PGW - PGG Wrightson

[percy]

You two will enjoy George Gould's views.Go to www.stuff.co.nz business, then farming.article headed Confidence lifts on rural upswing.

[lou]

Hey guys. New to Share Trader forum. Been following PGW, how low can they go. Surely it is a good buy at these prices. I think there are people sitting on the sideline waiting for buy signals, to reinvest their money from agrai. Surely the share price will recover. Any thoughts.

Have a look at Phaedrus new thread (http://www.sharetrader.co.nz/showthread.php?8469-Buying-in-a-Downtrend.) it has some great advice.

[Master98]

I am confident in PGW future, my holding is for long term,not sell to bargin hunters, in this world does't matter where you are who you are, one thing you have to have is food, how to use limited farmland to produce more food to satisfy increasingly whole world population is PGW's task.

[Snoopy]

I am confident in PGW future, my holding is for long term,not sell to bargain hunters, in this world doesn't matter where you are who you are, one thing you have to have is food, how to use limited farmland to produce more food to satisfy increasingly whole world population is PGW's task.


I agree with your logic Master98. But the task you describe is the task of the farmer surely, not PGW. Granted PGW will be supplying the farmer with much that she needs, so PGW is certainly connected to your vision. But the job of PGW is to get the right stock into their stores at the right price. Or sell livestock on behalf of the farmer once the farmer is done with them. PGW owns no farmland. Nor does PGW produce any food. So the question you need to ask is, how efficient is PGW in what it sets out to do? If you ask that question, then I think you will get some idea of 'what is fair value' for PGW.

SNOOPY

[Master98]

I agree with your logic Master98. But the task you describe is the task of the farmer surely, not PGW. Granted PGW will be supplying the farmer with much that she needs, so PGW is certainly connected to your vision. But the job of PGW is to get the right stock into their stores at the right price. Or sell livestock on behalf of the farmer once the farmer is done with them. PGW owns no farmland. Nor does PGW produce any food. So the question you need to ask is, how efficient is PGW in what it sets out to do? If you ask that question, then I think you will get some idea of 'what is fair value' for PGW.

SNOOPY

Snoopy, my core focus on PGW is seeds and related technology business that's real value they will have, I hope they will bring farmers with high technology products, so farmers can more efficiently use their land.

[winner69]

Always pays to know about the competition
http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=10739813

Rural co-op joins the billion-dollar club

CRT $1.1 billion a bit bigger than PGW at $0.6 billion (after finance)

[Balance]

Always pays to know about the competition
http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=10739813

Rural co-op joins the billion-dollar club

CRT $1.1 billion a bit bigger than PGW at $0.6 billion (after finance)

Hmmmmm .....how much due to acquisition of low margin high volume Gulf & Challenge service station business however?

[Newman]

Pretty goddamned awful no matter how you try and spin it!

It seems that any link with Silver Fern Farms has been bad to PGW. $8m compensation for not providing enough animals to SFF!

[rabcat]

Pretty goddamned awful no matter how you try and spin it!

It is hard to believe that things are actually getting worse than last year. I think Agria should make an offer for the 50% they dont own. Buy a machine gun and fire all the senior managers including most of the board.
And more money to Silver fern farms..... these guys make some great deals! Perhaps when they are booted out of PGW they could go work for Social welfare Dept cause they have a talent for giving away other peoples money

[RazorX]

Yeah this one is definitely one of my dog shares. Probably going to remain so for some time. After taking that Agria offer I don't have enough left to make it worthwhile selling them... anyone want some PGW shares? :p

[POSSUM THE CAT]

RazorX pay me $1000.00 and I will accept them as A gift

[Balance]

Like NZS, Agria in the wings ready to pounce?

Break-up of PGW into component parts almost inevitable.

[bung5]

Like NZS, Agria in the wings ready to pounce?

Break-up of PGW into component parts almost inevitable.

Yes you are right, but I think it will come after feb next year.

[corlemar]

Yes you are right, but I think it will come after feb next year.

why Feb next year - is a specific milestone of some sort ?

[Balance]

why Feb next year - is a specific milestone of some sort ?

Next results, I assume.

[bung5]

It was my understanding that of part of the conditions of the first partial takeover that they couldn't make another offer until feb . Can't find the document now if anyone still has it to confirm?

