particularly Uruguay. Lai has given his investment 'ten years'. Profitability in Australia and South America has not improved. How long can you keep flogging a horse before the bankers who feed it require a 'resultant by product' other than horse poo? Don't you at some time have to pay back those bank loans? And if 'plan A' to pay back those loans isn't working, wouldn't it seem prudent to move to a horseless 'plan B', rather than buy yet another horse whip?

I have been a PGW shareholder all that time, and frankly there have been too many excuses in the management of 'Seed & Grain' since Alan Lai arrived on the PGW share register. IMV there hasn't been the right partnerships with the locals. I don't know why 'Agrocentro' in Uruguay has gone so wrong. I don't know why PGW seems to have, eight years out of ten, been operating in 'abnormal weather conditions'. I do know that 'PGW Seed and Grain' are operating way below their potential. I also know that 'PGWRR', before this year, have had some very good years. Is it so fanciful to suggest that Lai was introduced to the PGW family by catching the eye of the 'PGW Seed Sister' only to find that once inside the family it was the 'PGW Rural Rump Sister' that won his heart?



Also, he is persona non grata as far as the markets are concerned and will be much better off to do deals away from the public eye.

Hence, why he will sell Agria's stake in PGWRR.


Alan Lai hasn't done anything wrong in New Zealand though. With the retirement of Alan Lai himself from the PGW board, what will stop PGW operating with Agria as a silent shareholder? Do you think Agria shareholders will be pleased if Agria sell their only real asset?

SNOOPY

[Snoopy]

So the $64 question is:
When you get your share of the $235M, do you spend the whole $64 buying more PGWRR shares and at up to what price?


The answer to the ' Snow Leopard's ' question will depend on your investment motivation, and how long you can wait.

1/ If you view PGG Wrightson as a short term play to be taken out by their 'ELDers and betters' then yes, you probably want to buy back in. But not at a price more than ten times EBITDA and depending on how much profit you want to make, probably a lot less than that. The risk here is that the Agria stake in PGW will not be sold, or will be sold at near present market value to a basket of institutions at a discounted price. In that instance a full takeover may never eventuate. Having surrendered control of 'Williams and Kettle' to PGW many years ago, the Cushings may not want control to drift even further away. I think the Cushings have enough resource available to block any foreign takeover.

2/ If you are buying for dividend yield, then you want to buy back in at a price that gives a gross yield no lower than 8.5% based on business cycle returns (to account for the volatility of future earnings and patchy dividend record). In the Lai era past, all earnings have been paid out as dividends. But it is unclear that this will continue under the new PGWRR capital structure. Losing control of PGW Seeds could see competitors offered sweeter deals for the same product. Losing all of your intellectual property going forwards and being a dominant player in your chosen market already must limit growth prospects. Some guessing must be needed on what the dividend payout will be. And therein lies the risk.

Having said all of this, if you take a very long term view, it is hard to see a substantial amount of capital being lost, buying in at today's prices. So: "Do you have the stomach to ride the ups and downs of the rural services market?" is probably the more important question.

That's how I see things anyway.

In a logical market, I would suggest waiting until the details of the deal and future dividend policy are released. But given the 'Restaurant Brands' experience, it might be worth 'borrowing the money' from the announced capital repayment short term and buying in now, so that you can position yourself for the future before you get your capital repayment!



PGWRR used without permission from Snoopy Research & Speculation Unlimited.


I hereby grant the Snow Leopard unequivocal, including farcical, operating rights to use the term PGWRR ( meaning PGG Wrightson Rural Rump) in any future posts. Specific future acknowledgment of this will no longer be required.

SNOOPY

[Balance]

Alan Lai hasn't done anything wrong in New Zealand though. With the retirement of Alan Lai himself from the PGW board, what will stop PGW operating with Agria as a silent shareholder? Do you think Agria shareholders will be pleased if Agria sell their only real asset?

SNOOPY

https://www.sec.gov/news/press-release/2018-276

This is so serious that I believe Agria & he were only fined US$3m.

His reputation (& Agria's) is gone as a 'fit' & 'proper' person I would have thought - be fascinating to read the full terms ad conditions of the deal made with OIO.

[Snoopy]

https://www.sec.gov/news/press-release/2018-276

This is so serious that I believe Agria & he were only fined US$3m.

His reputation (& Agria's) is gone as a 'fit' & 'proper' person I would have thought - be fascinating to read the full terms ad conditions of the deal made with OIO.

The salient bit of that press release I reproduce below, the most important bits in bold.

-------

Without admitting or denying the findings, Agria agreed to pay a $3 million penalty and cooperate with the Commission’s staff in future investigations. The SEC’s order as to Lai found that he violated antifraud provisions of the federal securities laws. Without admitting or denying the findings, Lai agreed to pay a $400,000 penalty and be barred for a period of five years from acting as an officer or director of any public company (in the USA).

------

Agria and Lai have admitted nothing! The SEC made various findings that were not proved. Rather than being dragged through the courts, Lai has made various payments that do not equate to guilt on any record. Lai has not been proved guilty on any of these SEC charges.

SNOOPY

[Balance]

The salient bit of that press release I reproduce below, the most important bits in bold.

-------

Without admitting or denying the findings, Agria agreed to pay a $3 million penalty and cooperate with the Commission’s staff in future investigations. The SEC’s order as to Lai found that he violated antifraud provisions of the federal securities laws. Without admitting or denying the findings, Lai agreed to pay a $400,000 penalty and be barred for a period of five years from acting as an officer or director of any public company (in the USA).

------

Agria and Lai have admitted nothing! The SEC made various findings that were not proved. Rather than being dragged through the courts, Lai has made various payments that do not equate to guilt on any record. Lai has not been proved guilty on any of these SEC charges.

SNOOPY

http://www.sharechat.co.nz/article/23a38a21/midavia-richwhite-insider-trading-case-settled.html

And Fay Richwhite paid $20m without admitting anything also.

Guess what happened to Fay Richwite & gang after the 'no liability, no admission' deal?

https://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=3577312

Guess Owen Glenn should have been a lot more careful?

https://www.stuff.co.nz/business/107950379/charm-deception-and-revenge-sir-owen-glenn-v-eric-watson

[Snoopy]

http://www.sharechat.co.nz/article/23a38a21/midavia-richwhite-insider-trading-case-settled.html

And Fay Richwhite paid $20m without admitting anything also.

Guess what happened to Fay Richwite & gang after the 'no liability, no admission' deal?

https://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=3577312

Guess Owen Glenn should have been a lot more careful?

https://www.stuff.co.nz/business/107950379/charm-deception-and-revenge-sir-owen-glenn-v-eric-watson

These separate 'indiscretions' you have outlined by David Richwhite and Eric Watson both occurred in New Zealand and brushed up against NZ legal authorities. The 'indiscretions' committed by Alan Lai did not occur in New Zealand and did not relate to a New Zealand company and no NZ legal authority was involved. Lai has a clean record in N.Z.. The other two don't.

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.

Above posted 28-05-2019.
Snoopy read it.

[Snoopy]

Above posted 28-05-2019.
Snoopy read it.

I did read it Percy, and I posted my impressions a day later. That Tim Hunter article does not mention any misdemeanours carried out by Alan Lai in NZ related to PGW. Despite Lai making cash payments to US authorities, he has not been convicted of any crime in a court of law in the United States. Legally he is not guilty of these charges as determined by a court of law, ( which is not the same as saying he is innocent of course! )

SNOOPY

[percy]

Yes correct,however his known overseas "naughty boy" activities, meant he resigned as chairman and had to sell down his majority holding.
He is not a "fit and proper person".
Credibility rating zero.

[Balance]

These separate 'indiscretions' you have outlined by David Richwhite and Eric Watson both occurred in New Zealand and brushed up against NZ legal authorities. The 'indiscretions' committed by Alan Lai did not occur in New Zealand and did not relate to a New Zealand company and no NZ legal authority was involved. Lai has a clean record in N.Z.. The other two don't.

SNOOPY

Actually not the case with Eric Watson - he violated US laws & regulations. US Office Products listed in the US was the subject of his violation.

Owen Glenn is probably the best example of someone who decided to ignore all the findings against Watson and man alive, has he paid a huge emotional & financial price for it!

Anyway, the critical point is this - who would trust Alan Lai & Agria to do business with in US or NZ again? Would you? I believe that is the pertinent point.

[Snoopy]

Actually not the case with Eric Watson - he violated US laws & regulations. US Office Products listed in the US was the subject of his violation.


The SEC alleged security law violation by Eric Watson. Then it was all settled out of court. No securities law violation was proven.

And as the following quote from your reference, Balance, makes clear:

"Even though Watson is a New Zealand citizen and his purchases and sales of McCollam shares occurred in New Zealand, Watson engaged in conduct that had the effect of defrauding a US issuer and its shareholders."

The alleged offending had a distinct New Zealand component and connection. There is no New Zealand transaction trail that links Alan Lai's alleged offending at Agria with New Zealand.



Anyway, the critical point is this - who would trust Alan Lai & Agria to do business with in US or NZ again? Would you? I believe that is the pertinent point.

The PGW board at the FY2018 AGM seemed very happy to continue to do business with Alan Lai.

SNOOPY

[percy]

The PGW board at the FY2018 AGM seemed very happy to continue to do business with Alan Lai.

SNOOPY

The ones who have since left.?

PS.I think the OIO would have enjoyed Tim Hunter's article..!..lol.

[janner]

I have been trying to work out whether it is better to buy now or not.?????.{Have a modest holding]. .

Like you Perc. I have a modest holding..

More for educational purposes. The great posts from good posters, has me following this one :-)))))

[Balance]

The SEC alleged security law violation by Eric Watson. Then it was all settled out of court. No securities law violation was proven.

And as the following quote from your reference, Balance, makes clear:

"Even though Watson is a New Zealand citizen and his purchases and sales of McCollam shares occurred in New Zealand, Watson engaged in conduct that had the effect of defrauding a US issuer and its shareholders."

The alleged offending had a distinct New Zealand component and connection. There is no New Zealand transaction trail that links Alan Lai's alleged offending at Agria with New Zealand.

SNOOPY

Agree with you that legally, Fay Richwhite, Eric Watson, Hanover directors & promoters*, Alan Lai & Agria were all alleged to have committed offenses - which were settled out of court, without admission of guilt or innocence.

Point is still the same - would you deal with them again?

*https://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=11476426

[Balance]

Big crossing of 1m at 53c today.

So will PGW make an announcement on the capital repayment & corporate review on Monday, 1st July?

https://www.nzx.com/announcements/334292

"we would hope to be in a position to announce outcomes from that work-stream before the end of the financial year on 30 June 2019.”

[Snoopy]

Snoopy wrote:
"The PGW board at the FY2018 AGM seemed very happy to continue to do business with Alan Lai."

The ones who have since left.?


Yes! :-(

SNOOPY

[Snoopy]

Big crossing of 1m at 53c today.


You mean just 1 in 754 of the shares on issue?



So will PGW make an announcement on the capital repayment & corporate review on Monday, 1st July?

https://www.nzx.com/announcements/334292

"we would hope to be in a position to announce outcomes from that work-stream before the end of the financial year on 30 June 2019.”

Did you miss the key word Balance? 'Hope' appears a well worn investment strategy at PGW!

SNOOPY

[percy]

Yes! :-(

SNOOPY

Perhaps that explains why they are no longer directors.

[Balance]

You mean just 1 in 754 of the shares on issue?



Did you miss the key word Balance? 'Hope' appears a well worn investment strategy at PGW!

SNOOPY

Yes, 754 of which 381 are in the hands of 3 shareholders.

And yes, I forgot about Agria's association with a company call New Hope!

[Snoopy]

So will PGW make an announcement on the capital repayment & corporate review on Monday, 1st July?

https://www.nzx.com/announcements/334292

"we would hope to be in a position to announce outcomes from that work-stream before the end of the financial year on 30 June 2019.”


'3 days late' and the capital repayment announcement is out:

http://nzx-prod-s7fsd7f98s.s3-website-ap-southeast-2.amazonaws.com/attachments/PGW/337127/303000.pdf

No word on the corporate review though. Perhaps the high powered executives have considered that ex CEO Ian Glasson falling on his sword was all that is required? If I was in one of those high powered corporate positions, I think that is what I would decide!

31c paid to each shareholder for every share they own followed by a 10:1 share consolidation is the plan. With the share price up 5.7% today to 56c (yay), that is equivalent to a post consolidation share price of: (56c-31c) x10 = $2.50. A nice round respectable number that potential new shareholders will just love?

SNOOPY

[percy]

Three new directors,one of whom is the new Chairman.
New CEO......
All the right changes that were needed.

[waikare]

'3 days late' and the capital repayment announcement is out:

http://nzx-prod-s7fsd7f98s.s3-website-ap-southeast-2.amazonaws.com/attachments/PGW/337127/303000.pdf

No word on the corporate review though. Perhaps the high powered executives have considered that ex CEO Ian Glasson falling on his sword was all that is required? If I was in one of those high powered corporate positions, I think that is what I would decide!

31c paid to each shareholder for every share they own followed by a 10:1 share consolidation is the plan. With the share price up 5.7% today to 56c (yay), that is equivalent to a post consolidation share price of: (56c-31c) x10 = $2.50. A nice round respectable number that potential new shareholders will just love?

SNOOPY

What are the tax implications?
The company has received a Product Ruling (BR PRD 18/05) from Inland Revenue confirming that the proposed return of capital to be implemented pursuant to the Scheme will not be treated as a dividend for New Zealand tax purposes. Inland Revenue’s confirmation applies on the basis that the conditions on which the Product Ruling was issued are satisfied. PGW considers that the Scheme meets these conditions. Shareholders should seek independent tax advice on the tax implications of the Scheme.


The above it taken from their Explanatory Notes 4/7/19: If all going to plan, am I reading this correctly, the 31 cents we receive for each share will be tax free?

[Balance]

What are the tax implications?
The company has received a Product Ruling (BR PRD 18/05) from Inland Revenue confirming that the proposed return of capital to be implemented pursuant to the Scheme will not be treated as a dividend for New Zealand tax purposes. Inland Revenue’s confirmation applies on the basis that the conditions on which the Product Ruling was issued are satisfied. PGW considers that the Scheme meets these conditions. Shareholders should seek independent tax advice on the tax implications of the Scheme.


The above it taken from their Explanatory Notes 4/7/19: If all going to plan, am I reading this correctly, the 31 cents we receive for each share will be tax free?

Standard disclaimer.

Tax free.

[Snoopy]

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 not 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





A big day with the announcement of when and how that capital repayment of $235m will be returned to shareholders, But what has not been revealed until now is the indicative debt level of the PGWRR company that is left.

From an end of May 2019 post capital repayment balance sheet perspective, the total bank debt on the books is:

$3.920m + $31.742m = $35.662m.

This is within the 'core debt' envelope of $25m to $50m forecast for FY2020 (p9 of the proposal). But this is only part of the debt of the company that is forecast to balloon out by way of an additional $70m for 'typical seasonal working capital'. This reality is somewhat different to the 'debt free' situation that I imagined PGW would be in all year round in 'Part 3.2'.

A greater amount of debt outstanding means our indicative interest bill going forwards needs to be reworked.

Using past debt balances and interest payments declared over FY2018, 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 we can calculate the indicative annual interest payments after debt repayment 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 outlined in p9 of the 'Special Meeting' explanatory documents for the date of Tuesday 23rd July 2019. Peak working capital (and hence peak debt) is forecast to be between October and January, in line with selling spring seasonal goods to farmers.

Over FY2020, the minimum net working capital required is estimated to be $35.662m on July 1st 2019 peaking at $105.662m around November 2019.

$105.662m / $35.662m = 2.9629 (an increment of 196%). Yet averaged over a financial year and using a linear model, the average increase in incremental debt is only half this:

196% / 2 = 98% => Annual debt incremental factor = 1.98

Step 2/ Calculate Annual Debt Interest Payment

Using the liabilities in the balance sheet as presented on p10 of the Special General Meeting notice:

0.057x [$31.742m+$3.920m-$1.160m] x 1.98
= $3.894m




Rural Services ($39.5m EOFY cash balance after debt repayment)


EBITDA$29.875m


less DA$6.918mStep 2/ Calculate Annual Debt Interest Payment


less I$3.894m


equals EBT$19.063m


x 0.72 equals NPAT {A}$13.725m
205m

No. shares on issue {B}754.048m


eps {A}/{B}1,82c



SNOOPY

[Snoopy]

Scenario $157.5m debt repayment


eps {A}2.19c


PGW Rural Rump: Market Valuation {B}20.8c


PE ratio {B}/{A}9.5


Gross Dividend Yield {A}/{B x 0.72}14.6%



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/ The PE ratios are looking fair for this type of business, because I have considered a business cycle average value of earnings.

3/ The potential dividend yield looks fantastic. The lesser than expected capital repayment looks to have made PGWRR debt free going forwards. This could be handy in an industry notorious for 'rural downturns'.

In this low interest rate environment I would be prepared to buy with a gross dividend return of 8.5%. This implies a post capital return share price of:

20.8c x 14.5/8.5 = 35.5c

Post 'capital repayment' and a couple of years down the track into more favourable farming times, I am therefore guessing a capital appreciation of around 15cps, plus dividends of 2cps per year, are on the table, with the share now trading at 52c.




Scenario $157.5m debt repayment and new FY2020 Investment


eps {A}1.82c


PGW Rural Rump: Market Valuation {B}54c - 31c = 23c


PE ratio {B}/{A}12.6


Gross Dividend Yield {A}/{B x 0.72}11.0%



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 ratio is now looking looking high for this type of business, despite the fact I have considered a business cycle average value of earnings.

3/ The potential dividend yield looks O.K.. The lesser than expected capital repayment has not made PGWRR debt free after all. This is no doubt because PGWRR has elected to keep spending to invest in the business. But, conservatively, I haven't modelled the effect of any of this increased earnings coming through.

In this low interest rate environment I would be prepared to buy with a gross dividend return of 8.5%. This implies a post capital return share price of:

23c x 11.0/8.5 = 29.8c

Post 'capital repayment' and a couple of years down the track into more favourable farming times, I am therefore guessing a capital appreciation of around (29.8c -23c =) 6.8cps, plus dividends of 2cps per year, are on the table, with the share now trading at 54c. Given we shareholders are currently in a dip in the earnings curve, and that means a rather higher PE than I have calculated above, patience may be required. I see no immediate bargain available for new shareholders buying in at 54c.

SNOOPY

[Snoopy]

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


I would have thought a sudden influx of millions of Danish dollars would be the ideal time to properly fund the outstanding pension liability. However the proforma post capital repayment balance sheet just published, dated 19th May 2019, shows a net pension liability of $10.761m, up from $10.574m at the last balance date of 30-06-2018. This means the golden opportunity to 'square up' the pension scheme has been lost.

Such a small increase in 'net pension liability' ordinarily might not raise eyebrows. Except that:

1/ Equity markets that fund this liability have had a pretty good year.
2/ Around $3m of deficit funding was planned over FY2019 and this has made no net difference to the problem. AND
3/ The PGW company earnings that will fund the capital deficit will be greatly reduced in the future, now that PGW is only half the business it was, before the seed sale.

PGW has a history of trying to solve this problem.

Pension Scheme Funding Not Declared in Profit & Loss



FY2017FY2018FY2019

equity
$7.551m$2.842m$2.94m (est)



The fact that the pension funding issue has not gone away brings to mind the question:

"Will a $3m donation towards the deficit have to be funded indefinitely by PGW?"

$3m on a NPAT of $16.5m is 18% of net profit. That would mean the underlying PGW net profit today, and in the future, could be around 20% below any headline figure we shareholders read about!

SNOOPY

[Snoopy]

Using a capital repayment of $235m

<snip>

The 'GoBeef' and 'GoLamb' livestock financing seems to be a success, but is capital intensive. It might make sense to deploy some retained earnings in that direction?


The trend in 'GoBeef' and 'GoLamb' 'in house funding of purchases and sales' within the Livestock division is interesting.

Current Assets 'Go'



30 June 2016
30 June 2017
30 June 2018
19 May 2019


$12.178m
$32.371m
$39.419m
$48.806m



Slowly the reasons for not returning more capital to share holders, like $3m in shoring up the pension liabilities and an incremental $10m here, are coming out...

SNOOPY

[Snoopy]

A big day with the announcement of when and how that capital repayment of $235m will be returned to shareholders, But what has not been revealed until now is the indicative debt level of the PGWRR company that is left.

From an end of May 2019 post capital repayment balance sheet perspective, the total bank debt on the books is:

$3.920m + $31.742m = $35.662m.

This is within the 'core debt' envelope of $25m to $50m forecast for FY2020 (p9 of the proposal). But this is only part of the debt of the company that is forecast to balloon out by way of an additional $70m for 'typical seasonal working capital'. This reality is somewhat different to the 'debt free' situation that I imagined PGW would be in all year round in 'Part 3.2'.

A greater amount of debt outstanding means our indicative interest bill going forwards needs to be reworked.

Using past debt balances and interest payments declared over FY2018, 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 we can calculate the indicative annual interest payments after debt repayment 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 outlined in p9 of the 'Special Meeting' explanatory documents for the date of Tuesday 23rd July 2019. Peak working capital (and hence peak debt) is forecast to be between October and January, in line with selling spring seasonal goods to farmers.

Over FY2020, the minimum net working capital required is estimated to be $35.662m on July 1st 2019 peaking at $105.662m around November 2019.

$105.662m / $35.662m = 2.9629 (an increment of 196%). Yet averaged over a financial year and using a linear model, the average increase in incremental debt is only half this:

196% / 2 = 98% => Annual debt incremental factor = 1.98

Step 2/ Calculate Annual Debt Interest Payment

Using the liabilities in the balance sheet as presented on p10 of the Special General Meeting notice:

0.057x [$31.742m+$3.920m-$1.160m] x 1.98
= $3.894m




Rural Services ($39.5m EOFY cash balance after debt repayment)


EBITDA$29.875m


less DA$6.918mStep 2/ Calculate Annual Debt Interest Payment


less I$3.894m


equals EBT$19.063m


x 0.72 equals NPAT {A}$13.725m
205m

No. shares on issue {B}754.048m


eps {A}/{B}1,82c





I want to revisit my earnings projection, because the last one did not take into account the reduction in unallocated corporate costs. i am in two minds about doing this. The detail of corporate head office restructuring was meant to come out by the end of June. So far the only announcement has been the departure of former CEO Ian Glasson, to be replaced by Stephen Guerin, an internal appointee. If that is all the restructuring that happens, then my cost reduction assumptions will go to custard. However, if my ongoing corporate head office cost reduction is realistic it won't be a free lunch. There will be a capital cost in redundancy that I have not considered. Nevertheless in the interests of 'looking down the road' I think this is a worthwhile exercise to complete.

From an end of May 2019 post capital repayment balance sheet perspective, the total bank debt on the books is:

$3.920m + $31.742m = $35.662m.

This is within the 'core debt' envelope of $25m to $50m forecast for FY2020 (p9 of the proposal). But this is only part of the debt of the company that is forecast to balloon out by way of an additional $70m for 'typical seasonal working capital'. This reality is somewhat different to the 'debt free' situation that I imagined PGW would be in all year round in 'Part 3.2'.

A greater amount of debt outstanding means our indicative interest bill going forwards needs to be reworked.

Using past debt balances and interest payments declared over FY2018, 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 we can calculate the indicative annual interest payments after debt repayment 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 outlined in p9 of the 'Special Meeting' explanatory documents for the date of Tuesday 23rd July 2019. Peak working capital (and hence peak debt) is forecast to be between October and January, in line with selling spring seasonal goods to farmers.

Over FY2020, the minimum net working capital required is estimated to be $35.662m on July 1st 2019 peaking at $105.662m around November 2019.

$105.662m / $35.662m = 2.9629 (an increment of 196%). Yet averaged over a financial year and using a linear model, the average increase in incremental debt is only half this:

196% / 2 = 98% => Annual debt incremental factor = 1.98

Step 2/ Calculate Annual Debt Interest Payment

Using the liabilities in the balance sheet as presented on p10 of the Special General Meeting notice:

0.057x [$31.742m+$3.920m-$1.160m] x 1.98
= $3.894m



Rural Services ($39.5m EOFY cash balance after debt repayment)


EBITDA$29.875m


add Unallocated S&G overhead$1.600m


less DA$6.918mStep 2/ Calculate Annual Debt Interest Payment


less I$3.894m


equals EBT$20.663m


x 0.72 equals NPAT {A}$14.877m
205m

No. shares on issue {B}754.048m


eps {A}/{B}1.97c



SNOOPY

[Snoopy]

Scenario $157.5m debt repayment and new FY2020 Investment


eps {A}1.82c


PGW Rural Rump: Market Valuation {B}54c - 31c = 23c


PE ratio {B}/{A}12.6


Gross Dividend Yield {A}/{B x 0.72}11.0%



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 ratio is now looking looking high for this type of business, despite the fact I have considered a business cycle average value of earnings.

3/ The potential dividend yield looks O.K.. The lesser than expected capital repayment has not made PGWRR debt free after all. This is no doubt because PGWRR has elected to keep spending to invest in the business. But, conservatively, I haven't modelled the effect of any of this increased earnings coming through.

In this low interest rate environment I would be prepared to buy with a gross dividend return of 8.5%. This implies a post capital return share price of:

25c x 11.0/8.5 = 32.4c

Post 'capital repayment' and a couple of years down the track into more favourable farming times, I am therefore guessing a capital appreciation of around (32.4c -23c =) 9cps, plus dividends of 2cps per year, are on the table, with the share now trading at 54c. Given we shareholders are currently in a dip in the earnings curve, and that means a rather higher PE than I have calculated above, patience may be required. I see no immediate bargain available for new shareholders buying in at 54c.


Continuing my rework of the post capital repayment scenario, this time with $1.6m in unallocated head office costs removed.




Scenario $157.5m debt repayment and new FY2020 Investment


eps {A}1.97c


PGW Rural Rump: Market Valuation {B}54c - 31c = 23c


PE ratio {B}/{A}11.7


Gross Dividend Yield {A}/{B x 0.72}11.9%



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 ratio is now looking looking high for this type of business, despite the fact I have considered a business cycle average value of earnings.

3/ The potential dividend yield looks O.K.. The lesser than expected capital repayment has not made PGWRR debt free after all. This is no doubt because PGWRR has elected to keep spending to invest in the business. But, conservatively, I haven't modelled the effect of any of this increased earnings coming through.

In this low interest rate environment I would be prepared to buy with a gross dividend return of 8.5%. This implies a post capital return share price of:

23c x 11.9/8.5 = 32.2c

Post 'capital repayment' and a couple of years down the track into more favourable farming times, I am therefore guessing a capital appreciation of around (32.2c -23c =) 9cps, plus dividends of 2cps per year, are on the table, with the share now trading at 54c. Given we shareholders are currently in a dip in the earnings curve, and that means a rather higher PE than I have calculated above, patience may be required. I see still no immediate bargain available for new shareholders buying in at 54c.

SNOOPY

[Snoopy]

FY2012FY2013FY2014FY2015FY2016


Short Term Bank Loans$29.709m$47.702m$35.573m$57.195m$36.623m


add Long Term Bank Loans$111.500m$62.000m$65.000m$66.000m$97.511m


add Net Defined Benefit Liability (Pension Plan deficit)$26.264m$20.819m$13.528m$14.655m$25.729m


add Employee Entitlements$17.531m$15.910m$20.837m$20.511m$20.98 2m


equals Total Bank and Worriesome Liabiliities {A}$185.004m$146.431m$134.938m$158.361m$180.845m


NPAT (declared) {B}$24.5m$14.6m (*)$42.3m$32.8m$39.6m


Minimum Debt Repayment Time {A}/{B} (in years)7.5510.023.194.834.57



(*) Excludes Goodwill Write Down of $321m.

The above table shows that in absolute terms, 'worriesome debt' returned in FY2016 to a level not seen since just after the Alan Lai headed capital raising in FY2011 (that's bad). However the ability to service that debt, the declared Net Profit After Tax, has improved markedly since that time (that's good). Bring the two together and MDRT has improved from a worst of 10.02 (that's bad) to 4.57 today (that is acceptable, anything between 2 and 5 qualifies as 'medium level debt'). While I would prefer to see PGW pay down some of their debt, this isn't going to happen under the Alan Lai regime. Financial discipline will be required from here and fortunately for we shareholders CEO Mark Dewdney (aka 'the Dewd') has it.

The turning point was FY2014. So what happened in FY2014 to turn things around?


A benefit of selling the seed division for well above book value is that it gives PGW a chance to get their debt mountain under control. But going against this is major shareholder Agria who for their own reasons want as large a cash payout as possible. I think it is worth asking the question:

'What shape will PGW be in debt wise if the capital repayment goes ahead as planned?"

One way to answer that is to work out the 'minimum debt repayment time' (assuming all profits were directed to paying off debt) for the company.



FY2012FY2013FY2014FY2015
FY2016FY2017FY2018FY2019 (adj F)





Short Term Bank Loans$29.709m$47.702m$35.573m$57.195m$36.623m$26.7 19m$30.806m$3.920m


add Long Term Bank Loans$111.500m$62.000m$65.000m$66.000m
$97.511m$110.925m$149.205m$31.742m


add Net Defined Benefit Liability (Pension Plan deficit)$26.264m$20.819m$13.528m$14.655m
$25.729m$15.827m$10.574m$10.761m


add Employee Entitlements$17.531m$15.910m$20.837m$20.511m
$20.982m$22.946m$31.163m$31.163m


equals Total Bank and Worriesome Liabiliities {A}$185.004m$146.431m$134.938m$158.361m
$180.845m$175.967m$221.748m$77.568m


NPAT (declared) {B}$24.5m$14.6m (*)$42.3m$32.8m$39.6m$46.3m$27.1m$11.4m


Minimum Debt Repayment Time {A}/{B} (in years)7.5510.023.194.83
4.573.808.186.80



(*) Excludes Goodwill Write Down of $321m

I was under the impression that debt at PGW would come down as a result of selling the seed division. However, this analysis shows it will not happen. When the capital return has been washed out of the system, the balance sheet that is left is still highly indebted (an MDRT figure of 6.8). I would consider anything between 2 and 5 qualifies as 'medium level debt'. They say we are in for a period of sustained low interest rates. It looks like PGWRR will need that.

SNOOPY

[Snow Leopard]

**** 1 ****

My you have been a busy dog Snoopy, I can not keep up with your rate of production.

**** 2 ****

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


I would have thought a sudden influx of millions of Danish dollars would be the ideal time to properly fund the outstanding pension liability. However the proforma post capital repayment balance sheet just published, dated 19th May 2019, shows a net pension liability of $10.761m, up from $10.574m at the last balance date of 30-06-2018. This means the golden opportunity to 'square up' the pension scheme has been lost.

Such a small increase in 'net pension liability' ordinarily might not raise eyebrows. Except that...

The pension plan seems to be much understood by most posters, some of whom should know better.

The liabilities of the plan are calculated year to year on a set of assumptions about the future, and these assumptions do change each year.

Probably the biggest contribution to the increase in liabilities over the years is the change in interest rates.

How much additional funding will be required in the future is however uncertain :mellow:

[winner69]

**** 1 ****

My you have been a busy dog Snoopy, I can not keep up with your rate of production.

**** 2 ****




The pension plan seems to be much understood by most posters, some of whom should know better.

The liabilities of the plan are calculated year to year on a set of assumptions about the future, and these assumptions do change each year.

Probably the biggest contribution to the increase in liabilities over the years is the change in interest rates.

How much additional funding will be required in the future is however uncertain :mellow:

And as expected returns and discount rates get lower that how much more might be quiet large.

And those oldies who might have once worked for Wrightsons Bloodstock years ago and even recently retired Seeds people will still get their pension......and in some cases when they pass on their spouses continue with a pension.

Should have bitten the bullet and done a commutation offer to pensioners to get rid of all or most of the problem for good.

Maybe they did consider a commutation offer but the amount the Actuary came up with was just too horrendous

I note that overall Scheme liabilities fell a bit in 2018 ....maybe more than expected died.

[Balance]

**** 1 ****

My you have been a busy dog Snoopy, I can not keep up with your rate of production.

**** 2 ****




The pension plan seems to be much understood by most posters, some of whom should know better.

The liabilities of the plan are calculated year to year on a set of assumptions about the future, and these assumptions do change each year.

Probably the biggest contribution to the increase in liabilities over the years is the change in interest rates.

How much additional funding will be required in the future is however uncertain :mellow:

Similar to what happened with Coats PLC? As interest rates dropped, its pension liability kept blowing up until it effectively sunk GPG due to the need by GPG to keep pumping in money.

History also records that once Coats PLC was properly recapitalized, its shares have put on 300% return in 3 years.

[Snoopy]

The pension plan seems to be much understood by most posters, some of whom should know better.

The liabilities of the plan are calculated year to year on a set of assumptions about the future, and these assumptions do change each year.

Probably the biggest contribution to the increase in liabilities over the years is the change in interest rates.


Yes and there is another factor connected with interest rates. More and more of the fund is going into fixed interest investments as the years go by:

Plan Asset Contributions



EOFY2016EOFY2017EOFY2018


Equities79%64%59%


Fixed Interest19%28%31%


Cash2%8%10%



I wonder what the returns for fixed interest and cash were over FY2018? Not very good I would think, and those returns would be lower again over FY2019. Is the growth of this fund being knobbled by poor asset allocation?



How much additional funding will be required in the future is however uncertain :mellow:


The issue is the scheme has been in persistent deficit for many years. Through some quirk of accounting I don't understand, PGW have a plan to put in shareholders actual cash via a method that bypasses the profit and loss statement into the scheme to help close the deficit. The problem is the cash - our cash- keeps going in yet the deficit remains stubbornly extant.

on p61 of AR2016 we learn:

"The group made a commitment to provide certain contributions to the plan over a five year period."

We are three years into that commitment now.



EOFY2016EOFY2017EOFY2018EOFY2019 (est)


Total Defined Benefit Liability($25.729m)($15.827m)($10.574m)($10.761m)


Lump Sum Cash Contribution to Defined Benefit Plan during year (ESCT inclusive)$0m$7.551m$2.842m$3m



The problem is that over the current year the contributions have gone in ($1.481m at the December 2018 reporting date) yet the liability has gone up. Furthermore due to the seed division sale, the size of the profit engine to service this deficit has halved. In 'relative size of the problem terms', as far as shareholders are concerned, we are now almost back to where we were in 2016. And that means all of the cash poured in to shore up the pension plan since 2016 (real cash not put through profit and loss) has had no effect on the potential bail out debt burden of PGW going forwards. How much cash going forwards will be needed to fix this?

SNOOPY

[winner69]

The issue is the scheme has been in persistent deficit for many years. Through some quirk of accounting I don't understand, PGW have a plan to put in shareholders actual cash via a method that bypasses the profit and loss statement into the scheme to help close the deficit. The problem is the cash - our cash- keeps going in yet the deficit remains stubbornly extant.

]

As a shareholder you should be proud of giving the oldies who made the company what it is today a regular income to keep them happy.

Don’t worry ...one day there won’t be any left.

[Snoopy]

As a shareholder you should be proud of giving the oldies who made the company what it is today a regular income to keep them happy.

Don’t worry ...one day there won’t be any left.


Oh I am proud to do that Winner. I have great respect for the oldies and those not so oldies who still work in the company and are in the scheme who built PGW up. The reason I am bringing this 'superannuation issue' up is that I want PGW to be there in the future so that it can meet these pension obligations, both present and future. If the pensions aren't funded properly over a short period then small cash injections can be made along the way. But this pension funding problem is very long standing and it would appear that PGWs efforts to fix it are insufficient to date. The capital injection from the seed sale is the perfect opportunity to fix things both for the sake of the pensioners and for the certainty that would bring for shareholders in the business going forwards. A one off $10m cash injection into the scheme would calm my nerves and the nerves of many PGW pensioners who will get nothing if the scheme (and PGW) collapses.

More likely that PGW collapsing though is that its growth will be constrained by constantly having to top up the pension scheme to the tune of $3m or so for twenty years.

SNOOPY

[Snoopy]

And as expected returns and discount rates get lower that how much more might be quiet large.


The assumptions used including discount rates are shown below:



EOFY2016EOFY2017EOFY2018


Discount Rate (10yr govt bond rate)2.34%2.97%2.85%


Inflation2.0%2.0%2.0%


Future Salary Increases3.0%3.0%3.0%


Future Pension Increases2.0%2.0%2.0%



It looks like only the discount rate is moving. The lower the discount rate, that means the more money is required 'now' to fund future obligations. So if the government ten year bond rate halves (from 2.85%), that means the present day obligations of the pension scheme could double? That would be another $10m of 'hidden debt' on the books or more poignantly another $10m of 'shareholder cash' to remove that hidden debt needed?



I note that overall Scheme liabilities fell a bit in 2018 ....maybe more than expected died.


Perhaps they changed the assumptions to assume more people will die sooner, and so relieve the pension scheme of its future cashflow problem? (of course if the people don't die sooner as assumed, that might be a problem in itself!)

SNOOPY

[winner69]

Snoopy ...what’s that 10 year Govt bond rate now ...ouch

[Snoopy]

Snoopy ...what’s that 10 year Govt bond rate now ...ouch

1.543%. So it has almost halved since EOFY2018 (was 2.85%) and more to come!

At 19th May, the date of the pro-forma balance date, the rate was 1.77%. So it has come down a lot more, even in just six weeks.

If it gets down to 1% then PGW might need a $20m (not $10m) capital injection into the pension scheme, assuming the earnings of the scheme remain flat. But if interest rates fall, then those fixed interest returns will fall as well. So even more money will have to be pumped in just to keep the future earnings stream steady.....ouch....ouch

SNOOPY

[BlackPeter]

1.543%. So it has almost halved since EOFY2018 (was 2.85%) and more to come!

At 19th May, the date of the pro-forma balance date, the rate was 1.77%. So it has come down a lot more, even in just six weeks.

If it gets down to 1% then PGW might need a $20m (not $10m) capital injection into the pension scheme, assuming the earnings of the scheme remain flat. But if interest rates fall, then those fixed interest returns will fall as well. So even more money will have to be pumped in just to keep the future earnings stream steady.....ouch....ouch

SNOOPY

Actually - quite stupid method to determine the required capital for a pension schema. I am wondering what they are doing at the point in time the interest rate turns negative (as it already is in some parts of the world - i.e. this is a when, not an if)?

Wouldn't they need in this case an infinite amount of money to fund their funny schema?

[winner69]

The most underfunded super fund in the country is the Government Superannuation Fund - the funds for government employees

[winner69]

Actually - quite stupid method to determine the required capital for a pension schema. I am wondering what they are doing at the point in time the interest rate turns negative (as it already is in some parts of the world - i.e. this is a when, not an if)?

Wouldn't they need in this case an infinite amount of money to fund their funny schema?

Is a dilemma BP butthey will find a ways around it

https://www.ipe.com/pensions/pensions/briefing/discount-rates-discounting-dilemmas/10016338.article

“This is for a pure economic reason,” he adds. “If a pension fund makes a promise to stakeholders, it cannot pretend that the promise is as strong as government guarantee. Pension funds cannot print money. A promise a pension fund makes to stakeholders is no different from a promise made by a corporate to repay an investor. Pension funds’ strategies should reflect that dynamic when they think about discounting and matching.”

[Snow Leopard]

Actually - quite stupid method to determine the required capital for a pension schema. I am wondering what they are doing at the point in time the interest rate turns negative (as it already is in some parts of the world - i.e. this is a when, not an if)?

Wouldn't they need in this case an infinite amount of money to fund their funny schema?

If they have a liability with positive interest rates then obviously it becomes an asset with negative interest rates. :t_up:

[Disc: probably left an important word out of this post like I did the last one]

[waikare]

The most underfunded super fund in the country is the Government Superannuation Fund - the funds for government employees

That may be the case, but isn't the GSF banked rolled the government in office.

PS A recipient of the fund.

[Snoopy]

I want to revisit my earnings projection, because the last one did not take into account the reduction in unallocated corporate costs. i am in two minds about doing this. The detail of corporate head office restructuring was meant to come out by the end of June. So far the only announcement has been the departure of former CEO Ian Glasson, to be replaced by Stephen Guerin, an internal appointee. If that is all the restructuring that happens, then my cost reduction assumptions will go to custard. However, if my ongoing corporate head office cost reduction is realistic it won't be a free lunch. There will be a capital cost in redundancy that I have not considered. Nevertheless in the interests of 'looking down the road' I think this is a worthwhile exercise to complete.

From an end of May 2019 post capital repayment balance sheet perspective, the total bank debt on the books is:

$3.920m + $31.742m = $35.662m.

This is within the 'core debt' envelope of $25m to $50m forecast for FY2020 (p9 of the proposal). But this is only part of the debt of the company that is forecast to balloon out by way of an additional $70m for 'typical seasonal working capital'. This reality is somewhat different to the 'debt free' situation that I imagined PGW would be in all year round in 'Part 3.2'.

A greater amount of debt outstanding means our indicative interest bill going forwards needs to be reworked.

Using past debt balances and interest payments declared over FY2018, 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 we can calculate the indicative annual interest payments after debt repayment 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 outlined in p9 of the 'Special Meeting' explanatory documents for the date of Tuesday 23rd July 2019. Peak working capital (and hence peak debt) is forecast to be between October and January, in line with selling spring seasonal goods to farmers.

Over FY2020, the minimum net working capital required is estimated to be $35.662m on July 1st 2019 peaking at $105.662m around November 2019.

$105.662m / $35.662m = 2.9629 (an increment of 196%). Yet averaged over a financial year and using a linear model, the average increase in incremental debt is only half this:

196% / 2 = 98% => Annual debt incremental factor = 1.98

Step 2/ Calculate Annual Debt Interest Payment

Using the liabilities in the balance sheet as presented on p10 of the Special General Meeting notice:

0.057x [$31.742m+$3.920m-$1.160m] x 1.98
= $3.894m



Rural Services ($39.5m EOFY cash balance after debt repayment)


EBITDA$29.875m


add Unallocated S&G overhead$1.600m


less DA$6.918mStep 2/ Calculate Annual Debt Interest Payment


less I$3.894m


equals EBT$20.663m


x 0.72 equals NPAT {A}$14.877m
205m

No. shares on issue {B}754.048m


eps {A}/{B}1,97c





As we get closer to the capital return vote date, I am honing in on what kind of dividend we shareholders might expect going forwards. There has been discussion on the forum over the weekend on the significant funding deficit that exists within the PGW pension program. Interest rates are falling so fast that the shortfall balance is blowing out. PGW have been trying to fix this. But my expectation is that the five year program initiated in FY2016, to do so will have to be extended. I expect the approximately $3m annual top up cash contribution to continue indefinitely into the medium term. We need to build the loss of this cash from shareholders into the dividend model.