[RazorX]

RazorX pay me $1000.00 and I will accept them as A gift

LOL! Hmm a very kind offer Possum, but I'll pass this time... they hold some sentimental value and I have no desire to increase my loss. I will put the $1000 I would have paid you into some decent shares though just so you know its being treated well. :D

[Master98]

Pretty goddamned awful no matter how you try and spin it!

annual result was as expected, agria start cleanning job, this is a positive step forward, pgw claim to resume dividend this fiscal year definitely, all looks good.

[Master98]

It was my understanding that of part of the conditions of the first partial takeover that they couldn't make another offer until feb . Can't find the document now if anyone still has it to confirm?

last agria partial takeover was announced in November last year, so if they want to make full takeover earliest announcement will be this November, obviously the offer will be much higher than 60c.

[Snoopy]

last agria partial takeover was announced in November last year, so if they want to make full takeover earliest announcement will be this November, obviously the offer will be much higher than 60c.

If the business has declined, and it has, there is no reason for Agria to increase any pending full takeover offer above the last 60c partial offer price.

SNOOPY

[Master98]

I think business situation has been much improved than at time parial takeover was lunched,both in debt reduction and rural sector.

[bung5]

If the business has declined, and it has, there is no reason for Agria to increase any pending full takeover offer above the last 60c partial offer price.

SNOOPY

I don't agree with you snoopy, I don't think the buisness has declined. The current spin is all smoke and mirros forced from the agria directors. They want the shareprice lower for takeover.

[Master98]

I guess there will be a positive earning update soon in November?:)

[corlemar]

I note some recent comments in relation to nta in respect of PGC and HNZ. Is it fair to say then that PGW showing an nta (on the NZX) of $0.35 cents per share means it's trading at a premium at todays sp ? And if that is not the true value of PGW and it's trading at a discount, does this open itself up to a full takeover potentially by AGRIA on the cheap, given they took 50.1% in the past 12mths at $0.56 nearly 38% higher than where the sp sits now ? Finally, does anyone recall when AGRIA can make a further offer on PGW, I can't recall though something seems to tell me it was 12 or 15mths after intial bid ??

[Snoopy]

I note some recent comments in relation to nta in respect of PGC and HNZ. Is it fair to say then that PGW showing an nta (on the NZX) of $0.35 cents per share means it's trading at a premium at todays sp ?


If your figures are correct Corlemar, then yes PGW is trading at a premium to NTA provided the share price remains above 35c. However, most shares trade at a premium to NTA. The 'true value' of most companies is based on the cash generation potential of the business, which for non-financial businesses is not necessarily correlated with NTA.



Does this open itself up to a full takeover potentially by AGRIA on the cheap, given they took 50.1% in the past 12mths at $0.56 nearly 38% higher than where the sp sits now ? Finally, does anyone recall when AGRIA can make a further offer on PGW, I can't recall though something seems to tell me it was 12 or 15mths after initial bid?


There are not generally any restrictions on when a takeover offer can be made Corlemar.

I think you may be thinking of the creep provisions in the takeover legislation. 12 months after that 50.1% stake in PGW was obtained, Agria can buy on market another 5% of the company at market prices, if they so choose to.
However, IMO it is far more likely they will try to engineer a split in the company to take over Agritech, the seed business arm of PGW. If they can avoid stumping up more capital to get their hands on Agritech then IMO that is the path the Chinese (Agria) will follow.

SNOOPY

[corlemar]

If your figures are correct Corlemar, then yes PGW is trading at a premium to NTA provided the share price remains above 35c. However, most shares trade at a premium to NTA. The 'true value' of most companies is based on the cash generation potential of the business, which for non-financial businesses is not necessarily correlated with NTA.



There are not generally any restrictions on when a takeover offer can be made Corlemar.

I think you may be thinking of the creep provisions in the takeover legislation. 12 months after that 50.1% stake in PGW was obtained, Agria can buy on market another 5% of the company at market prices, if they so choose to.
However, IMO it is far more likely they will try to engineer a split in the company to take over Agritech, the seed business arm of PGW. If they can avoid stumping up more capital to get their hands on Agritech then IMO that is the path the Chinese (Agria) will follow.

SNOOPY

Cheers for the clarity snoopy....i guess what's happened in Europe overnight will hopefully see some positive direction in stocks which are needing some breath of life !