From an end of May 2019 post capital repayment balance sheet perspective, the total bank debt on the books is:

$3.920m + $31.742m = $35.662m.

This is within the 'core debt' envelope of $25m to $50m forecast for FY2020 (p9 of the proposal). But this is only part of the debt of the company that is forecast to balloon out by way of an additional $70m for 'typical seasonal working capital'. This reality is somewhat different to the 'debt free' situation that I imagined PGW would be in all year round in 'Part 3.2'.

Using past debt balances and interest payments declared over FY2018, the indicative interest 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 we can calculate the indicative annual interest payments after debt repayment 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 outlined in p9 of the 'Special Meeting' explanatory documents for the date of Tuesday 23rd July 2019. Peak working capital (and hence peak debt) is forecast to be between October and January, in line with selling spring seasonal goods to farmers.

Over FY2020, the minimum net working capital required is estimated to be $35.662m on July 1st 2019 peaking at $105.662m around November 2019.

$105.662m / $35.662m = 2.9629 (an increment of 196%). Yet averaged over a financial year and using a linear model, the average increase in incremental debt is only half this:

196% / 2 = 98% => Annual debt incremental factor = 1.98

Step 2/ Calculate Annual Debt Interest Payment

Using the liabilities in the balance sheet as presented on p10 of the Special General Meeting notice:

0.057x [$31.742m+$3.920m-$1.160m] x 1.98
= $3.894m



Rural Services ($39.5m EOFY cash balance after debt repayment)


EBITDA$25.000m


add Unallocated S&G overhead$1.600m


less DA($6.918m)Step 2/ Calculate Annual Debt Interest Payment


less I($3.894m)


equals EBT$15.788m


x 0.72 equals NPAT {A}$11.367m
205m

less Pension Scheme Top Up($3.000m)


equals Funds available for dividends {C}$8.367m


No. shares on issue {B}754.048m


dps {C}/{B}1.11c


eps {A}/{B}1.51c



SNOOPY

[Snoopy]

Continuing my rework of the post capital repayment scenario, this time with $1.6m in unallocated head office costs removed.



Scenario $157.5m debt repayment and new FY2020 Investment


eps {A}1.97c


PGW Rural Rump: Market Valuation {B}54c - 31c = 23c


PE ratio {B}/{A}11.7


Gross Dividend Yield {A}/{B x 0.72}11.9%



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 ratio is now looking looking high for this type of business, despite the fact I have considered a business cycle average value of earnings.

3/ The potential dividend yield looks O.K.. The lesser than expected capital repayment has not made PGWRR debt free after all. This is no doubt because PGWRR has elected to keep spending to invest in the business. But, conservatively, I haven't modelled the effect of any of this increased earnings coming through.

In this low interest rate environment I would be prepared to buy with a gross dividend return of 8.5%. This implies a post capital return share price of:

23c x 11.9/8.5 = 32.2c

Post 'capital repayment' and a couple of years down the track into more favourable farming times, I am therefore guessing a capital appreciation of around (32.2c -23c =) 9cps, plus dividends of 2cps per year, are on the table, with the share now trading at 54c. Given we shareholders are currently in a dip in the earnings curve, and that means a rather higher PE than I have calculated above, patience may be required. I see still no immediate bargain available for new shareholders buying in at 54c.



Continuing my rework of the post capital repayment scenario, now based on an actual FY2019 earnings expected, and with a $3m contribution towards the pension scheme adjusted for.



Scenario $157.5m debt repayment and new FY2020 Investment


dps {A}1.11c


PGW Rural Rump: Market Valuation {B}54c - 31c = 23c


PE ratio {B}/{1.51c}15.2


Gross Dividend Yield {A}/{B x 0.72}6.7%



Notes

1/ In the gross yield calculation I am not assuming that all earnings are paid out as dividends. This is because i believe a constant flow of earnings will be needed to bail out the company superannuation scheme which is persistently technically insolvent,
2/ The PE ratio is now looking looking reasonable this type of business, as we are in a lower part of the earnings cycle (that means PE can be higher)
3/ The potential dividend yield looks O.K, but is IMO low for this kind of business.. The lesser than expected capital repayment has not made PGWRR debt free after all. This is no doubt because PGWRR has elected to keep spending to invest in the business, even if they haven't fixed their superannuation scheme issues.

In this low interest rate environment I would be prepared to buy with a gross dividend return of 8.5%. This implies a post capital return share price of:

23c x 6.7/8.5 = 18.1c

This is a significant fall from the implied market price of 23c. Thus there is now a significant risk of shareholders losing up to 20% of their remaining capital once the entitlement to the long awaited capital repayment has been released.

As an aside at 18.1c PGWRR would be trading on a PE of:

18.1c / 1.51c = 12

At a lowish point in the business cycle, this sounds about right.

SNOOPY

[percy]

18.1 cents or 23 cents.?
The market says 23 cents.
Yet 18.1 cents could be right.?
Either makes sense to me.?
We continue to live in interesting times.

[Snoopy]

Any interest from Elders in 'rural rump' may evaporate now?

https://www.smh.com.au/business/companies/elders-makes-187m-takeover-bid-for-airr-20190715-p527ac.html

Interesting. I don't follow Elders that closely, and I kind of assumed that they would have had a 'wholesale' division like PGW with 'Agricom'. Yet it turns out they don't!

Buying the unlisted private wholesale buying group 'Australian Independent Rural Retailers' will certainly fix that for Elders.

"Last month the consumer watchdog raised concerns over the proposed takeover of Elders' rival RuralCo by Canadian fertiliser giant Nutrient Ltd, stating antitrust fears and potential discrimination against some independent retail stores."

That comment indicates that RuralCo must have a wholesale division. Without a wholesale division, there would be no way to discriminate against independent retail stores.

Elders management seems to be making all the right noises about their prey:

"By preserving continuity of AIRR's key management team and independent identity through a light touch integration, AIRR will continue to deliver the benefits to its independent members which have enabled it to achieve a track record of consistent growth."

But Elders also said:

"The company said the acquisition would allow it to enter the wholesale rural services market with net synergies of $6.6 million to $9.33 million per annum to be gradually realised over the next two years."

So Elders are looking at a 'light touch integration'. Yet they are still looking for up to $9m in synergy benefits? It sounds like they might be looking at a 'sweetner deal' for their own shops and that would surely undermine the independent retail competition.

"Established in 2006, AIRR is a member-based buying and marketing group for independent rural merchandise and pet and produce stores."

If AIRR is indeed owned by downstream retailers, it would appear that the sale of AIRR to Elders is a footshot! I wonder if the existing AIRR shareholders will vote for this deal?

"Elders has made a $187 million scrip and cash offer for unlisted private wholesale buying group Australian Independent Rural Retailers."

That offer is a bit below what they would need to acquire all of PGW. But given the $137m equity raising associated with this AIRR takeover, you would have to assume that should Elders try to acquire PGW, they would have to raise at least that much in new equity again. Would Elders shareholders go for another capital raising so soon?

SNOOPY

[Balance]

That offer is a bit below what they would need to acquire all of PGW. But given the $137m equity raising associated with this AIRR takeover, you would have to assume that should Elders try to acquire PGW, they would have to raise at least that much in new equity again. Would Elders shareholders go for another capital raising so soon?

SNOOPY

Comes down to whether Elders is successful with integrating AIRR into its fold and realizing said synergies etc.

Elders shareholders have certainly done well since the dark days of 2014 when its sp went below $1.00 so as long as current management continue delivering, there is no reason why they would not support more growth and capital raising.

[Balance]

https://www.nzx.com/announcements/337127

SM to approve capital distribution now in progress.

[Snow Leopard]

https://www.nzx.com/announcements/337127

SM to approve capital distribution now in progress.

Home and hosed.

Still intend to use this cash-back facility to re-buy PGW shares.
But come the day I may just extend by travels :cool:

[Snoopy]

1.543%. So it has almost halved since EOFY2018 (was 2.85%) and more to come!

At 19th May, the date of the pro-forma balance date, the rate was 1.77%. So it has come down a lot more, even in just six weeks.

If it gets down to 1% then PGW might need a $20m (not $10m) capital injection into the pension scheme, assuming the earnings of the scheme remain flat. But if interest rates fall, then those fixed interest returns will fall as well. So even more money will have to be pumped in just to keep the future earnings stream steady.....ouch....ouch


Ten year government bond has recovered to '1.56%' at the end of 24th July. But Westpac economists reckon it is headed for 1.0%!



Actually - quite stupid method to determine the required capital for a pension schema. I am wondering what they are doing at the point in time the interest rate turns negative (as it already is in some parts of the world - i.e. this is a when, not an if)?

Wouldn't they need in this case an infinite amount of money to fund their funny schema?


Is a dilemma BP butthey will find a ways around it

https://www.ipe.com/pensions/pensions/briefing/discount-rates-discounting-dilemmas/10016338.article

“This is for a pure economic reason,” he adds. “If a pension fund makes a promise to stakeholders, it cannot pretend that the promise is as strong as government guarantee. Pension funds cannot print money. A promise a pension fund makes to stakeholders is no different from a promise made by a corporate to repay an investor. Pension funds’ strategies should reflect that dynamic when they think about discounting and matching.”

Maybe the 'get out of jail' tactic is to let those vulnerable pensioners get so old that they are unable to legally fight back? A ninety year old in their sick bed is ripe for exploitation. What would they do if PGW were to 'solve' their 'pension plan crisis' by ceasing to pay them?

"We cannot pretend that the promise of a pension is as strong as government guarantee."

Sounds like a good line for Stephen Guerin to roll out at the September AGM.

I abstained from voting at he recent SGM where the capital repayment was voted on. I was for a capital repayment. But I think just $10m of that repayment diverted to bail out the pension scheme (for the moment) would have been a good decision. Both for the pensioners and for shareholders as it would remove a significant reduction in funding uncertainty. And markets do not like uncertainty!

The problem has not only not gone away, it is only getting bigger in relative terms. I think we are now effectively back to FY2016 when a five year bail out of the pension plan (so far ineffective) was announced.

Whammy 1/ 10 year government bond rate, (that determines the pension scheme discount rate) down from 1.77% to 1.56% since last disclosure in mid May.

Whammy 2/ Reduced interest earned from underlying fixed interest investments that fund the pension scheme is consummately reduced. So more capital will be needed to generate the budgeted income.

Whammy 3/ As the scheme beneficiaries get older and payout requirements get closer, there will be a need to move more of the portfolio to fixed interest investments with less to growth assets.

Whammy 4/ The size of the funding company is now significantly reduced. Instead of PGW backing the pension scheme, we now have a much smaller company PGWRR that is required to service the pension scheme deficit.

I think that if pensioners are to be paid their dues, then we shareholders will need to put $20m from here into the pension scheme in the end. It could even be $30m if those interest rates stay stubbornly low for ten years. Why as a shareholder am I concerned? Because PGW is now capitalized for borrowing up to $70m to meet seasonal financing requirements. And if close to half of that funding must be fed into the pension scheme, then PGW Retail will not have the capital to stock their shelves. And that means customers will go down the road to buy their supplies from the opposition. This has the potential to turn ugly for both pension scheme beneficiaries and shareholders!

SNOOPY

discl: worried shareholder

[Snow Leopard]

https://www.nzx.com/announcements/338405

Capital return money in the bank in 2 weeks if you hold next week.

[bryndlefly]

Hi, I’m kind of a hobby investor familiar with the basics of share investing but am finding this capital return and share consolidation confusing. If I had say 10,000 PGW shares (I have more than that) then at current share price of 55c they are worth $5500. I would get a capital return of 31c per share, so $3100? or does receiving a share for every share held mean I would i get a capital return of $6200? Then my 10,000 shares would get 1-for 10 consolidated to 1000 shares. Would those then be worth $550 at current share price? Or does the post consolidation share price change?

[percy]

Hi, I’m kind of a hobby investor familiar with the basics of share investing but am finding this capital return and share consolidation confusing. If I had say 10,000 PGW shares (I have more than that) then at current share price of 55c they are worth $5500. I would get a capital return of 31c per share, so $3100? or does receiving a share for every share held mean I would i get a capital return of $6200? Then my 10,000 shares would get 1-for 10 consolidated to 1000 shares. Would those then be worth $550 at current share price? Or does the post consolidation share price change?

............................................10,000 shares at 55 cents is $5,500
..............................................less 31 cents ps................-$3,100
.................................................. ...........equals...............$2,400.
So after consolidation your 1,000 shares will be worth..........$2,400 or $2.40 per share.

[Rossimarnz]

Hi, I’m kind of a hobby investor familiar with the basics of share investing but am finding this capital return and share consolidation confusing. If I had say 10,000 PGW shares (I have more than that) then at current share price of 55c they are worth $5500. I would get a capital return of 31c per share, so $3100? or does receiving a share for every share held mean I would i get a capital return of $6200? Then my 10,000 shares would get 1-for 10 consolidated to 1000 shares. Would those then be worth $550 at current share price? Or does the post consolidation share price change?

Hi Bryndlefly. Here is my read on it. Like you I am in the less qualified category of investor so no guarantee I am right. The issuing of the additional shares alongside the capital return is a bit of a smokey. It is just to serve as a mechanism for the capital return. In theory when the capital is returned you will retain 10,000 shares, the share price will drop to 24c and you will receive 31c. A week or so later when the 10 for 1 consolidation occurs your number of shares will reduce to 1,000 and in theory the market response would see the share price rise to $2.40. In real life the market doesn't work on theory alone and there will be some variances to this.

[bryndlefly]

Hi thanks for the replies. The other thing that I'm not sure about with a share consolidation - i keep track of my shares with the ASB Securities portfolio feature, if i paid say 50c per share for PGW shares originally, i think a post consolidation share price of possibly $2.40 would show in my portfolio as a share price increase of 480%, which wouldn't be correct. I guess post consolidation i would need to change the value of what i paid for the shares? Unless the ASB portfolio function changes that value automatically. Sorry i should really know about this sort of thing by now.

[RGR367]

Hi thanks for the replies. The other thing that I'm not sure about with a share consolidation - i keep track of my shares with the ASB Securities portfolio feature, if i paid say 50c per share for PGW shares originally, i think a post consolidation share price of possibly $2.40 would show in my portfolio as a share price increase of 480%, which wouldn't be correct. I guess post consolidation i would need to change the value of what i paid for the shares? Unless the ASB portfolio function changes that value automatically. Sorry i should really know about this sort of thing by now.

Your portfolio is yours to edit manually post consolidation as ASB portfolio function only updates automatically on buy or sell transaction.

[rabcat]

Can someone bring up to speed with what PGW are up too. i.e. when are they paying out this 31 cents per share? I haven't seen any money. Is there a date for payment? The document I got from PGW talked about dispatch of new holding statement 9th August.
I thought I was going to end up with the same number of shares I had after doubling them and then cancelling half of them and sending me a few dollars? Is this correct.

But then I look at some charts on the internet and see share price 55 cents and chart showing shares at 2.70? I am just confused.

[winner69]

Can someone bring up to speed with what PGW are up too. i.e. when are they paying out this 31 cents per share? I haven't seen any money. Is there a date for payment? The document I got from PGW talked about dispatch of new holding statement 9th August.
I thought I was going to end up with the same number of shares I had after doubling them and then cancelling half of them and sending me a few dollars? Is this correct.

But then I look at some charts on the internet and see share price 55 cents and chart showing shares at 2.70? I am just confused.

You’ll get your cash on the 14th

Shares are split and then some cancelled and then a 1 for 10 consolidation

All explained with dates here. In the meantime ignore any prices you see on internet.

As they say’trustthem, they know what they’re doing’

http://nzx-prod-s7fsd7f98s.s3-website-ap-southeast-2.amazonaws.com/attachments/PGW/338411/304506.pdf

[Snow Leopard]

Sure been a busy week for a share in a trading halt:
Monday: 55c
Tuesday: 27.5c
Wednesday & Thursday 24c
Friday 240c

[edited out the confusion bit]

[percy]

Two record dates for the scheme. announcement 1st August
page 1 .... 14th August
page 2 record date scheme wednesday 7th August.

Announcement 31st..record date 7th August PAYMENT date 14 th August.
Now reread how confussing page 1 of 1st August announcement is,Shareholders will receive a cash payment....................................

[Snow Leopard]

sorry my bad.

so we can either start buying our shares back or buy another Maserati next week then.

[percy]

sorry my bad.

so we can either start buying our shares back or buy another Maserati next week then.

Psssssssssssssssst.
We will have money "at hand" should HGH's result on the 15th,motivate us to buy more.[HGH].
Great timing.?

[Aaron]

You’ll get your cash on the 14th

Shares are split and then some cancelled and then a 1 for 10 consolidation

All explained with dates here. In the meantime ignore any prices you see on internet.

As they say’trustthem, they know what they’re doing’

http://nzx-prod-s7fsd7f98s.s3-website-ap-southeast-2.amazonaws.com/attachments/PGW/338411/304506.pdf

A 1 for 10 consolidation would explain the fantastic rise in share price on my portfolio tracker, brief moment of euphoria but reality caught up pretty quick.

[Snow Leopard]

Results out and to be honest I am unimpressed either by them or the outlook for next year.

There is a final divvy of 7.5c to help us keep the faith but I am thinking no hurry to buy back in.

[winner69]

Results out and to be honest I am unimpressed either by them or the outlook for next year.

There is a final divvy of 7.5c to help us keep the faith but I am thinking no hurry to buy back in.

So we have to hope that prices hold up, farmer confidence is OK and normal trading conditions apply for them to get to $30m ebitda ...but that’s quite a bit lower than the $34m in F18

[macduffy]

Results out and to be honest I am unimpressed either by them or the outlook for next year.

There is a final divvy of 7.5c to help us keep the faith but I am thinking no hurry to buy back in.

I'll be keeping away from this one, too. I lost faith in the old Wrightson company many years ago when they sold the profitable Wrightson Farmers" Finance Co. - a sound earner which bound many farmers to the company by providing seasonal finance. The recent sale of the seed business, a key part of the original stock and station businesses, particularly of Wright Stephenson's, just hastens PGW's slide into irrelevance, IMO.

[percy]

Well with a buyer for 1000 shares at $2.30,and the next buyer at $2.10, it looks as though I am stuck.
What comes to mind is the definition of a long term hold:
"A short term position that did not work out."....lol

[percy]

18.1 cents or 23 cents.?
The market says 23 cents.
Yet 18.1 cents could be right.?
Either makes sense to me.?
We continue to live in interesting times.

Was just reconsidering PGW.I note Findlay/Cushing added to their holding at 49 cents awhile ago.Less the 31 cents capital return, that brings things back to 18 cents. which is after consolidation is $1.80.
Perhaps after the not very good outlook we may be heading that way.At 15 cps [7.5 and hopefully another 7.5 interim] divie the yield would work out [at $1.80] 8.33%,while at $2.33 the yield falls to 6.44%
So the question is will they be able to maintain the divie.

[Snoopy]

The assumptions used including discount rates are shown below:



EOFY2016EOFY2017EOFY2018


Discount Rate (10yr govt bond rate)2.34%2.97%2.85%


Inflation2.0%2.0%
2.0%


Future Salary Increases3.0%3.0%
3.0%


Future Pension Increases2.0%2.0%
2.0%




It looks like only the discount rate is moving. The lower the discount rate, that means the more money is required 'now' to fund future obligations. So if the government ten year bond rate halves (from 2.85%), that means the present day obligations of the pension scheme could double? That would be another $10m of 'hidden debt' on the books or more poignantly another $10m of 'shareholder cash' to remove that hidden debt needed?

Perhaps they changed the assumptions to assume more people will die sooner, and so relieve the pension scheme of its future cashflow problem? (of course if the people don't die sooner as assumed, that might be a problem in itself!)


I am very pleased to see in today's announcement that the deficit in the pension scheme has been acknowledged at long last!

"In addition, lump sum funding payments of approximately $10.3 million were made to the group’s Defined Benefit Pension Scheme (Plan) to bring the Plan into actuarial equilibrium in June 2019.”



EOFY2016EOFY2017
EOFY2018EOFY201913-08-2019


Discount Rate (10yr govt bond rate)2.34%2.97%
2.85%1.57%1.10%


Inflation2.0%2.0%2.0%2.0%


Future Salary Increases3.0%3.0%3.0%3.0%


Future Pension Increases2.0%2.0%2.0%2.0%



However, has squaring the scheme up as at 30th June 2019 fixed the issue? Sadly no, as interest rates, and the critical ten year government bond rate, have continued to fall since balance date.



If it gets down to 1% then PGW might need a $20m (not $10m) capital injection into the pension scheme, assuming the earnings of the scheme remain flat. But if interest rates fall, then those fixed interest returns will fall as well. So even more money will have to be pumped in just to keep the future earnings stream steady.....ouch....ouch


$10m in. Another $10m to go? Perhaps the 'dividend haircut' will continue for a few more years?

SNOOPY

[RGR367]

CapRet money on the bank!


disc: a very long holder and boy this stock was really really really really and I meant really really really ...... cheap way back then :t_up:

[waikare]

CapRet money on the bank!


disc: a very long holder and boy this stock was really really really really and I meant really really really ...... cheap way back then :t_up:

4.45pm funds not in my Direct Broking Act. at this stage.

[Agrarinvestor]

Gentlemen,

I'm the idiot that has bought indirect PGW via Agria. Sitting now at 75.000 ordinary shares of Agria. Can you tell what exactly has happened with PGW and do you know how much money has gone to Agria?

[percy]

PGW have sold their seeds business, and returned capital to shareholders.Then they consolidated the shares 1 for 10.
Agria received NZ $103.7 mil while retaining their same % holding.

[Agrarinvestor]

Many thanks. I hope that they will distribute to us shareholders.

[percy]

CapRet money on the bank!


disc: a very long holder and boy this stock was really really really really and I meant really really really ...... cheap way back then :t_up:

May not be over expensive at the current prices, if you have a longer term view of their prospects.

[RGR367]

May not be over expensive at the current prices, if you have a longer term view of their prospects.

With some capital returned then it just becoming cheaper even more, that's what I'm saying Percy :)

[Snoopy]

A couple of post takeover approval posts for those with a selective memory



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'.




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.


Now fast forward to today and PGW closed at $2.29 on 16-08-2019. That is equivalent to a pre-consolidation price of 23c.



With some capital returned then it just becoming cheaper even more, that's what I'm saying Percy :)


The capital return was 31cps, added to yesterday's equivalent close price of 23c gives a total post demerger valuation of 54c. And this in the context of an overall market where the NZX50 rose from 8843 to 10704 over the post AGM time period to date, a market rise of 21%.

The kindest interpretation of all this is that as a result of the boards separation proposal, 3cps of value has been destroyed. Over 754m shares this translates to a dollar value loss of:

0.03 x 754m = $22.6m

This is hardly a good outcome for shareholders, except for one shareholder who, with hindsight, borrowed too much to purchase their controlling stake.

Technically RGR327 is correct in that with the capital returned, 'PGW Rural Rump' has become cheaper. But all that means is that we shareholders have lost money in this exercise. I, for one, am not celebrating.

SNOOPY

P.S. Also a long term shareholder in PGW

[mshierlaw]

I bought these a while back for the divies. These started getting smaller & smaller so reason for holding was being tested. Now after the washup we get a decent dividend again, the question for me is ....... can they sustain it? I'm not convinced yet.

To date I have (almost) got ONE NICE DIVIDEND from the sell off of the seeds. Hoping for many more.

[percy]

I think we will see both eps and dividend per share growth, with the dividend yield being over 9% gross yield ,and PGW having the capacity to pay fully imputed divies.

[mshierlaw]

I think we will see both eps and dividend per share growth, with the dividend yield being over 9% gross yield ,and PGW having the capacity to pay fully imputed divies.


Thanks

Looking forward to the old times returning.

[mfd]

Unlisted Rural Equities limited have bought a 2.7% chunk of PGW for around 6.7 million. Looking at previous announcements, they have a war chest from sale of farms of around 40 million looking for alternative investments. I wonder if they'll be back for more?

https://www.usx.co.nz/market_announcements

[Balance]

Unlisted Rural Equities limited have bought a 2.7% chunk of PGW for around 6.7 million. Looking at previous announcements, they have a war chest from sale of farms of around 40 million looking for alternative investments. I wonder if they'll be back for more?

https://www.usx.co.nz/market_announcements

Cushing family taking the opportunity to top up on market and buying out Ngai Tahu's stake at $2.35.

Always right to follow Cushing when he puts his own money in.

A number of interesting scenarios ahead!

[percy]

Looks a possibility.Why else would REL be selling some farms.?
Findlay [pgw chairman] has been a REL director for a long time.
Cushings sold Williams and Kettle into PGW.
Father and son have both had a long associaton with PGW.
I am sure PGW manage some of REL's farms.
REL are also shareholders in our old mate Chris Corrigan's WBA.

Above post 26-6-2019
Today's announcement shows REL's /Cushings interest.
Where to next.?

[Snoopy]

Cushing's REL will have approx $39 mil at the end of the month from their recent farm sales.
Interesting.

That was Percy's observation on 26th June 2019.


Cushing family taking the opportunity to top up on market and buying out Ngai Tahu's stake at $2.35.

Always right to follow Cushing when he puts his own money in.

A number of interesting scenarios ahead!

First disclosure from David Cushing regarding H&G stake in PGW made on 1st May 2019, a purchase from Agria, for a post consolidation equivalent of 2.007m shares. That balance is consistent with the number of shares held by H&G prior to today's announcement. This followed the NZX declaration made on 10th April of the equivalent of 1.7m shares being acquired for $1.80 from Agria , a total cost of $8.33m. I assume there must have been an historically H&G owned 0.307m PGW shareholding balance that made the total up to 2.007m at the time.

Today's (20-08-2019) announcement showed that H&G were also buying PGW shares on market:

(1) On 15 August 2019, through on-market trades, REL acquired 72,238 PGW shares for $158,121.76. That is an average price of $2.19
(2) On 16 August 2019, through on-market trades, REL acquired 27,035 PGW shares for $61,647.91. That is an average price of $2.28
(3) On 19 Aug 2019 came the Ngai Tahu purchase, REL acquired 2,743,463 PGW shares for $6,447,138.05. That is an average price of $2.35

Latest purchases from the Cushings means that 2.842m additional shares have been acquired since 15th August 2019.

This total purchase value of this increased holding was:

$158.1m + $61.6m + $6,447.1m = $6.667m.

So total holding by H&G (including shares held by REL which is more than 20% controlled by the Cushings, which in turn means the REL stake is consolidated within the H&G stake for reporting purposes) is:

2.007m (H&G) + 2.842m (REL) = 4.849m shares, amounting to

4.849m/75.484m = 6.424% of PGW.

-------

Explanatory Note

I have previously stated on this forum that I thought the Ngai Tahu holding of PGW had been as high as 7.24%. However, what I should have said was that the Ngai Tahu holding in 'Agria investments Asia Limited' (AAIL) was 7.24% (since sold) . AAIL was only a 50.22% shareholder in PGW back then. So the maximum Ngai Tahu holding, indirectly, was:

0.5072 x 7.24% = 3.672%

That is close to the 3.766% that Ngai Tahu were declared as owning prior to the latest H&G acquisitions.

-----

Over the last year, H&G have invested $6.67m plus $8.33m equals $15m in buying PGW shares. If Percy is right with that $39m H&G war chest, there is more than enough left in the kitty to build the H&G stake to a blocking level of 10%. And H&G have shown they are not averse to 'topping up' on the market.

SNOOPY

[percy]

REL market cap at $4.67 is $152,586,842
PGW market cap at $2.43 is $183,426,322.
Interesting.?

[Snoopy]

I am very pleased to see in today's announcement that the deficit in the pension scheme has been acknowledged at long last!

"In addition, lump sum funding payments of approximately $10.3 million were made to the group’s Defined Benefit Pension Scheme (Plan) to bring the Plan into actuarial equilibrium in June 2019.”



EOFY2016EOFY2017
EOFY2018EOFY201913-08-2019


Discount Rate (10yr govt bond rate)2.34%2.97%
2.85%1.57%1.10%


Inflation2.0%2.0%2.0%2.0%


Future Salary Increases3.0%3.0%3.0%3.0%


Future Pension Increases2.0%2.0%2.0%2.0%



However, has squaring the scheme up as at 30th June 2019 fixed the issue? Sadly no, as interest rates, and the critical ten year government bond rate, have continued to fall since balance date.

$10m in. Another $10m to go? Perhaps the 'dividend haircut' will continue for a few more years?


I am extremely disappointed to find that on inspecting Note 19 in the preliminary release of accounts, the pension scheme still had a hole of $5.883m at balance date. That is in direct contradiction to the statement put out by PGW Chief Executive Stephen Guerin on 13th August that:

"In addition, lump sum funding payments of approximately $10.3 million were made to the group’s Defined Benefit Pension Scheme (Plan) to bring the Plan into actuarial equilibrium in June 2019.”

A $5.883m hole does not equate to being 'in balance' in my book! What is more with the reduction of the 10 year government bond rate since balance date, I estimate the pension scheme deficit is now out to $10m again. Very disappointing not to be able to take the Chief Executive's word at face value. IMO If this deficit is ever going to be closed, dividends are going to have to be cut more for longer.

SNOOPY

[percy]

Ring or send him a "please explain."

[Baa_Baa]

@Snoopy, could it be that an actuarial valuation is quite different from having to fill a $5m+ "hole" or be "in balance" as you put it. The CEO's comments are probably factually correct, albeit without seeing the 'actuarial valuation'.

Take Percy's advice and call the CEO.

[Snoopy]

@Snoopy, could it be that an actuarial valuation is quite different from having to fill a $5m+ "hole" or be "in balance" as you put it. The CEO's comments are probably factually correct, albeit without seeing the 'actuarial valuation'.

Take Percy's advice and call the CEO.

Hmmm, I think I was a little hasty with my comment. I was firstly so pleased to hear that this troublesome superannuation scheme was announced to be in 'actuarial balance' and THEN so enraged to see that Stephen Joyce sized $5.883m 'hole' in the accounts, that I posted immediately. I should have read the explanatory text of note 19 below the figures.

"During 2017, the Group made a commitment to provide certain contributions over a five year period in order to bring the underlying plan to an actuarial equilibrium position (calculated on a different basis to the IFRS amounts above). The plan reached actuarial equilibrium following the cash contributions made in the period to 30 June 2019. Accordingly, no provision for ESCT on committed contributions remain."

Still, I think most people who have been following this issue over several years would have had the same expectation and impression that I did. I am disappointed that the IFRS standards have been dismissed so easily, once more. The IFRS standards were designed to produce credibility and I think the management line that 'we know better' and will follow our own standard is a dangerous precedent to set. I think I would agree with Stephen Joyce on this one.

SNOOPY

[percy]

I think we will see both eps and dividend per share growth, with the dividend yield being over 9% gross yield ,and PGW having the capacity to pay fully imputed divies.

The market seems to agree,as the share price has crept up to $2.39cd.

[Balance]

The market seems to agree,as the share price has crept up to $2.39cd.

Recommendation from a couple of brokers to include in yield portfolio - Gross yield of >10% with drop in NZ$ favoring the rural sector.

[mfd]

REL like it, now up to a 3.77% stake and still a pile of cash looking for a home. Results from their farming businesses not too flash this year, much better off buying chunks of PGW.

[Balance]

REL like it, now up to a 3.77% stake and still a pile of cash looking for a home. Results from their farming businesses not too flash this year, much better off buying chunks of PGW.

Build up a big enough stake and propose merger.

Easy stock really, PGW, to invest in.

[percy]

The trust I help out on has had to increase the price we paid to fill our order.Started buying at $2.37 and filled the order today ,paying up to $2.42,after buying "at market."

[Balance]

The trust I help out on has had to increase the price we paid to fill our order.Started buying at $2.37 and filled the order today ,paying up to $2.42,after buying "at market."

That you paying $2.45 to finish your order, Percy?

Updated EPS forecast from one broker :

F20 20.1c
F21 23.3c

With bugger all debt and capacity to increase dividends to 100% of EPS, F20 and F21 could see gross yields of 11.4% and 13.2% respectively!

Should get the yield seekers charge the stock to higher levels.

[percy]

That you paying $2.45 to finish your order, Percy?

Updated EPS forecast from one broker :

F20 20.1c
F21 23.3c

With bugger all debt and capacity to increase dividends to 100% of EPS, F20 and F21 could see gross yields of 11.4% and 13.2% respectively!

Should get the yield seekers charge the stock to higher levels.

No we finished this morning.Took a couple or three days.
Also brought on Monday NZR and SKL.Approx same amounts in each three companies.
PGW agreed on yield.I like Findlay and Cushing being directors, and having skin in the game.They know the sector.
And there could be corporate fun.!..lol.
I will list The Trust holdings.ATM,AIR,EBO,FPH,FRE,HGH,HLG,MCY,MEL,NZR,O CA,PGW,RBD,RYM,SKL,SPK,SUM,THL,TRA.

[percy]

WBA in Aussie have just received a takeover offer,and their shares have taken off.
This is of interest to us, as REL Rural Equities [on usx.co.nz] is controlled by PGW's Chairman Rodger Finlay, and director David Cushing.REL have a large shareholding in WBA.
We did note,a few weeks ago REL have an increasing war chest, from selling a number of farms in NZ.
ps.Good to see David Cushing spending $729,799 taking his shareholding up to 5,165,045 shares.

[Balance]

WBA in Aussie have just received a takeover offer,and their shares have taken off.
This is of interest to us, as REL Rural Equities [on usx.co.nz] is controlled by PGW's Chairman Rodger Finlay, and director David Cushing.REL have a large shareholding in WBA.
We did note,a few weeks ago REL have an increasing war chest, from selling a number of farms in NZ.
ps.Good to see David Cushing spending $729,799 taking his shareholding up to 5,165,045 shares.

http://nzx-prod-s7fsd7f98s.s3-website-ap-southeast-2.amazonaws.com/attachments/PGW/342214/309266.pdf

And great to see the Chairman taking the opportunity of the sp weakness to pick up shares.

One of the best dividend and corporate activity potential stocks on the market imo.

[tim23]

Agree I used my capital return to buy more at $2.19 happy with that and 7.5c share dividend too!

[percy]

I added to my holding today,at av.$2.4256.
Should the share price come back a bit, I will add to the wife's holding.

[Snoopy]

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.


From AR2019 p7, we now have an indication of how the 'corporate structure review' will affect earnings going forwards.

"We expect to see the benefit of reduced costs flowing through progressively with savings in excess of $2.5m expected in FY2020"

With the seed business gone, expectations are reset. As an exercise I have gone through the last few years results and removed 'Seed & Grain' EBITDA from the Operating EBITDA. This time, I have added back in the recently announced 'corporate savings'.

Here is the multi-year earnings picture that results:




Combined EBITDA
less Seed & Grain EBITDA
add Corporate Savings
equals PGWRR EBITDA


FY2014$58.747m$33.965m$2.500m
$27.282m


FY2015$69.631m$40.506m$2.500m
$31.675m


FY2016$70.181m$41.862m$2.500m
$30.819m


FY2017$64.499m$37.045m$2.500m
$39.974m


FY2018$70.174m$35.607m
$2.500m
$37.067m


FY2019$2.500m
$26.925m


Average
$32.290m



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.

SNOOPY

[Snoopy]

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


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.


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.


The seed business separation has forced PGWRR to do their own 'Depreciation & Amortization' reallocation. How does this compare with what I had previously assumed?



Rural Rump


[TD]Revenue FY2018 (from AR2019)$808.695m


Depreciation & Amortisation FY2018 (from AR2019)$6.918m



A method for reallocating previously unallocated D&A was to assume that '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. With hindsight this is how PGWRR seems to have done it too. So Balance was 'spot on'.

Now moving on to FY2019, the corresponding figure for Depreciation & Amortisation is up considerably:



Rural Rump


[TD]Revenue FY2019$809.255m


Depreciation & Amortisation FY2019$9.362m



What can explain this rise in D&A charging by 35% YOY (in dollar terms $2.444m higher) ?

At first I thought it might be connected with the new accounting treatment of leased assets under IFRS16, From AR 2019 p71

"There is expected to be an increase in depreciation expense of approximately $16.00m and interest expense of approximately $6.00m. Operating expenses are expected to reduce by an estimated $21.40m resulting in a corresponding increase in EBITDA,"

However, this change was not implemented for FY2019. And the net effect looks small anyway: $21.40m - ($16.00m+$6.00m) = -$0.60m (a drop in earnings)

So I can't explain why depreciation and amortization has increased over the year to the extent that it will virtually negate the gains made by the future trimming of head office costs. Nevertheless I will have to accept these increased D&A costs in my earnings modelling going forwards.

SNOOPY

[Balance]

Good update & work, Snoopy.

Thanks!

[Snoopy]

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 paid' 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%?


The problem with estimating an 'interest rate equivalent paid' for the PGW debt is that company debt is quite seasonal. Shareholders were presented with a picture of this in Figure 6.1 on page 34 of the "PGG Wrightson Independent Report, (outlining the case for divesting the seed division, and dated October 2018). Disclosure to this level of detail is not available in the annual report. But we can make a 'triangulated approximation' to the variability of the debt via three data points that are in the annual and half year reports:

1/&2/ End of year net debt position of the current year and the previous year AND
3/ The half year net debt position in between.

From AR2019 p8

"PGW negotiated and entered into new bank facilities in July 2019.....It is pleasing to note that very competitive terms have been struck for these banking arrangements"

This interest rate renegotiation makes all of my indicative interest rate calculations up to now, including calculations based around AR2019, historical. However, exactly what 'very competitive terms' means has not been revealed. One thing we can assume is that PGW is now paying a lower interest rate compared to what they have done in the recent past. So let's dive back into last years PGW history and try to figure out what is the figure they were paying that, by way of comparison, makes the new terms so good.

Distorting the end of FY2019 capital picture is the gain on the sale of the seeds business on 1st May 2019 of $134.281m. If this gain had not happened, the debt position of the company at EOFY balance date would be very different. We don't know exactly the position of the company just before the seed sales proceeds came through. But I am guessing it was something like I have outlined in the table below:



30th April FY2019[/TD]EOHY2019EOFY2018EOHY2018EOFY2017


Cash
$0m$3.884m
$10.926m$24.247m$9.403m


less Short Term Debt
$2.680m (*)$79.635m
$30.806m$91.215m$26.719m


less Long Term Debt$134.281m
$130.000m$149.205m$130.634m$110.925m


equals Total$136.961m
$205.751m
$169.085m
$197.602m$128.241m


Half Year Increment
+$36.666m

+$69.361m



(*) This figure from EOFY is used as an estimate of the short term loan balance two months earlier.

For the purposes of calculating an 'average loan balance', I feel it is best to consider the financial year split into three time periods:

P1/ An intiial six months, WITH
P2/ an ensuing four months FOLLOWED BY
P3/ a final two months.

The calculation of the average loan balance over these three time periods, using a linear interpolation model, is as follows:

P1/ ($169.085m + $205.751m)/2 = $187.418m
P2/ ($205.751m + $136.961m)/2 = $171.856m
P3/ $0m (debt repaid)

The time proportional average debt of these three periods added together is as follows:

( 6 x P1 + 4 x P2 + 2 xP3 ) / 12 = ( 6x$187.419m + 4x$171.856m) / 12 = $150.994m

The Annual Report declared net interest bill for the year has been split into interest expense allocated to 'Seed and Grain' ($4.481m) and PGWRR ($6.067m), for a total of ($10.548m). This equates to an implied net interest rate for PGW over FY2019 of:

$10.548m / $150.994m = 7.0%

CEO Stephen Guerin has negotiated the new banking facilities so that there is an incremental seasonal funding amounts to $70m. Considering the business has now been roughly 'half sized', this seems a lot, although I guess it is prudent to allow for less than ideal weather circumstances. The reduction in interest rate paid also announced must be meaningful for Stephen Guerin to crow about it. A 10% reduction might be more in line with what is happening in the markets as a matter of course. I am picking Stephen has got a 20% reduction. That would take PGW net interest rates down to: 0.8 x 7% = 5.6% for FY2020.

SNOOPY

[Snoopy]

A big day with the announcement of when and how that capital repayment of $235m will be returned to shareholders, But what has not been revealed until now is the indicative debt level of the PGWRR company that is left.

From an end of May 2019 post capital repayment balance sheet perspective, the total bank debt on the books is:

$3.920m + $31.742m = $35.662m.

This is within the 'core debt' envelope of $25m to $50m forecast for FY2020 (p9 of the proposal). But this is only part of the debt of the company that is forecast to balloon out by way of an additional $70m for 'typical seasonal working capital'. This reality is somewhat different to the 'debt free' situation that I imagined PGW would be in all year round in 'Part 3.2'.

A greater amount of debt outstanding means our indicative interest bill going forwards needs to be reworked.

Using past debt balances and interest payments declared over FY2018, 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 we can calculate the indicative annual interest payments after debt repayment 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 outlined in p9 of the 'Special Meeting' explanatory documents for the date of Tuesday 23rd July 2019. Peak working capital (and hence peak debt) is forecast to be between October and January, in line with selling spring seasonal goods to farmers.

Over FY2020, the minimum net working capital required is estimated to be $35.662m on July 1st 2019 peaking at $105.662m around November 2019.

$105.662m / $35.662m = 2.9629 (an increment of 196%). Yet averaged over a financial year and using a linear model, the average increase in incremental debt is only half this:

196% / 2 = 98% => Annual debt incremental factor = 1.98

Step 2/ Calculate Annual Debt Interest Payment

Using the liabilities in the balance sheet as presented on p10 of the Special General Meeting notice:

0.057x [$31.742m+$3.920m-$1.160m] x 1.98
= $3.894m




Rural Services ($39.5m EOFY cash balance after debt repayment)


EBITDA$29.875m


less DA$6.918mStep 2/ Calculate Annual Debt Interest Payment


less I$3.894m


equals EBT$19.063m


x 0.72 equals NPAT {A}$13.725m
205m

No. shares on issue {B}754.048m


eps {A}/{B}1.82c





I am using the pro-forma post capital return balance sheet, as explained under the "Why is the board recommending this scheme" section of the July 2019 SGM, and the information provided in the annual report to provide the most up to date earnings projection I can for FY2020

From an end of May 2019 post capital repayment balance sheet perspective, the total bank debt on the books is:

$3.920m + $31.742m = $35.662m.

This is within the 'core debt' envelope of $25m to $50m forecast for FY2020 (p9 of the proposal). But this is only part of the debt of the company that is forecast to balloon out by way of an additional $70m for 'typical seasonal working capital'.

Using past debt balances and interest payments declared over FY2019, the indicative net interest rate bill 'before' was $10.548m based on an average debt balance of $179.834m, this implies an indicative interest rate of:

$10.548m / $150.994m = 7.0%

Yet I am discounting this figure by 20% going forwards, as we have been told that PGW have negotiated much more favourable banking arrangements. I will use the interest rate of 5.6% instead (use in Step 2)

That means we can calculate the indicative annual interest payments after debt repayment 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 outlined in p9 of the 'Special Meeting' explanatory documents for the date of Tuesday 23rd July 2019. Peak working capital (and hence peak debt) is forecast to be between October and January, in line with selling spring seasonal goods to farmers.

Over FY2020, the minimum net working capital required is estimated to be $35.662m on July 1st 2019 peaking at up to $105.662m around November 2019.

$105.662m / $35.662m = 2.9629 (an increment of 196%). Yet averaged over a financial year and using a linear triangulated debt over time distribution model, the average increase in incremental debt is only half this:

196% / 2 = 98% => Annual debt incremental factor = 1.98

Step 2/ Calculate Annual Debt Interest Payment

Using the liabilities in the balance sheet as presented on p10 of the Special General Meeting notice:

0.056x [$31.742m+$3.920m-$1.160m] x 1.98
= $3.826m





PGW Rural Rump: Multi Year Average Scenario (excluding Pension Scheme Repair)
Reference
PGWRR FY2019 (EBITDA as reported plus forecast corporate savings)


EBITDA
$32.290m
My post 4636
$26.925m


less DA
$9.632m
My post 4637
$9.632m


less I$3.826m
This post 4640
$3.826m


equals EBT
$18.832m

$13.467m


x 0.72 equals NPAT {A}
$13.559m

$9.696m



No. shares on issue {B}
75.484m

75.484m


eps {A}/{B}
18.0c

12.8c




Notes

1/ The previous few years have seen several top up payments to the PGW Pension scheme. However, it seems that current accounting conventions do not require these top ups to go through the profit and loss statement. This is why I have stated the historically based earnings scenarios do not include any money diverted to repair the on the books company pension schemes.

Discussion

FY2019 was the worst year for PGWRR out of the last six. That means it is probably unnecessarily pessimistic to consider last years operational performance as indicative of what we might see for FY2020. Eventually we should see earnings rebound to some kind of 'mean' level, even if 'eventually' actually means 'after FY2020'.

Dividends from FY2019 amount to the equivalent of two 7.5cpc dividends , fully imputed, for a total of 15cps. These dividends are lower than those historically paid out.
But those historical dividends also came from seed division profits, a division that has been sold. A 15cps annual dividend was more than the company earned on an adjusted basis as I have shown in the table above. That means it is wishful thinking to suggest that the dividend will be raised this year, even if profits rise.

SNOOPY

[Snoopy]

Continuing my rework of the post capital repayment scenario, now based on an actual FY2019 earnings expected, and with a $3m contribution towards the pension scheme adjusted for.



Scenario $157.5m debt repayment and new FY2020 Investment


dps {A}1.11c


PGW Rural Rump: Market Valuation {B}54c - 31c = 23c


PE ratio {B}/{1.51c}15.2


Gross Dividend Yield {A}/{B x 0.72}6.7%



Notes

1/ In the gross yield calculation I am not assuming that all earnings are paid out as dividends. This is because i believe a constant flow of earnings will be needed to bail out the company superannuation scheme which is persistently technically insolvent,
2/ The PE ratio is now looking looking reasonable for this type of business, as we are in a lower part of the earnings cycle (that means PE can be higher)
3/ The potential dividend yield looks O.K, but is IMO low for this kind of business.. The lesser than expected capital repayment has not made PGWRR debt free after all. This is no doubt because PGWRR has elected to keep spending to invest in the business, even if they haven't fixed their superannuation scheme issues.

In this low interest rate environment I would be prepared to buy with a gross dividend return of 8.5%. This implies a post capital return share price of:

23c x 6.7/8.5 = 18.1c

This is a significant fall from the implied market price of 23c. Thus there is now a significant risk of shareholders losing up to 20% of their remaining capital once the entitlement to the long awaited capital repayment has been released.

As an aside at 18.1c PGWRR would be trading on a PE of:

18.1c / 1.51c = 12

At a lowish point in the business cycle, this sounds about right.



I will now continue my rework on the now realised capital repayment scenario. I have removed from this iteration a previously stated $3m contribution towards the pension scheme that continued into the future. This is because over FY2019, new CEO Stephen Guerin authorized a one off $10.274m contribution to the Defined Benefit Pension Scheme that brings it into actuarial balance.




PGWRR FY2019 (EBITDA as reported plus forecast corporate savings)
PGW Rural Rump: Multi Year Average Scenario (excluding Pension Scheme Repair)


eps {A}
12.8c18.0c
]

dps {B}15.0c
]

PGW Rural Rump: Market Valuation {C}$2.42$2.42


PE ratio {C}/{A}18.913.4


Gross Dividend Yield {B}/{C x 0.72}8.6%


Gross Earnings Yield {A}/{C x 0.72}7.3%10.3%



Notes

1/ The PE ratio is now looking looking more reasonable for this type of business, as we seem to be in a lower part of the earnings cycle (that means PE can be higher). Nevertheless a PE of 18.9 is at the upper end of my comfort zone for cyclical agricultural retailer.
2/ The potential dividend yield looks O.K, but is IMO low for this kind of business.. The lesser than expected capital repayment has not made PGWRR debt free after all. This is no doubt because PGWRR has elected to keep spending to invest in the business.

In this low interest rate environment I would be prepared to buy with a gross earnings yield of 8.5%. This implies a 'post capital return and 10:1 consolidated' share price of:

$2.42 x 7.3/8.5 = $2.08

This is a significant fall from the market price of $2.42. I believe this means there is a fair amount of 'earnings recovery' already built into the PGW share price today. If an earnings recovery does not happen this year, then we shareholders might expect to lose around 14% of our invested capital in PGW (the downside risk).

OTOH, if earnings recover to more of a mean value from 'years recent past', that means the fair value share price for a gross earnings yield might rise up to:

$2.08 x 18/12.8 = $2.93

That represents a rise in value from today's quoted price of 21% (the upside risk)

Overall then, given the upside and downside risks, I would judge today's market price of $2.42 as not a bargain, but not overpriced either. $2.42 the epitome of 'fair value'? Looks like Mr Market might have it right with this one.

SNOOPY

discl: holding, at an average equivalent price paid per share todayof $1.38 :-), but with an average holding time of about 10 years to achieve this equivalent entry price :-(

[Snoopy]

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 = 31cps

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.


As we come up to the first AGM following the seed division demerger, it is timely to reflect on a few vital statistics comparing 'what we shareholders had' and 'what we shareholders have now'.

Let's start by working out some normalized profit figures:

PGW pre demerger for FY2018



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


FY2018$70.174m$12.974m$9.986m$12.460m$34.754m
$1.700m$33.054m754.8m4.38c



PGW 'Rural Rump' for FY2019



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


FY2019$28.725m(*)$9.362m$3.826m$4.350m$11.187m
$0.200m$10.987m75.484m14.6c



(*) I have boosted the declared EBITDA of $24.425m by $2.5m, this being the amount of cost savings expected from head office reduction costs AND $1.8m from a supplier claim event of which this represents an unrecovered portion.

Interest is calculated on the new capital structure of PGWRR and income tax is calculated at a rate of 28%

More comparative company performance statistics are revealed below:




PGW Intact (FY2018)PGW Rural Rump (FY2019)


Share Price 30th September {A}$0.61$2.55


eps {B}4.38c14.6c


PE Ratio {A}/B}13.917.7


Normalised Profit {C}$33.054m$10.987m


Shareholder Equity {D}$287.462m$165.902m


ROE {C}/{D}11.5%6.62%


Revenue {E}$1,193.462m$809.295m


Net Profit Margin {C}/{E}2.77%1.36%



The loss of the unique seed division intellectual property has halved the return on equity and halved the net profit margin for what we shareholders have left.

On 9th January a 'dissenting to the demerger' shareholder received a full payout on their 9,724 PGW shares of 58c each. With the 31c capital return, we remaining shareholders have had since, and the ensuing 1:10 share consolidation, that translates to $2.70 per share for the remaining PGWRR shares. Since the 1:10 share consolidation, the PGWRR share price has never approached that figure. So not only has the seed division demerger destroyed shareholder wealth. The remaining assets we shareholders have are of lesser earning quality. This just goes to show that directors of a company do not always act in the interest of all shareholders. For small shareholders, this demerger has been nothing but an abject failure.

SNOOPY

[sb9]

I added to my holding today,at av.$2.4256.
Should the share price come back a bit, I will add to the wife's holding.

Have dipped my toes into this one earlier in the week.

[percy]

Have dipped my toes into this one earlier in the week.

Share price looks "firm".
I thought after I added to my holding it may have come back a little.
Still have not added to the wife's holding.
Not bidding at present.

[Balance]

Share price looks "firm".
I thought after I added to my holding it may have come back a little.
Still have not added to the wife's holding.
Not bidding at present.

Who knows - we may wake up and find that Agria has done a deal to sell its stake, triggering a takeover at $3.00? :p

[percy]

We live in interesting times.?

[Balance]

We live in interesting times.?

Not a question of ‘if’ but ‘when’ Agria will sell imo.

[percy]

Agree.................
In the meantime,excellent new Chairman with a refreshed board,sensible CEO,strong balance sheet and an excellent yield.
All confirmed today.
Pleasing to see bank lending now on better terms too.

[Snoopy]

Takeover deals are usually done on EBIT and EBITDA multiples, rather than PE ratios. If we look at where PGWRR sits today (my post 4516):

EBITDA = $26.500m

EBIT = $24.577m

If we use the residual PGWRR share price that I have calculated at 20.8c. This means the market capitalisation of PGWRR is:

20.8c x 754.048m = $157m

This gives an EBITDA multiple of: $157m / $26.5m = 5.9

This gives an EBIT multiple of: $157m / $24.577m = 6.4

'Enterprise Value' = Market Capitalisation + Total Debt − Cash
= $157m + 0m - $39.5m
= $117.5m

Combine all that information with the Appendix 4 'Valuation Evidence' in the KM report p54 (dated October 2018) and we get the following comparison:



Company
Enterprise value NZD
EBITDA Multiple FY2019
EBIT Multiple FY2019


Ruralco Holdings (Oz)
$465m
5.8x
7.1x


Elders (Oz)
$853m
9.0x
9.6x


PGW Rural Rump (NZ)
$117.5m
5.9x
6.4x



So what does it all mean?


Takeover deals are usually done on EBIT and EBITDA multiples, rather than PE ratios. If we look at where PGWRR is forecast to sit for FY2020:

EBITDA = $30m

EBIT = $30m - $9.632m = $20.638m

If we use today's PGWRR share price of $2.49. This means the market capitalisation of PGWRR is:

$2.49 x 75.484mm = $188m

This gives an EBITDA multiple of: $188m / $30m = 6.3

This gives an EBIT multiple of: $188m / $20.632m = 9.1

'Enterprise Value' = Market Capitalisation + Total Debt − Cash
= $188m + ($3.920m+$31.742m) - $1.160m
= $223m

Combine all that information with the Appendix 4 'Valuation Evidence' in the KM report p54 (dated October 2018) and we get the following comparison:



Company
Enterprise value NZD
EBITDA Multiple
EBIT Multiple


Ruralco Holdings (Oz) (FY2019)
$465m
5.8x
7.1x


Elders (Oz) (FY2019)
$853m
9.0x
9.6x


PGW Rural Rump (NZ) (FY2020f)
$223m
6.3x
9.1x



So what does it all mean?

SNOOPY

[Snoopy]

Not a question of ‘if’ but ‘when’ Agria will sell imo.


Why would Agria want to fully sell down their PGW stake though, or could they even fully sell down?

Why would Alan Lai downgrade himself from being a 'notable global captain of Agriculture' to a non-descript head of a shell company? The capital repayment should have got the bankers off Alan Lai's back. So unlike before, Agria selling down from here on in would be purely voluntary.

Would the minority Agria shareholders agree to the sale of their only substantial asset so that the cash proceeds could be returned to the effective sole control of Alan Lai with no path available to get their cash returned to them?

Would Agria shareholders agree to sell 'in one lot' their PGW stake for no premium at the current market price, for the current market looks to be already near maximum valuation on comparative metrics? (Edit: On re-examination of the KM report, those figures in the table do not seem to include a premium for control.)

Taking all the above into account, it doesn't look like the sale of Agria's cornerstone PGW stake is likely IMO!

SNOOPY

[sb9]

Agree.................
In the meantime,excellent new Chairman with a refreshed board,sensible CEO,strong balance sheet and an excellent yield.

Combination of those things and my homework/research over last week made me to jump on board.

[tim23]

Can anyone remember how much W & K paid for Fruitfed as I reckon that's the jewel in the business that remains.

[percy]

Can't remember sorry,but yes it remains the jewel in the business.
Remember who controlled W & K at the time,and sold it into PGW?
Could say things maybe going full circle,?

[winner69]

Can't remember sorry,but yes it remains the jewel in the business.
Remember who controlled W & K at the time,and sold it into PGW?
Could say things maybe going full circle,?

It’s like a big jig saw with only a few more pieces to complete eh

[sb9]

ASM tomorrow nice and early at 9.30am in Chch. I'm sure some of posters who attend will give us first hand account of things from there.

[nztx]

Can anyone remember how much W & K paid for Fruitfed as I reckon that's the jewel in the business that remains.


Here is info located online for the Fruitfed takeover by W&K:

http://www.delisted.co.nz/company/fruitfed-supplies-limited


"delisted following the compulsory acquisition by Williams & Kettle - we understand the consideration offered by W&K was $5.00 in cash and 4 W&K shares for every 10 FSL shares"

"Delisted 3 December 1999"


& from Fruitfed Book:


http://www.hortnz.co.nz/assets/UploadsNew/Fruit-Fed-Book-MRes.pdf

" In 1992 the new company issued 8.4 million 50c shares and reserved
2.4 million for growers. The Charitable Trust retained 30 per cent thus ensuring that the Company had a stable major
shareholder and remained committed to its grower clients. Later Williams and Kettle ended up buying the company and in
time Pyne Gould Guiness Wrightson bought it. In Alexandra, Fruitfed’s old logo can still be seen on the old store."

[Snoopy]

A benefit of selling the seed division for well above book value is that it gives PGW a chance to get their debt mountain under control. But going against this is major shareholder Agria who for their own reasons want as large a cash payout as possible. I think it is worth asking the question:

'What shape will PGW be in debt wise if the capital repayment goes ahead as planned?"

One way to answer that is to work out the 'minimum debt repayment time' (assuming all profits were directed to paying off debt) for the company.



FY2012FY2013FY2014FY2015
FY2016FY2017FY2018FY2019 (adj F)


Short Term Bank Loans$29.709m$47.702m$35.573m$57.195m$36.623m$26.7 19m$30.806m$3.920m


add Long Term Bank Loans$111.500m$62.000m$65.000m$66.000m
$97.511m$110.925m$149.205m$31.742m


add Net Defined Benefit Liability (Pension Plan deficit)$26.264m$20.819m$13.528m$14.655m
$25.729m$15.827m$10.574m$10.761m


add Employee Entitlements$17.531m$15.910m$20.837m$20.511m
$20.982m$22.946m$31.163m$31.163m


equals Total Bank and Worriesome Liabiliities {A}$185.004m$146.431m$134.938m$158.361m
$180.845m$175.967m$221.748m$77.568m


NPAT (declared) {B}$24.5m$14.6m (*)$42.3m$32.8m$39.6m$46.3m$27.1m$11.4m


Minimum Debt Repayment Time {A}/{B} (in years)7.5510.023.194.83
4.573.808.186.80



(*) Excludes Goodwill Write Down of $321m

I was under the impression that debt at PGW would come down as a result of selling the seed division. However, this analysis shows it will not happen. When the capital return has been washed out of the system, the balance sheet that is left is still highly indebted (an MDRT figure of 6.8). I would consider anything between 2 and 5 qualifies as 'medium level debt'. They say we are in for a period of sustained low interest rates. It looks like PGWRR will need that.


The FY2019 results are out. So time to update my 'forecast results' to 'actual results'.

A benefit of selling the seed division for well above book value is that it gives PGW a chance to get their debt mountain under control. But going against this is major shareholder Agria who for their own reasons want as large a cash payout as possible. I think it is worth asking the question:

'What shape will PGW be in debt wise once the capital repayment goes ahead as planned?"

One way to answer that is to work out the 'minimum debt repayment time' (assuming all profits were directed to paying off debt) for the company.



FY2012FY2013FY2014FY2015
FY2016FY2017FY2018FY2019


Short Term Bank Loans$29.709m$47.702m$35.573m$57.195m$36.623m$26.7 19m$30.806m$3.920m


add Long Term Bank Loans$111.500m$62.000m$65.000m$66.000m
$97.511m$110.925m$149.205m$31.742m


add Net Defined Benefit Liability (Pension Plan deficit)$26.264m$20.819m$13.528m$14.655m
$25.729m$15.827m$10.574m$5.883m


add Employee Entitlements$17.531m$15.910m$20.837m$20.511m
$20.982m$22.946m$31.163m$16.821m


equals Total Bank and Worriesome Liabiliities {A}$185.004m$146.431m$134.938m$158.361m
$180.845m$175.967m$221.748m$58.366m


NPAT + Impairment & F.V. Adj. (declared) {B}$27.013m (2)$19.769m (1)(2)$41.128m (2)$32.634m (2)$39.810m (2)$44.358m (2)$28.166m (2)$7.187m (2)


Minimum Debt Repayment Time {A}/{B} (in years)6.857.413.284.85
4.543.977.878.12



Notes

(1) Excludes Goodwill Write Down of $321.143m.
(2) Calculation of NPAT and 'Impairment & Fair Value Adjustments' (representing available cashflow for that year) is as follows:

FY2019: $4.000m+$3.187m = $7.187m
FY2018: $27.080m+$3.877m = $30.957m
FY2017: $46.311m-$1.953m = $44.358m
FY2016: $39.578m+$0.232m = $39.810m
FY2015: $32.611m+$0.023m = $32.634m
FY2014: $42.258m-$1.130m = $41.128m
FY2013: ($306.525m)+$321.143m+$5.151m = $19.769m
FY2012: $24.453m+$2.560m = $27.013m

I was under the impression that debt at PGW would come down as a result of selling the seed division. However, this analysis shows it has not happened in an 'ability to service the debt' sense. When the capital return has been washed out of the system, the balance sheet that is left is still highly indebted (an MDRT figure of 8.12). This is the worst figure on record. All the benefits of selling the seed division have been passed through to shareholders, while the underlying leveraged position of PGW has been weakened. I would consider an MDRT of anything between 2 and 5 qualifies as 'medium level debt', so something over 8 means.... They say we are in for a period of sustained low interest rates. It looks like PGWRR will need that.



In the meantime, excellent new Chairman with a refreshed board, sensible CEO, strong balance sheet and an excellent yield.


I can agree with only four out of five of your points Percy.

SNOOPY

[winner69]

In line with Snoops’ expectations?

http://nzx-prod-s7fsd7f98s.s3-website-ap-southeast-2.amazonaws.com/attachments/PGW/342968/310237.pdf

[percy]

Guidance and dividend policy update is positive.
Pity I will miss today's agm.

[winner69]

Not many females present at an PGW ASM - an Indepedent Director and the notional HR person.

some say agriculture is a bloke thing ...hmmmm

http://nzx-prod-s7fsd7f98s.s3-website-ap-southeast-2.amazonaws.com/attachments/PGW/343013/310239.pdf

[winner69]

They say — PGG Wrightson Limited* (PGW) Chairman Rodger Finlay announced today ahead of the annual shareholders meeting that “Whilst it remained too soon to provide firm guidance about expectations for FY2020, the Board reaffirmed confidence that PGW would achieve Operating EBITDA in excess of $30 million (before adjusting for the impact from the new accounting standard for leases: IFRS16).”

What’s the comparative for F19 after allowing for IFRS16

[Snoopy]

Guidance and dividend policy update is positive.
Pity I will miss today's agm.


Underlying NPAT for FY2019 was $10.987m (my post 4642) based on EBITDA of $28.725m. That is equivalent to eps of 14.6c. Dividend over the last year was the equivalent of 15cps. So dividends are already greater than underlying earnings, albeit 'in the ballpark'. If EBITDA rises to something above $30m that corresponds to an EBITDA increment of $1.175m. If all of that flows through to profit, then the incremental eps is:

($1.175m x 0.72) / 75.484m = 1.1cps

The forecast increase in interim dividend from 7.5cps to 8cps will be covered by this. As will an increase in final dividend to the same. So no real news in this mornings announcement, except that it looks like all earnings will be paid out as dividends into the future. The influence of Agria continuing?

It is a mathematically dodgy thing to do to extrapolate from a small number of data points. But if we take last years dividend of 15cps and link that in to a possible dividend of 16cps for FY2020, that makes for a 15.5cps average. If I use my pre-established gross required yield for this company of 8.5%, we can calculate a 'gross dividend capitalised valuation' of PGW as follows:

15.5c/ (0.72 x 0.085) = $2.53

That is fairly close to where the company is trading right now. The MDRT threat that I outlined in 4657 is real. But it will only become apparent if interest rates start to rise again. And as Stephen Guerin has announced a new lower more competitive interest rate he has negotiated with the banks, he has effectively kicked this 'debt threat' down the road.

SNOOPY

PS I have to miss this years AGM too :-(. I hope some sharetrader can report in!

[Snoopy]

They say — PGG Wrightson Limited* (PGW) Chairman Rodger Finlay announced today ahead of the annual shareholders meeting that “Whilst it remained too soon to provide firm guidance about expectations for FY2020, the Board reaffirmed confidence that PGW would achieve Operating EBITDA in excess of $30 million (before adjusting for the impact from the new accounting standard for leases: IFRS16).”

What’s the comparative for F19 after allowing for IFRS16?

Have a look at AR2019 Note 29h Winner. Under IFRS16, operating expenses are expected to decrease by $21.4m. But interest charges are expected to rise by $6m and depreciation goes up by $16m. By my maths this equates to a change in 'Net Profit After Tax' if IFRS16 had been in force over FY2019 of:

0.72 x ( $21.4m - $16.0m -$6.0m ) = -$0.432m

SNOOPY

[winner69]

Have a look at AR2019 Note 29h Winner. Under IFRS16, operating expenses are expected to decrease by $21.4m. But interest charges are expected to rise by $6m and depreciation goes up by $16m. By my maths this equates to a change in 'Net Profit After Tax' if IFRS16 had been in force over FY2019 of:

0.72 x ( $21.4m - $16.0m -$6.0m ) = -$0.432m

SNOOPY

So one has to be careful using EBITDA comparisons then ....making sure comparing apples to apples

[Snoopy]

So one has to be careful using EBITDA comparisons then ....making sure comparing apples to apples


I was going to agree with you unreservedly, until I realised that most of the changes that PGW have told us are coming because of IFRS16 concern an increase a $6.0m in interest payments (not relevant to Earnings Before Interest and Depreciation and Amortisation) and an increase in depreciation of $16.0m (not relevant to Earnings Before Interest and Depreciation and Amortisation).

However the decrease in expenses of $21.4m looks like it will stand in any revised EBITDA figure. So EBITDA going forwards will look like it has jumped considerably, even as NPAT has gone down. So yes it does seem that EBITDA will be significantly distorted by the adoption of IFRS16, and I do agree: An apples with apples comparison as regards EBITDA year on year looks like something we investors will have to be particularly careful with.

SNOOPY

[winner69]

Main thing Snoops is the $30m plus they say for F20 is comparable to the $28m reported for F19

That’s good eh ...esp if they seduce us with high dividends

And then a takeover is pretty likely as well.

[percy]

Positive seeing the share price up 3 cents to $2.51 after today's agm..
Reflects the market's confidence in PGW's new directors/management.

[Snoopy]

Positive seeing the share price up 3 cents to $2.51 after today's agm..
Reflects the market's confidence in PGW's new directors/management.

Not only that, I see it was bid up to $2.53 at the close. That neatly coincides with my latest 'capitalised dividend fair valuation'. Although possibly the rise is just as likely connected with the higher Fonterra payout announced yesterday.

Hey Percy, I thought you were steering clear of retail? What got you on board with this one?

SNOOPY

[percy]

A presentation I attended a year ago,gave me greater insight to their business model .[Although I have held PGW previously]
My book selling business I did from my garage.I went direct to libraries.Not like a retailer who waits for customers to come to them.
PGW's business is similar.PGW agents/reps call on their clients.Calling on a farmer/fruit grower etc client, they must be able to know all their clients needs, and work with their client so they achieve very good results.
The on going success of PGW is based on the advice,service their reps give.The trust they develop with their clients.
PGW have invested heavily in making sure their reps have all the technology at hand they need,so they give the right advice.

[Rossimarnz]

Is PGW's livestock business about to experience an 'Uber' like disruption? https://stockx.co.nz/ I appreciate there are other business channels within PGW but in many cases the relationships that these other business channels leverage are initially formed in the stock agent side of the business.

[percy]

I would expect farmers will check this platform out along side PGW and ALF's, and decide which one suits their needs.

[Snoopy]

Is PGW's livestock business about to experience an 'Uber' like disruption? https://stockx.co.nz/ I appreciate there are other business channels within PGW but in many cases the relationships that these other business channels leverage are initially formed in the stock agent side of the business.

From p17 in PGW AR2019"

"Innovation continues to be a focus for the Livestock team with a major project coming to fruition during the year. PGW’s new online livestock trading channel, bidr®, was delivered to market during the last quarter of FY2019. bidr® has the potential to be a gamechanger in the livestock trading market with strong interest from the industry to date. In addition, digital tools for the highly mobile Livestock team were delivered throughout the year to keep agents up to date with the latest market intelligence."

This looks like PGW have something equal to 'StockX' in their arsenal already. PGW have an additional advantage in that they are able to provide in house finance via their GoBeef and GoLamb programs. More information on StockX is here:

https://www.nzherald.co.nz/farming/news/article.cfm?c_id=195&objectid=11856447

I see Heartland are financing purchases through StockX. That will anger PGW who had signed up with Heartland to do all of their financing through Heartland owned "PGG Wrightson Finance". However, with PGW setting up their own in house finance operation again under another name (GoBeef and GoLamb) it is no less a competition challenge than PGW management deserve.

"The soundness of purchases is helped by StockX's secure online environment, standardised descriptions for each class and category of livestock, funds settled through an independently audited trust account and user-based feedback on buyer and seller completed transactions"

Is there a way outsiders can follow the 'user based feedback' so we can judge how well this new platform is going?

SNOOPY

[Rossimarnz]

For me there is potential for this to become something similar to what the Trade Me real estate platform has become. It starts out as a platform for individual farmers, followed by the independent stock agents before becoming a platform for the more traditional stock agent companies. While not replacing the traditional companies it does force them into a more transparent and competitive platform. The traditional model at the moment probably has a valid selling point that it has access to the most buyers which is a critical factor when selling. If overtime they all end up on the same platform this advantage is negated somewhat.

[Balance]

For me there is potential for this to become something similar to what the Trade Me real estate platform has become. It starts out as a platform for individual farmers, followed by the independent stock agents before becoming a platform for the more traditional stock agent companies. While not replacing the traditional companies it does force them into a more transparent and competitive platform. The traditional model at the moment probably has a valid selling point that it has access to the most buyers which is a critical factor when selling. If overtime they all end up on the same platform this advantage is negated somewhat.

Farmers and trading platform?

Try farmers and livestock trading with the freezing companies.

Too smart for that nonsense. ;)

[Snoopy]

From the May 9th 2019 announcement to the market

"On settlement of the Seed and Grain business PGW repaid its bank facilities while the Board assessed the appropriate quantum of the capital return. Prior to making a formal recommendation to shareholders, new bank facilities will be arranged and shareholders will be provided with detailed explanatory information to assess the merits of the proposal. These materials will inform PGW shareholders about the proposed capital distribution and the pro-forma financial position of the company post-distribution."

Given that after a $235m capital repayment to shareholders, PGWRR should be able to run 'debt free'(*), I wonder why they even need new bank facilities?

SNOOPY

(*) Having just sold off the store network, the resultant leases are now - no doubt - waiting to appear on the PGWRR balance sheet as debts, that to the new accounting standards regarding leases has created.


This 19th June post of mine couldn't have been more wrong. I do note that we haven't yet seen the impact of 'lease debts' appearing on the balance sheet. That will make things even worse. But having sold the seed business, and bolstered the balance sheet of shareholders in the process, PGW have left their own balance sheet in what I would kindly call a 'stretched position'. Relative to income PGW are more heavily indebted than in any time over the last ten years. The seed business has gone and that will make earnings from the 'rural rump' that is left more volatile. We have heard today that the likes of 'StockX' are ready to disrupt the PGW livestock arm, currently its biggest earner. I think PGW are under pressure. How can this weakening of the balance sheet at a most critical time have happened?

The $235m capital repayment we shareholders got was well down on the $292m proposed in the Korda Mentha report (detailed on p36). I would have thought the suggested capital repayment we didn't get would have boosted the PGWRR balance sheet to the extent that all medium term worries were removed. Yet, somehow millions of dollars worth of capital must have been leaking from PGW in recent years, out of the headline sight of shareholders, to bring them to the precarious capital position that PGW is in today. So how did it all unfold?

SNOOPY

[percy]

Year 2020 forecast equity ratio is 46%.Very sound.

[Snoopy]

Somehow millions of dollars worth of capital must have been leaking from PGW in recent years, out of the headline sight of shareholders, to bring them to their precarious capital position PGW is in today. So how did it all unfold?


Of all the NZX listed companies that have in house pension plans, I don't know of one in a worse position than the PGG Wrightson plan. It has been underwater for the entire existence of PGG Wrightson. The ten year picture is shown below.

In the table below, I am effectively looking at the pension schemes as a 'black box' and observing the cashflow that comes in and out. The information in this table can be found in the respective annual reports under the header "Defined Benefit Asset/Liability" (e.g. Note 20 in AR2017).

PGW Pension Plan(s) External Cashflows



Financial YearPension Plan Deficit EOFYPGW Contribution {A}Members Contribution {B}Total Contribution {A}+{B}Benefit Paid {C}Net Cash Movement {A}+{B}-{C}


2009-$13.680m$1.709m$1.556m$3.265m($11.111m)($7.846m)


2010-$18.206m$3.127m$1.651m$4.778m($5.631m)($0.853m)


2011-$16.970m$3.622m$1.378m$5.000m($4.980m)$1.398m


2012-$26.264m$2.727m$1.363m$4.090m($3.819m)$0.271m


2013-$20.819m$1.402m$1.364m$2.766m($6.412m)($3.646m)


2014-$13.528m$1.427m$1.337m$2.764m($4.709m)($1.945m)


2015-$14.665m$1.301m$1.300m$2.601m($5.304m)($2.703m)


2016-$20.715m$1.204m$1.254m$2.458m($3.482m)($1.024m)


2017-$12.271m$5.920m$1.199m$7.119m($6.010m)$1.109m


2018-$7.722m$3.011m$1.170m$4.181m($8.914m)($4.773m)


2019-$5.883m$8.455m$1.268m$9.723m($14.044m)($4.321m)


Bold Total$17.386m



Why have I highlighted the contributions of PGW to the pension plan over the last three years only? In the FY2017 report, PGW states:

"Previous expensing of the return on plan assets for the 2014 through to the 2016 year (Snoopy note: if this 'expense' ends up being negative then profits increase) have now been recognised through other comprehensive income."

So for the years 2016 and older, the money that PGW have pushed into supporting the pension plan has been taken out of the headline profits. To show what has happened, 'Basic Earnings Per Share (Continuing Operations)' was listed as 5.3cps in the AR2016 'Statement of Profit & Loss'. Yet the equivalent comparative figure, also relating to FY2016 in AR2017 was 5.8cps. This difference was solely due to the removal of a $5.835m 'Remeasurement of Profit and Loss' (offset by a $1.634m 'Deferred tax on remeasurements of defined benefit liability') making a net -$4.201m 'item that will never be classified to profit and loss'. [see my post 4135 on this thread for more detail]

Yet this $4.201m pension plan propping is 'real cash' that otherwise would have been available to shareholders to pay higher dividends, or shore up the capital position of the company. If we study the cashflow statements for the last three years, the actual cash required to prop up the pension plan is more than finds its way into the pension plan:




Cashflow Lump Sum Contribution to Plan {A}Contributions paid into Plan {B}
{A}-{B}
({A}-{B})/{A}


2017$7.551m$5.920m$1.631m21.6%


2018$2.842m$3.011m-$0.169m-5.9%


2019$10.274m$8.455m$1.819m17.7%


Total$20.667m$17.386m



I do not understand why the 'cash flow attributed to propping up the pension plan' is not the same as the 'contributions paid into the plan'. Anyone know? But whether the cash lost by shareholders doing this is $20.667m or $17.386m, it is still a lot of money. The lions share of PGWs base bank debt of $30m going forwards in fact.

Still, at least this hidden cash drain behind the scenes has shored up the pension plan at long last -right?
Unfortunately not, because the ten year government bond rate, a key driver in calculating the required pension fund asset position since the balance date of 30th June has declined further from 1.69% to 1.23% as I write this. Also the earnings capacity of the company has approximately halved due to the sale of the seeds division. That means the record low pension scheme deficit of $5.883m (approximately $6m) will still require an equivalent percentage of profits to be raked off as the $12m deficit at EOFY2017. And that means, after approximately $20m has been spent propping up the pension plan, the effective position of the pension plan for PGW shareholders now is no better than it was at EOFY2017!

SNOOPY

[Snoopy]

Somehow millions of dollars worth of capital must have been leaking from PGW in recent years, out of the headline sight of shareholders, to bring them to their precarious capital position PGW is in today. So how did it all unfold?


Note 18 of AR2019 contains a very interesting disclosure:

------

Corporate Structure review

Following the divestment of the Seed & Grain business the PGW Board commenced a review of the corporate service model for the business. The Group has recognised costs of $3.02 million, expensed through non-operating items, in respect of the recalibration. As at 30 June 2019, a provision of $1.74 million was held and is included within accruals and other liabilities above.

-------

Once again a recognised cost of $3.02m has been diverted through 'non-operating items'. That is fair, but it does keep a very significant loss of money for shareholders out of the limelight. Putting the remaining balance in 'Accruals and other liabilities' will obfuscate this loss in a basket to be forgotten in future years. Yet it is real cash that shareholders have lost, and a real contribution to the weakening of the company structure going forwards.

SNOOPY

[Snoopy]

Somehow millions of dollars worth of capital must have been leaking from PGW in recent years, out of the headline sight of shareholders, to bring them to their precarious capital position PGW is in today. So how did it all unfold?


This one caught out more than one company, but the cost of putting it right for PGW was nevertheless severe! At least this faux pas was not hidden from shareholders. It was up front in the profit and loss statement. From AR2018, Note 20 explains:

-----

Holidays Act 2003 - Remediation Costs

During the period the Group recognised an $8.06 million provision for remediation costs of historical liabilities under the Holidays Act 2003. The Group has engaged the services of an external advisor and a law firm to assist in determining the level of the provision. Work on determining the final liability is not yet complete. The provision is included within Employee entitlements above, and represents the Management’s best estimate of the remediation costs.

----

Note 20 goes on to list employee entitlements rising from $31.163m at EOFY2018 from $22.946m at EOFY2017, a rise in value of $8.217m, most likely almost entirely due to the Holiday's Act debacle.

Then one year later, from note 18 in AR2019, we learn:

-----

The Group has now completed the remediation work and has made remediation payments to current staff and those terminated staff for which the Group has been able to make contact with. Following these payments the remaining provision has been released apart from an amount of $1.20 million which continues to be held in respect of terminated employees for which the Group is yet to make contact with.

------

From the 'Statement of Profit and Loss' for FY2019, the amount written back was $2.303m. So the original provisioning was conservatively generous and the final capital used to sort out this sorry affair was:

$8.060m - $2.303m = $5.757m

Nevertheless that was a not inconsiderable capital ejection that otherwise might have been available to shore up the capital position of the company.

At EOFY2019, $16.821m was the amount listed under 'Employee Entitlements' under 'Trade and Other Payables' at EOFY2019. This represents 'Employee Entitlements' from the NZ based rural retail and livestock operation only, the 'Employee Entitlements' from the seed division having been hived off. If we take the FY2018 'Employee Entitlements' for the whole operation, including seeds, and subtract the holiday act entitlements accounted for at the time -and today's remaining total- we get:

$31.163m - $16.821m - $8.060m = $6.282m

This figure gives some indication of the 'Employee Entitlements' that might have been transferred to the 'Seed Division' after its sale.

SNOOPY

[Snoopy]

Somehow millions of dollars worth of capital must have been leaking from PGW in recent years, out of the headline sight of shareholders, to bring them to the precarious capital position that PGW is in today. So how did it all unfold?


In note 18 of AR2019, we learn of another capital loss shuffled into non-operating earnings.

-----

Onerous lease

The Group has recognised a provision in respect of property leases entered into that are now considered onerous. An onerous provision of $1.88 million has been expensed within non-operating items and represents the Directors’ best estimate of the expected excess of costs over benefits for the remaining term of the lease contracts.

-----

This doesn't seem consistent with the treatment of lack of holiday pay. Workers are employed to operate the company and building's are leased so that workers can operate out of them. I would have thought that both should be operating expenses or alternatively, because both adjustments are in theory one offs, both should be non-operating expenses. I don't see the logic in having different treatments for both. But let's carry on.

$1.88m is not a huge loss on its own. Yet this loss comes in the context of PGW owning a huge swag of their retail premises, and selling them off to raise capital, while consummately entering lease back arrangements to reduce debt. Of course, the net effect of all this will be undone by the new IFRS accounting rules for leases in the next accounting period. The new rules means that operating leases will now appear on the balance sheet as capitalised debt. The point I am making is that this particular lease loss looks like it could be a back flip on a very recent lease deal. And that doesn't inspire confidence in the short to medium term planning from the company.

SNOOPY

[Snoopy]

Somehow millions of dollars worth of capital must have been leaking from PGW in recent years, out of the headline sight of shareholders, to bring them to the precarious capital position that PGW is in today. So how did it all unfold?


I am not quite sure why our savvy farmers are keen to outlay cash for goods or services that they have not received. But it looks like they have woken up as over the last two years these deposits are down. From the 'Trade and Other Payables' (Note 18 AR2019) sections of the respective annual reports.



FY2017FY2018FY2019


Deposits Received in Advance$3.589m$3.196m$1.042m



This drop off could be related to the sale of the seed division. It is possible that farmers would be OK with putting up money for seeds in advance, in return for a guarantee of supply on the dates they want. Or perhaps the other retailers of wholesale seeds were the ones putting up the cash in advance? This is just a theory of mine. Perhaps someone who is closer to the farm community on the ground could confirm or deny. Yet the figures in the accounts do not lie If deposits are down by:

$3.589m - $1.042m = $2.547m

and that capital is needed. Then it must be borrowed. A $2.547m reduction in deposits is another brick in the PGW debt wall.

SNOOPY

[BlackPeter]

Snoopy, very interesting bits and pieces you uncover from PGW's accounts ... thanks - feels more like watching an unfolding crime story rather than reading dry accounts!

I am just watching this company from the sidelines, but for shareholders I could imagine you might make some of them nervous (which is a good thing) ...

Just out of curiosity - you used to hold PGW, didn't you? Are you still holding?

[percy]

Year 2020 forecast equity ratio is 46%.Very sound.

No one can get nervous with that equity ratio.
And PGW will be paying increasing fully imputed divies with a gross yield of over 9%.

[winner69]

No one can get nervous with that equity ratio.
And PGW will be paying increasing fully imputed divies with a gross yield of over 9%.

Equity Ratio 40% but leverage about 20% so no worries re ‘lack of capital’

Numbers from. Pgw presto but no idea if latest,

[Snow Leopard]

Me thinks that Snoopy is delibrately down-ramping this so that he can fill his bowl up on the cheap.

PGW accounts have always been fun (and I use that word in a sarcastic way) to work through.
Add in the ever changing accounting standards and the recent drastic transformation into a smaller and hopefully leaner company and I expect extracting the true underlying performance will be as interesting (sarcasm again) in the future.

Maybe I should hope that someone buys the rest of the company off us and saves me a few hours ever year.

[percy]

Equity Ratio 40% but leverage about 20% so no worries re ‘lack of capital’

Numbers from. Pgw presto but no idea if latest,

My figures are from a very reputable broker's research dated 24th October 2019.

[winner69]

My figures are from a very reputable broker's research dated 24th October 2019.

Same numbers - just a different way of expressing them

I think leverage more commonly used (and understood) for non-fianancuals - like debt is 20% of total debt + equity ..no worries there

[percy]

Same numbers - just a different way of expressing them

I think leverage more commonly used (and understood) for non-fianancuals - like debt is 20% of total debt + equity ..no worries there

Agree.
Strong financials.

[winner69]

Agree.
Strong financials.

Agree percy

This touted ‘shortage of capital for FY2020’ wouldn’t be an issue if they hadn’t returned $235m to shareholders eh

[percy]

Agree percy

This touted ‘shortage of capital for FY2020’ wouldn’t be an issue if they hadn’t returned $235m to shareholders eh

It is still not an issue.

[winner69]

It is still not an issue.

..but I keep reading about pgw’s shortage of capital on the Internet ...so it must be an issue

[percy]

..but I keep reading about pgw’s shortage of capital on the Internet ...so it must be an issue

Ignore the noise.

[Snoopy]

Snoopy, very interesting bits and pieces you uncover from PGW's accounts ... thanks - feels more like watching an unfolding crime story rather than reading dry accounts!

I am just watching this company from the sidelines, but for shareholders I could imagine you might make some of them nervous (which is a good thing) ...

Just out of curiosity - you used to hold PGW, didn't you? Are you still holding?


Yes BP, I am still a PGW shareholder.

In fact, I significantly increased my holding prior to the capital repayment. I did this in anticipation of getting much of my capital back in the capital repayment. And also because I thought holding shares in:

1/ NZ's leading agricultural retailer,
2/ a retailer diversified across many different agricultural sectors,
3/ in a slimmed down but now far better capitalised PGWRR structure

would be a good idea. The potential dividend yield was an attraction too, even if, being a holder for a while, I am aware that I might expect this dividend to fluctuate across the business cycle. I don't subscribe to the ever increasing dividend theory expounded by some. I think PGW is probably a good thing to own but only at the right price. I still believe in all but one my reasons for holding. The part of my investment story I am having trouble with is point 3 above.

SNOOPY

[Snoopy]

Somehow millions of dollars worth of capital must have been leaking from PGW in recent years, out of the headline sight of shareholders, to bring them to the precarious capital position that PGW is in today. So how did it all unfold?


PGW was making much needed capital by selling their company owned premises to third parties and leasing them back. So what is all this about PGW losing money on property? PGW have certainly been vocal around the sell down of their property portfolio, but rather less forthcoming about their 'IMPAIRMENT AND FAIR VALUE ADJUSTMENTS' (Note 4 AR2019):



FY2017FY2018FY2019


Impairment Property Plant & Equipment$0.0m$1.070m$2.260m



A clue to what is going on is that the referenced FY2018 comparative figure is unchanged from when it was reported in the FY2018. Since the FY2019 reports are prepared from the point of view of a wholly owned New Zealand perspective, this indicates the 2018 write downs also solely relate to the New Zealand business. The only thing I can find in the verbal commentary of each year which even hints at NZ based property losses is the continued rationalisation of surplus stock sales yards. This rationalisation is not quantified in the text. The impairment figures quoted are not explained further in the annual report notes. I think it is reasonable to link the two (the missing quantification of the losses in the text with the unexplained effect of dollar losses in AR2019 Note 4.)

All up capital losses from property plant and equipment in the last couple of years come to:

$1.070m + $2.260m = $3.330m

SNOOPY

[Balance]

I find Snoopy's analysis of PGW useful (and sometimes, very insightful) so will always take note.

Certainly PGW's financials have gone through all kinds of somersaults in recent years - mostly at the instigation (imo) of the now disgraced and neutered major shareholder, Agria.

Post the capital repayment, the emergence of the Cushings as the principal driver (imo) of PGW's strategy going forward and the high level of corporate activity in the sector in Australia, I do not share Snoopy's concerns about PGW's financial position.

If anything, I think that PGW is now over-capitalized.

My numbers post the capital repayment and dividend payout :

Net debt $33m

Equity $158m

Committed bank facilities - core $50m and seasonal working capital debt $75m - provide plenty of flexibility.

EBITDA forecast of $30m - interest over will be over 10 times.

[percy]

Added to my holding today at $2.46."Interim dividend of not less than 8 cents ps" remains the catalyst.
Still have not added to the wife's.

[Snoopy]

Somehow millions of dollars worth of capital must have been leaking from PGW in recent years, out of the headline sight of shareholders, to bring them to the precarious capital position that PGW is in today. So how did it all unfold?


PGW has on the accounts a 'Bad Debt Provision' in which management judgement is used to provide for debts that are unlikely to be fully repaid. The treatment of bad debts was changed over FY2019 with the adoption of IFRS9. From p50 in AR2019.

-------

NZ IFRS 9 Financial Instruments

The Group has applied NZ IFRS 9 from 1 July 2018. The new standard changes how the impairment of financial assets are calculated from an ‘incurred credit loss’ model to an ‘expected credit loss’ model. Based on the Group’s assessment of historical provision rates and forward looking analysis, the Group has recognised an additional provision of $0.45 million as at 30 June 2018 which is expensed directly to Retained Earnings upon adoption of NZ IFRS 9.

------

In non accounting terms:

'expensed directly to Retained Earnings upon adoption of NZ IFRS 9'

means they have taken shareholder capital without telling them. Or at least they have excised this loss from the company's 'Profit & Loss' statement, which takes it away from plain view. That doesn't make the loss any less real though!

An increase in bad debts caused by this accounting rule change in consistent with what other NZ companies have experienced on adoption of IFRS9. There is nothing unique to PGW here.

Each year, whatever the particular standard is in place, a doubtful debt expense is used to add to the bad debt provision and there is an additional expense of bad debts actually written off. This information can be found under note 3 and note 11 of AR2019:




FY2019FY2018


Increase in Provision for Doubtful Debts
$1.072m$0.529m

[/TR]

Bad Debts Written Off
$0.485m($0.543m)


IFRS 9 Standard Adjustment
$0.450m $0m


Total
$2.007m($0.014m)



Sometimes bad debts are unexpectedly are recovered. Evidence of that was the 'negative expense' (i.e. a net debt recovery) that took place in FY2018. Yet even if we exclude that the doubling of the bad debt provision expense and the extra capital loss adjustment means an extra:

($1.072m - $0.529m) + $0.450m = $0.993m

or nearly $1m of extra hard earned shareholder capital has gone down the drain mitigating bad debts in FY2019 compared to the previous year.

SNOOPY

[Balance]

PGW has on the accounts a 'Bad Debt Provision' in which management judgement is used to provide for debts that are unlikely to be fully repaid. The treatment of bad debts was changed over FY2019 with the adoption of IFRS9. From p50 in AR2019.

-------

NZ IFRS 9 Financial Instruments

The Group has applied NZ IFRS 9 from 1 July 2018. The new standard changes how the impairment of financial assets are calculated from an ‘incurred credit loss’ model to an ‘expected credit loss’ model. Based on the Group’s assessment of historical provision rates and forward looking analysis, the Group has recognised an additional provision of $0.45 million as at 30 June 2018 which is expensed directly to Retained Earnings upon adoption of NZ IFRS 9.

------

An increase in bad debts caused by this accounting rule change in consistent with what other NZ companies have experienced on adoption of IFRS9.

Thanks, Snoopy.

All these accounting changes are getting out of control to follow and understand - so glad you are keeping on top of them.

[Snoopy]

Somehow millions of dollars worth of capital must have been leaking from PGW in recent years, out of the headline sight of shareholders, to bring them to the precarious capital position that PGW is in today. So how did it all unfold?


Parts 2 to 8 of this series have outlined the capital that has disappeared in 'extraordinary circumstances' since the sale of the seed division was contemplated. All of these events were left out of the Korda Mentha analysis, probably because they were not easy to cost out with accuracy. But now events have unfolded, the 'extra capital bill' has come in.




FY2018 to FY2019


Part 2: Cash to Fix Pension Plan Deficit (All Other Income)
$20.677m


Part 3: Corporate Restructuring
$3.020m


Part 4: Holiday Back Pay Reassessment
$5.757m


Part 5: Impaired Lease Losses
$1.880m


Part 6: Reduction in Customer Deposits
$2.547m

[/TR]

Part 7: Unusual Property Plant and Equipment Impairment
$3.330m


Part 8: Unusual Increase in Bad Debts (Other Income $0.450)
$0.993m


Total
$38.204m



Here at last in one place is a tally of capital that shareholders have lost since the whole seed sale deal was mooted.

Observe that the total capital lost ( $38m) exceeds the base bank debt of circa $30m at balance date for PGW today. If none of these losses had occurred, then PGW could be debt free now (at EOFY balance date anyway, we know that working capital of up to $70m is needed during the year). The circa $30m actual core debt, which may yet balloon out to $50, represents a perpetual interest bill to shareholders, at an interest rate of 5% (say) of:

$30m x 0.05 = $1.5m per year

This 'perpetual bill' is something that the Korda Mentha report didn't tell any shareholders about!

SNOOPY

[Snoopy]

I was under the impression that debt at PGW would come down as a result of selling the seed division. However, this analysis shows it has not happened in an 'ability to service the debt' sense. When the capital return has been washed out of the system, the balance sheet that is left is still highly indebted (an MDRT figure of 8.12). This is the worst figure on record. All the benefits of selling the seed division have been passed through to shareholders, while the underlying leveraged position of PGW has been weakened. I would consider an MDRT of anything between 2 and 5 qualifies as 'medium level debt', so something over 8 means.... They say we are in for a period of sustained low interest rates. It looks like PGWRR will need that.


My work on 'Capital Loss Cumulation' has lead me to an alternative view on MDRT for FY2019.

In my last calculation of MDRT for FY2019, I took out the capital repayment due to shareholders. That gave me an 'after capital was paid back' view of what was happening. I considered that the correct approach, because I knew that this capital repayment was imminent - and it has since happened (calculation in 'Iteration i'). However, I now think that this capital repayment could have been stopped by the funding banks if they considered the 'PGW Rural Rump' that would be left, would be left seriously undercapitalised. So I now think that perhaps I should have used the actual profit for the year, which included the gain from the seed division sale (calculation in 'Iteration ii').

There is a third way of looking at this. At balance date, PGW had repaid all bank debt and had a strong 'cash on hand' balance. So there was no net debt to repay and the MDRT at that time was zero, even though 'at the time' plans were afoot to re-establish a significant bank loan. However, this was a snapshot in a transitory process. So this 'third way' is more a mathematical curiosity of a moment in time rather than a serious statistic on which to judge the debt position of the company as it moves into 2020.




FY2019 (iter. 1)
FY2019 (iter. 2)


Short Term Bank Loans
$3.920m
$3.920m


add Long Term Bank Loans
$31.742m
$31.742m


add Net Defined Benefit Liability (Pension Plan deficit)
$5.883m
$5.883m


add Employee Entitlements
$16.821m
$16.821m


Total Bank and Worriesome Liabiliities {A}
$58.366m
$58.366m


NPAT + Impairment & Fair Value adj. {B}
$7.187m (i)$113.876m (ii)


Minimum Debt Repayment Time {A}/{B} (in years)
8.120.51



Notes

Iteration i (Assuming Profits from Seed Sales paid through to Shareholders)

(i) Calculation of NPAT and 'Impairment & Fair Value Adjustments' (representing available cashflow for FY2019) is as follows:

FY2019: $4.000m+$3.187m = $7.187m

Iteration ii (Assuming Actual Profits as Declared)

(ii) Calculation of NPAT and 'Impairment & Fair Value Adjustments' (representing available cashflow for FY2019) is as follows:

FY2019: $131.806m+$3.187m- ($20.667m +$0.450m) = $113.876m

It looks to me as though management have tried to get as many cobwebs out of the drawers as possible, like the 'Shock Capital Loss Cumulation', where all these sins could be covered by the mega profit of selling the seeds division: The idea being to 'wipe the slate clean' for a simplified FY2020. And because of the huge profit from the sale of the seeds division that subsumed any 'wipe the slate clean' losses, PGW should have set themselves up well for future years.

SNOOPY

[Snoopy]

It looks to me as though management have tried to get as many cobwebs out of the drawers as possible, like the 'Shock Capital Loss Cumulation', where all these sins could be covered by the mega profit of selling the seeds division: The idea being to 'wipe the slate clean' for a simplified FY2020. And because of the huge profit from the sale of the seeds division that subsumed any 'wipe the slate clean' losses, PGW should have set themselves up well for future years.


Time to look forwards to the current year to see if there is any ongoing substance to this 'debt issue'. The first step is to forecast a 'net profit after tax' assuming that the EBITDA figure of $30m for FY2020 becomes reality.



PGG Wrightson Rural Rump FY2020f


EBITDA$30.000m


less DA$9.632m


less I$3.826m


equals EBT$16.542m


x 0.72 equals NPAT {A}$11.910m
205m

No. shares on issue {B}75.484m


eps {A}/{B}15.7c



We have no clear idea of what the bank loan position, balance of money owing to employees or deficit of the pension plan will be on 30th June 2020. So I am using the indicative figures for PGW today after the capital return as estimates.




FY2019 (iter. 1)
FY2020f


Short Term Bank Loans
$3.920m
$3.920m


add Long Term Bank Loans
$31.742m
$31.742m


add Net Defined Benefit Liability (Pension Plan deficit)
$5.883m
$5.883m


add Employee Entitlements
$16.821m
$16.821m


Total Bank and Worriesome Liabiliities {A}
$58.366m
$58.366m


NPAT + Impairment & Fair Value adj. {B}
$7.187m (i)$11.910m


Minimum Debt Repayment Time {A}/{B} (in years)
8.124.90



Notes

Iteration i (Assuming Profits from Seed Sales paid through to Shareholders)

(i) Calculation of NPAT and 'Impairment & Fair Value Adjustments' (representing available cashflow for FY2019) is as follows:

FY2019: $4.000m+$3.187m = $7.187m

------

My rule of thumb for the MDRT answer in years is:

years < 2: Company has low debt
2< years <5: Company has medium debt
5< years <10: Company has high debt
years >10: Company debt is cause for concern

So a figure of 4.9 is not a bad result, but neither is it good. It is better than the recent peak figure of the pre-split PGW from FY2018 (7.87), but worse than the four preceding years before that FY2017 (3.97), FY2016 (4.54), FY2015 (4.85) and FY2014 (3.28). I would describe PGWs current position as being 'one shock away from trouble'. Yes the potential gross dividend yield today may look attractive:

15.5c / ($2.46 x 0.72) = 8.8%

(Note: a 15.5c annual dividend represents a projected dividend payout ratio of 99%)

But this is not a bond substitute.

I would advise investors not to 'bet the farm' on PGW. But as part of a balanced income portfolio, where as an investor you are aware of what a farming downturn might do to this investment, I think a shareholding in PGW has its place.

SNOOPY

discl: shareholder

[Snoopy]

Unaudited liabilities for the PGGW group as at 31st December 2009, after the proceeds of the Agria placement and subsequent rights issue was $993.8m. "Senior Debt Coverage Ratio" (SDCR) ="Senior Debt"/EBITDA

Senior Debt is bank Debt (held with ANZ National, BNZ and Westpac)=$197.9m+$75m(Working Capital)=$272.9m. Junior Debt is a $25m facility with South Canterbury Finance. Each year for >30days the Working Capital facility must reduce to zero.

SDCR<4.0 by 30-06-2010, SDCR<3.5 by 30-09-2010, SDCR< 3.00 by 31-12-2010 onwards.


Ten years on, how are we looking for FY2020? Using my 'forecast data' from post 4701

Senior Debt Coverage Ratio" (SDCR) ="Senior Debt"/EBITDA
=( $3.920m + $31.742m ) / $30m = 1.18 < 3.00 (good)

That is the balance date figure. Things don't look quite so good with $70m of seasonal bank finance thrown in:

Senior Debt Coverage Ratio" (SDCR) ="Senior Debt"/EBITDA
=( $3.920m + $31.742m + $70m ) / $30m = 3.52 > 3.00 (bad)

This suggests to me that on current EBITDA forecasts, PGW is now 'geared to the max'. But perhaps banks are OK with seasonal breaches of their covenants?

SNOOPY

[Snoopy]

This info is taken from the 'simplified disclosure prospectus' on made for the 2009 rights issue, page 45, additional numbers from p66 and page 68. There is an additional banking covenant called the "Fixed Cost Coverage Ratio" (FCCR).

FCCR>1.85 by 30-06-2010, FCCR>2.0 by 30-09-2010, FCCR>2.0 by 31-12-2010 onwards.

FCCR= [EBITDA+Lease Expenses] / [Total Interest(less interest income in cash)+Lease Expenses]

=[$18m+$29.8m]/[$37.34+$29.8m]= 0.71 (if EBITDA= $18m)
=[$45m+$29.8m]/[$37.34+$29.8m]= 1.11 (if EBITDA= $45m)

I havn't quite figured out why lease expenses are in there (can anyone help here?). But it does look like PGW are in trouble by this measuring stick as well.


Another ten years on update

FCCR= [EBITDA+Lease Expenses] / [Total Interest(less interest income in cash)+Lease Expenses]

= [$30m + $21.904m] / [$3.826m + $21.904m] = 2.0 > 2.0

The fixed cost coverage ratio just passes but with nothing to spare. More evidence that PGW is 'mortgaged to the max'

SNOOPY

[Snoopy]

I do not share Snoopy's concerns about PGW's financial position.


Fair enough. The wider the diversity of opinions, the less likely we are to 'miss something'




If anything, I think that PGW is now over-capitalized.

My numbers post the capital repayment and dividend payout :

Net debt $33m

Equity $158m

Committed bank facilities - core $50m and seasonal working capital debt $75m - provide plenty of flexibility.

EBITDA forecast of $30m - interest over will be over 10 times.


"EBITDA forecast of $30m - interest over will be over 10 times" implies a net interest bill of less than $3m. I am assuming an interest bill of higher than that: $3.826m. My post 4640 shows how I derived that figure. But I have made very assumptions in calculating that interest bill that could be wrong.

Yet the real question behind this is, what if the statistic "EBITDA/ I" is unsuitable for assessing the debt position of the company?

SNOOPY

[Snoopy]

Yet the real question behind this is, what if the statistic "EBITDA/ I" is unsuitable for assessing the debt position of the company?


This question arose nine years ago and for those that had forgotten (like me) I reproduce my questions of the time as they were answered by 'frostyboy'.





EBITDA/(Net Interest Cost) is interest cover, a ratio that makes sense.

For the life of me I still can't fathom why Lease Expenses are brought into the argument, Perhaps

(EBITDA)/( Net Interest Cost + Lease Expenses)

makes sense. But why put lease expenses in the numerator as well? A google search reveals very little information on FCCR. Has this ratio just been made up by NZ banks?




They are being more accurate in their meaning of ‘interest’ cost and you are being more conservative.




Perhaps. But EBITDA is money in, and interest and lease costs is money out. It makes sense to compare the money going in against the money going out. It does not make sense to take EBITDA (money going in) and add to that lease costs (money going out) before you compare that total with the total money going out. What is so special about these lease costs? That is the bit I don't get.




Lease costs are included in EBIT it is categorised as a operating cost when really it is a financing cost. I think that is the same with the statement of cash-flow.

In summary, the 'Fixed Cost Coverage Ratio' (FCCR):

FCCR= [EBITDA+Lease Expenses] / [Total Interest(less interest income in cash)+Lease Expenses]

is in.

EBITDA / I

is out.

SNOOPY

[winner69]

It’s all very complicated and confusing isn’t it Snoopy

I wouldn’t lose any more sleep over it though.

No doubt in future they will report ‘Lease Finance Expense’ and ‘Finance Cost’ (interest) separately so no worries.

[percy]

Just keep in mind eps will most probably be over 20% higher than Snoopy's figure.In fact maybe closer to 25% higher,which will more than cover the over 9% gross yield.[100% fully imputed].
Interim divie "not less than 8cps".

ps.I have just checked Market Screener,who have 2020 eps at 20 cents [25% above Snoopy's figure] rising to 22 cents in 2021,and the divie rising from 16 cps in 2020 to 18 cps in 2021 [a 12.5% increase].

[Snoopy]

Just keep in mind eps will most probably be over 20% higher than Snoopy's figure.In fact maybe closer to 25% higher,which will more than cover the over 9% gross yield.[100% fully imputed].
Interim divie "not less than 8cps".


My modelled earnings was 15.7cps and at $2.46 that equates to an earnings yield of 8.9% (gross). So I am not really disagreeing with you on covering the potential 9% yield. I also agree that earnings could end up being 20% higher in a few years. But they could end up being lower too. I am thinking in particular of the big banks tightening up on rural finance due to the Adrian Orr doctrine of requiring the banks to hold more capital. If brought in, that could lead to a very lean period in farmer spending.



ps.I have just checked Market Screener,who have 2020 eps at 20 cents [25% above Snoopy's figure] rising to 22 cents in 2021,and the divie rising from 16 cps in 2020 to 18 cps in 2021 [a 12.5% increase].


I see Market Screener has averaged the analysis of the one analyst that has studied this company. That analyst has rated the company as an 'underperform' with a target share price of $2.32. Not a very positive review then, even with those supposed 'growing earnings'.

It would be a fairly lazy analysis just to take a one year earnings projection figure and add 10% to project the following year. If only predicting farm outputs was that easy! Although it is interesting to see that our analyst is not predicting a 100% dividend payout ratio. That means they consider some earnings will need to be retained to develop the business going forwards. Or perhaps for another bail out of the superannuation scheme?

SNOOPY

[Snoopy]

It’s all very complicated and confusing isn’t it Snoopy


Here is my understanding of it:

EBITDA accounts for all costs except for:

1/ Net interest paid.
2/ Income tax paid.
3/ Depreciation not accounted for.
4/ Amortization not accounted for.

However, some banks regard 'lease expenses' (already deducted from EBITDA) as part of the finance costs. And finance costs should be part of the interest paid. So:

1/ We have to add the lease costs back into EBITDA to get a true measure of earnings before any finance costs are deducted.
2/ We have to add lease costs onto the rest of the interest due, to get a true measure of how much effective interest the company is paying

Not complicated at all.



No doubt in future they will report ‘Lease Finance Expense’ and ‘Finance Cost’ (interest) separately so no worries.

Not sure what you are getting at here. The 'Rental and Lease Finance Expense Costs' are part of the 'Other Operating Expenses' detailed in Note 3 in AR2019. The 'Finance Cost' is separately listed in the 'Profit & Loss Statement' under 'Net interest and finance costs' as a stand alone item. IOW they are already reported separately.

SNOOPY

[percy]

Just keep in mind eps will most probably be over 20% higher than Snoopy's figure.In fact maybe closer to 25% higher,which will more than cover the over 9% gross yield.[100% fully imputed].
Interim divie "not less than 8cps".

ps.I have just checked Market Screener,who have 2020 eps at 20 cents [25% above Snoopy's figure] rising to 22 cents in 2021,and the divie rising from 16 cps in 2020 to 18 cps in 2021 [a 12.5% increase].

Increasing eps.
Increasing fully imputed divie [over 9% gross yield].
Excellent directors/management. I like Cushing and Findlay..
Very strong balance sheet.
The above means I agree with the market, that buying PGW under $2.50 is good buying.

[winner69]

Here is my understanding of it:

EBITDA accounts for all costs except for:

1/ Net interest paid.
2/ Income tax paid.
3/ Depreciation not accounted for.
4/ Amortization not accounted for.

However, some banks regard 'lease expenses' (already deducted from EBITDA) as part of the finance costs. And finance costs should be part of the interest paid. So:

1/ We have to add the lease costs back into EBITDA to get a true measure of earnings before any finance costs are deducted.
2/ We have to add lease costs onto the rest of the interest due, to get a true measure of how much effective interest the company is paying

Not complicated at all.



Not sure what you are getting at here. The 'Rental and Lease Finance Expense Costs' are part of the 'Other Operating Expenses' detailed in Note 3 in AR2019. The 'Finance Cost' is separately listed in the 'Profit & Loss Statement' under 'Net interest and finance costs' as a stand alone item. IOW they are already reported separately.

SNOOPY

I thought the other day I sort of understood what you were trying to say but now I’m totally confused....seems even more complicated

So I asked myself ‘does it really matter’ and answered ‘no, it doesn’t really matter’

Sorry Snoops

[winner69]

Stuff bright analysts come up with

[Snoopy]

Stuff bright analysts come up with

"Invest in Tennis balls. They have a high rate of return."



Not if I'm down the other end of the court they don't :-P !

SNOOPY

[Snoopy]

I thought the other day I sort of understood what you were trying to say but now I’m totally confused....seems even more complicated


It seems quite straightforward from where I sit.

1/ A lease cost is a finance cost. Such payment liabilities should be added to that other finance cost: interest payments, to get a true 'interest cost'.

2/ It follows that you should add lease costs back onto EBITDA to get a true picture of earnings before all finance costs.

It really is that simple.



So I asked myself ‘does it really matter’ and answered ‘no, it doesn’t really matter’

Sorry Snoops


Not really up to you or I to pass judgement on that. But my logic is, if the bank thinks it matters, then it matters.

SNOOPY

[Snoopy]

Increasing eps.


You and one analyst hope.

Underlying dividends for the whole of PGW was about 3.75cps, equating to 37.5cps post consolidation. But that includes the seed division which made up around half the profits. So you could say normalised earnings for PGWRR are only 18.75cps. So the interim and dividend could grow to around 9cps each, at the top of business cycle? Mind you those figures are from the days when installing irrigation systems was a good business to be in.



Increasing fully imputed divie [over 9% gross yield].


They have committed to increasing the next interim divie to at least 8cps, provided there are no unexpected market shocks. Whether the final divie for FY2020 will be 8cps and above is yet to be confirmed.



Excellent directors/management. I like Cushing and Findlay..


Agree



Very strong balance sheet.


I disagree. The balance sheet is at best adequate. The 'Fixed Cost Coverage Ratio' is right on the edge. But I am using the standard that the banks used ten years ago. Perhaps the banks have changed their thinking on this?



The above means I agree with the market, that buying PGW under $2.50 is good buying.


For every buyer there is a seller. I wonder if those selling their shares for $2.46 agree?

SNOOPY

[percy]

I have enjoyed two brokers' research.
Buyers other than me appear to be directors and management.

[percy]

I note another director added to their holding yesterday at $2.46.

[sb9]

I note another director added to their holding yesterday at $2.46.

Yes noticed that too. Small on-market purchase, nevertheless nice endorsement by insider.

[Snoopy]

Me thinks that Snoopy is deliberately down-ramping this so that he can fill his bowl up on the cheap.

PGW accounts have always been fun (and I use that word in a sarcastic way) to work through.
Add in the ever changing accounting standards and the recent drastic transformation into a smaller and hopefully leaner company and I expect extracting the true underlying performance will be as interesting (sarcasm again) in the future.

Maybe I should hope that someone buys the rest of the company off us and saves me a few hours ever year.


Well my 'down ramping plan' didn't work. PGW was trading at $2.45 on 28th October when Snow Leopard made his comment, and it is trading at $2.45 today. So I have been forced to top up my PGW shares at 'fair market value' ;-(. Not sure why the plan failed. Is it possible that there are animals out there that do not take everything written on sharetrader as gospel? Or maybe it was because I never even had a plan at all ;-P? However, having announced that I have finally bought some more PGW shares on this forum, that is about the best thing I can do to collapse the share price going forwards. There should be an opportunity for others to top up at a discount from here.


Added to my holding today at $2.46."Interim dividend of not less than 8 cents ps" remains the catalyst.
Still have not added to the wife's.

Here is your wife's opportunity Percy. BTW anyone going to and from ChCh Airport notice the large edifice with PGW Branding on it in the business park area? It seemed to have people in it. How does this fit with the new slimmed down PGW corporate structure?

For me, questions on the debt level of the company remain. But Adrian Orr seems determined to keep spending up by having very low interest rates long term. So I am more relaxed about holding companies with more debt than I think is ideal at the moment. I may have underestimated Stephen Guerin's attempt to reign in costs too, so I want to give him a year to see what he can do in this area. I am still nervous about the cracking down on rural loans by the big banks and the likely flow on effect to rural spending. But if the share price does sink further, I have retained enough powder to buy more.

SNOOPY

discl: holding at an average buy price of $1.60 following my recent purchases.

[winner69]

Snoopy:

For me, questions on the debt level of the company remain ...



Seeing the neighbour mentioned PGW to me I thought I better find out a bit more about Them.

I still can’t fathom why you have concerns Snoops ....PGW has never been so well capitalised and is the balance stronger than it has been for yonks.

PGW on neighbours and his bowling mates radar ....he was excited yesterday when he told me OCA is showing really positive signs and if they continue at this rate they could be ‘in the money’ sometime next year. Still under water with TRA though.

[Snoopy]

Seeing the neighbour mentioned PGW to me I thought I better find out a bit more about Them.

I still can’t fathom why you have concerns Snoops ....PGW has never been so well capitalised and is the balance stronger than it has been for yonks.


Things look very rosy for PGW, from a debt perspective, in the FY2019 report. But that was before the capital repayment.

The forecast position for FY2020 does not look so bright.



FY2012FY2013FY2014FY2015
FY2016FY2017FY2018
FY2019FY2020f


Short Term Bank Loans$29.709m$47.702m$35.573m$57.195m$36.623m$26.7 19m$30.806m$3.920m]$3.920m


add Long Term Bank Loans$111.500m$62.000m$65.000m$66.000m
$97.511m$110.925m$149.205m
$31.742m$31.742m


add Net Defined Benefit Liability (Pension Plan deficit)$26.264m$20.819m$13.528m$14.655m
$25.729m$15.827m$10.574m
$5.883m$5.883m


add Employee Entitlements$17.531m$15.910m$20.837m$20.511m
$20.982m$22.946m$31.163m
$16.821m$16.821m


equals Total Bank and Worriesome Liabiliities {A}$185.004m$146.431m$134.938m$158.361m
$180.845m$175.967m$221.748m$58.366m]$58.366m


NPAT + Impairment & F.V. Adj. (declared) {B}$27.013m (2)$19.769m (1)(2)$41.128m (2)$32.634m (2)$39.810m (2)$44.358m (2)$28.166m (2)
$113.876m (2)$11.910m (2)


Minimum Debt Repayment Time {A}/{B} (in years)6.857.413.284.85
4.543.977.87
0.514.90



Notes

(1) Excludes Goodwill Write Down of $321.143m.
(2) Calculation of NPAT and 'Impairment & Fair Value Adjustments' (representing available cashflow for that year) is as follows:

FY2020f: ($30.000m-$9.632m-$3.826m)x0.72 = $11.910m (I am not assuming any impairment or fair value adjustments for FY2020)

FY2019: $131.806m+$3.187m- ($20.667m +$0.450m) = $113.876m
FY2018: $27.080m+$3.877m = $30.957m
FY2017: $46.311m-$1.953m = $44.358m
FY2016: $39.578m+$0.232m = $39.810m
FY2015: $32.611m+$0.023m = $32.634m
FY2014: $42.258m-$1.130m = $41.128m
FY2013: ($306.525m)+$321.143m+$5.151m = $19.769m
FY2012: $24.453m+$2.560m = $27.013m

I have a policy of looking at a company's financial position at balance date. Yet in the case of PGW this grossly underestimates the debt position over the year. I think PGW are on record as planning for seasonal finance requirements of up to $70m. Technically we should probably add about half that amount to the end of year debt to get a representative debt position. But I haven't done this in the above table. If I do make this adjustment for my FY2020 forecast, the MDRT figure rises significantly:

MDRT = ($58.366m+$35.000m) / $11.910m = 7.84

I agree with your assessment that the balance sheet is in the best shape for 'yonks' , if 'yonks' means two years ago. But other than that, the debt position of the company to me looks worse than it has been at any time over the last seven years.

My rule of thumb for the MDRT answer in years is:

years < 2: Company has low debt
2< years <5: Company has medium debt
5< years <10: Company has high debt
years >10: Company debt is cause for concern

So if we ignore the 'seasonal debt effect' ( but should I? ) I would say PGW has a medium level of debt. On balance I have decided this is not a sufficient debt burden to put me off investing more into PGW. Indeed I have upped my holding in PGW in the last few weeks. But rural earnings are volatile. So I would encourage all serious investors in PGW to keep that 'PGW debt burden' at the forefront of your mind. Calling PGW 'well capitalised' I would say is a stretch description of the debt position. "Adequately capitalised' (for now) is probably a more realistic description of PGW's balance sheet.



PGW on neighbours and his bowling mates radar .....


Market signals come in many forms. Thanks for the warning!

SNOOPY

[percy]

Seeing the neighbour mentioned PGW to me I thought I better find out a bit more about Them.

I still can’t fathom why you have concerns Snoops ....PGW has never been so well capitalised and is the balance stronger than it has been for yonks.

PGW on neighbours and his bowling mates radar ....he was excited yesterday when he told me OCA is showing really positive signs and if they continue at this rate they could be ‘in the money’ sometime next year. Still under water with TRA though.

I was so confident about PGW until you posted that they are on your neighbours and his bowling mates radar.!!!!!
How can they be still under water with all quarterly fully imputed divies they have received from TRA.?
Agree with your comments about PGW's balance sheet.

[sb9]

I was so confident about PGW until you posted that they are on your neighbours and his bowling mates radar.!!!!!
How can they be still under water with all quarterly fully imputed divies they have received from TRA.?
Agree with your comments about PGW's balance sheet.

Bit of upward movement today on sp albeit on low volume...

[Balance]

Bit of upward movement today on sp albeit on low volume...

Strange how all the sellers disappeared?

[Agrarinvestor]

Any reasons for the drop since summer?
Do you have some NZ based Article about PGW and his former majority shareholder AGRIA?

[percy]

Any reasons for the drop since summer?
Do you have some NZ based Article about PGW and his former majority shareholder AGRIA?

No news.
Think we will have to wait for the half year result in February.

[Snoopy]

Any reasons for the drop since summer?


There was a big drop in the whole and skim milk powder price in the December Auctions.

https://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=12294780

"The latest GDT dairy auction wasn't so flash, with a larger fall than expected," Jason Wong, senior market strategist at BNZ in Wellington, said in a note."

"Whole milk powder slumped 6.7 per cent to US$3,099 a tonne, its lowest since September, having reached a three-year high in the previous auction.

"Skim milk powder shed 6.3 per cent to US$2,867 a tonne, from a five-year high two weeks ago."

Although dairy is only one part of the NZ farming market, these price falls could signal a surprise 'end of a trend' upwards move. Dairy farmers, although only a part of the market serviced by PGW, are traditionally big spenders. They need to spend on supplementary feed and equipment to justify the high prices they pay for their dairy land. The unexpected drop in price of what is NZs biggest export commodity will not have helped farm service spending sentiment into the future. That is my take on the share price weakening.

SNOOPY

[Snow Leopard]

Turnover of PGW shares has dropped off to the point where I have an orange flag (average of less than $60,000 per day) being waved at me by the laptop.

Price wise it is also in the orange zone. But it did bounce off the $2.30 boundary of the red zone which is useful and is still defined as up-trending.

Now I am sure I was promised a good profit and reasonable dividend by the board and a guaranteed takeover bid for the bit left after the partial takeover by Balance.

So partly I am wondering whether or not to sell some down now because of the low liquidity.

But mostly I an wondering why is this page so friggin' wide!

[Snoopy]

Turnover of PGW shares has dropped off to the point where I have an orange flag (average of less than $60,000 per day)
being waved at me by the laptop.


Turnover for all shares usually drops of the Christmas / New Year / School Holiday period in NZ. If someone wants to sell they may push the price down. Wait until February and things will return to normal.



Price wise it is also in the orange zone. But it did bounce off the $2.30 boundary of the red zone which is useful and is still defined as up-trending.


I guess the 10:1 consolidation would have helped the uptrend? It sure looks great on the stocknessmonster chart!

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



Now I am sure I was promised a good profit and reasonable dividend by the board


And have the board let you down?



and a guaranteed takeover bid for the bit left after the partial takeover by Balance.


That was a Balance fantasy based on a potential West Island takeover. Those most likely to make an offer are otherwise engaged. And PGW has far too much debt now to make it a tasty target. Forget about a takeover. PGW is worth buying today at $2.36 on a pure business cycle earnings case. I topped up myself today.



So partly I am wondering whether or not to sell some down now because of the low liquidity.


Sell sell sell! But please wait until I have some more funds on hand in the call account before you do so.



But mostly I an wondering why is this page so friggin' wide!


Because getting wide points of view on what is happening is useful :-P? Or maybe the dog did it....

SNOOPY

[percy]

Turnover of PGW shares has dropped off to the point where I have an orange flag (average of less than $60,000 per day) being waved at me by the laptop.

Price wise it is also in the orange zone. But it did bounce off the $2.30 boundary of the red zone which is useful and is still defined as up-trending.

Now I am sure I was promised a good profit and reasonable dividend by the board and a guaranteed takeover bid for the bit left after the partial takeover by Balance.

So partly I am wondering whether or not to sell some down now because of the low liquidity.

But mostly I an wondering why is this page so friggin' wide!

Seems we will have to wait for February's result,before we can pass judgement.
Going from the prices the supermarkets are charging for beef and lamb,PGW's "core" farmers are getting very good prices for their stock..

[Sideshow Bob]

Seems we will have to wait for February's result,before we can pass judgement.
Going from the prices the supermarkets are charging for beef and lamb,PGW's "core" farmers are getting very good prices for their stock..

Appears a little of the heat has come out of the Chinese market - as now looking post CNY. Schedules came down 30-40c for lamb at Xmas - but still high and historically good money. Farmers should be loving it.

[stoploss]

Appears a little of the heat has come out of the Chinese market - as now looking post CNY. Schedules came down 30-40c for lamb at Xmas - but still high and historically good money. Farmers should be loving it.
A lot of stock lost in Australia, and a lot of feed has been burnt. So as sad as the situation is over there, bodes very well for NZ farmers....

[kiora]

Appears a little of the heat has come out of the Chinese market - as now looking post CNY. Schedules came down 30-40c for lamb at Xmas - but still high and historically good money. Farmers should be loving it.
They should be loving it just like NZ share market investors.Unusual for them both to be aligned
https://www.interest.co.nz/rural-news/103237/allan-barber-reports-fall-schedule-prices-temporary-transition-markets-adjust

[Balance]

They should be loving it just like NZ share market investors.Unusual for them both to be aligned
https://www.interest.co.nz/rural-news/103237/allan-barber-reports-fall-schedule-prices-temporary-transition-markets-adjust

Talked to my Waikato farmer mate and he said that farmers in the region have had one of their best years ever - excellent prices right across the board for all their produce with plenty of demand.

The main gripe they have is that the banks are still keeping a very tight rein on lending to the dairying sector and that's causing hardship for those who are looking to sell their farms. Impacts significantly on PGW's real estate division.

But things may finally be starting to look up?

https://www.ruralnewsgroup.co.nz/dairy-news/dairy-general-news/farm-sales-start-to-look-up

[Balance]

Interesting market action?

Where have all the sellers gone all of a sudden?

[Snow Leopard]

Probably little to do with PGW but it brings the thread up:

2020 Ground Spreading Award Nominations Open:
https://www.scoop.co.nz/stories/BU2002/S00316/nzgfa-2020-awards-recognise-excellence-within-the-ground-spreading-industry.htm

PGW HY results must soon. Hope they are good. :sleep:

[percy]

PGW's HY result will be this Wednesday the 26th February.

[percy]

Although I have been confident PGW would produce a good result,I have also been nervous.
An excellent result,and the 9 cents fully imputed divie is a cent higher than projected 8 cents,which is a pleasant surprise..
We certainly are invested in a very well directed/managed solid company, which is a very respected business partner to NZ's rural businesses.

[Balance]

Although I have been confident PGW would produce a good result,I have also been nervous.
An excellent result,and the 9 cents fully imputed divie is a cent higher than projected,which is a pleasant surprise..
We certainly are invested in a very well directed/managed solid company, which is a very respected business partner to NZ's rural businesses.

The turnaround is done and the business is truly gathering momentum.

http://nzx-prod-s7fsd7f98s.s3-website-ap-southeast-2.amazonaws.com/attachments/PGW/348949/317473.pdf

[Snow Leopard]

Although I have been confident PGW would produce a good result,I have also been nervous.
An excellent result,and the 9 cents fully imputed divie is a cent higher than projected 8 cents,which is a pleasant surprise..
We certainly are invested in a very well directed/managed solid company, which is a very respected business partner to NZ's rural businesses.

Glad you are happy -- I am trying to understand the accounts and, as usual:
have got lost adding this back in;
and subtracting that;
and so far have not even tried multiplying for the other.


https://www.youtube.com/watch?v=b6LgacKFGaE

[iceman]

Yes a great result and a pleasing increase in the dividend. This company is no on solid footing. But i my view I think some warning signals are flashing for the next few months with the effect on the Coronavirus slowdown being an unknown but possibly substantial
This from the report supports that view. "Commodity pricing for lamb and beef held and remained high compared to historical levels. This has been welcomed by sheep and beef farmers as commodity pricing has been driven by strong demand from China."

[sb9]

Although I have been confident PGW would produce a good result,I have also been nervous.
An excellent result,and the 9 cents fully imputed divie is a cent higher than projected 8 cents,which is a pleasant surprise..
We certainly are invested in a very well directed/managed solid company, which is a very respected business partner to NZ's rural businesses.

What a nice surprise on divvy front just like HGH.

Will look to top up if price gets to silly levels due to current macro scenario.

[percy]

What a nice surprise on divvy front just like HGH.

Will look to top up if price gets to silly levels due to current macro scenario.

I added to my wife's modest holding this morning.
My holding is a bit more substantial.
Yes the higher divies from both PGW and HGH are a pleasant surprise.

[percy]

Glad you are happy -- I am trying to understand the accounts and, as usual:
have got lost adding this back in;
and subtracting that;
and so far have not even tried multiplying for the other.


https://www.youtube.com/watch?v=b6LgacKFGaE

Get on with it before Snoopy offers to help you.!..lol.

[black knat]

I note from the teleconference this morning that overheads are likely to be further reduced as the company is re-sized. I particularly liked the annual 18% reduction in directors fees going forward. This is now an excellent, well run, stable company, currently trading on a gross return of 10% ... not many of those on the NZX nor anywhere else.

[sb9]

Can someone help that seller with 243,700 volume asking 2.45 a piece, been there for past few days or so.

[percy]

Yesterday PGW were trading at $2.37 cum divie.
Today they have traded at $2.37 ex divie.?

[sb9]

Wow, over 10% drop in PGW's price today. Didn't know they deal in oil related products :ohmy:

[percy]

Neither did I...lol.
Big lack of buyers earlier today,a few have appeared now.

[kiwidollabill]

Wow, over 10% drop in PGW's price today. Didn't know they deal in oil related products :ohmy:

Oil price has correlation to the dairy price, less dairy $, not good for PGG

Or that's the theory....