[bung5]

keeps getting cheaper. I will wait for this downtrend to finish off and get in , will provide some good buying if gets a bit lower hopefully.
Dividend to be reinstated early next year? could be yeilding 10 % ?

[Queenstfarmer]

Hopefully in the not too distant future some positve announcements...to get the SP northward once again.

[bung5]

I'd more than happy with 5% and some further debt reduction/investment for growth!

5% with shareprice @ 36c?

[corlemar]

anyone have any views on why this dog of a stock is getting worse ??

[bung5]

Well could be for the same reasons I sold out after the agria takeover. The books look messy and no real guidance to what there bottom line profit will be in the future. no clear descion on capital return to shareholders . still over 100mil in debt ( which is creeping its way down with profit they make and some non core asseet sales)
Nothing exciting happening that can really push the shareprice unit the dividend is returned hopefully next year.

I expect will turn around after these things clear up which should be early next year or a full takeover from agria .. or split of the buisness.

[Master98]

I guess sp is manipulated, maybe for the sale of PGC's holding or full takeover by Agria, will be announcement end of this year or after new year.

I am picking up, finger cross.

[root]

Bit of a spike for PGW yetserday, can't see anything on the interweb as to why, any theories?

[Master98]

Volume burst over 500k in 20 minutes at 37c, i feel something is going to happen.

[Master98]

Really hope PGW upgrade their year 2012 earnings to burst share price.

[Master98]

All large blocks are traded off market at 37c, i picked up some at 34c, but not sure it is bottom, can be cheaper than cheap, finger cross.

[Queenstfarmer]

Something dodgy I feel going on with these shares. Someone does not want it to go upwards. I wonder who that might be???

[Master98]

Could be someone is collecting shares at this level before any positive news come out.

[Queenstfarmer]

I wouldnty be selling out at 36 if id seen what happened with last weeks volume hitting 38. One word beginning with A??

[Queenstfarmer]

Agria at work again today. Someone sold a whopping 3000 or so shares at 2 cents below last evenings close??

[bung5]

I wouldnty be selling out at 36 if id seen what happened with last weeks volume hitting 38. One word beginning with A??

Think we will see a takeover or company split early next year.

[Queenstfarmer]

Yes and Agria would like to pay as little as possible for the other 49%.

[Snoopy]

http://www.stuff.co.nz/business/farming/6164372/Wrightson-parent-reports-jump-in-profit

Interesting article. But the huge jump in profit for Agria is historical (YE30/06/2011) and relates to the comparison with the time before PGW became an Agria subsidiary. Agria was effectively little more than a shell before this. I don't consider that the huge jump in profitability for Agria relates to any underlying operational improvement for their main investment PGW.

SNOOPY

[Snoopy]

Have been pondering how this PGW Agria relationship will pan out. I have very little understanding of the way farming works on the ground in China. To try and gain some insight I have been reading Agria's last full year 20F filing (effectively the annual report). The comments under the risk factors include certain risks of doing buiness in China as follows:

"Our growth prospects may be materially and adversely affected if we are unable to develop or acquire new products. The majority of the products provided by our China seeds business are upstream products ultimately used by farmers in China. The profitability of our business depends on sustained and recurring orders from our direct customers, which include distributors, breed improvement and reproductive stations and other intermediaries. Reorder rates are uncertain due to several factors, many of which are beyond our control. These factors include changing customer preferences, competitive price pressures, failure to develop new products to meet the evolving demands of farmers in China, the development of higher quality products by our competitors and general economic conditions. If we are unable to develop or acquire additional products that meet the demands of farmers in China, or if our competitors develop products that are favored by farmers in China, our growth prospects may be materially and adversely affected and our revenues and profitability may decline."

Here are a couple of questions that I posed to myself after reading this.

Is the phrase "demands from farmers in china" synonymous with "preferences from the Chinese government."?

"our direct customers, which include distributors, breed improvement and reproductive stations and other intermediaries."

This indicates to me that farmers are not the direct customers. That means in turn means Agria are not allowed to distribute seeds directly. And I wonder what kind of hurdles these 'breed improvement and reproductive station's impose on sources of seeds?

There seems on paper to be a lot of personal relationships that need to be lubricated to ensure our PGW seeds get to the Chinese farmers, who we desire to ultimately plant them!

SNOOPY

[Snoopy]

More from the Agria full year 20F report Filed Period 12/31/2010 page 14, outling risk.

"One or more of our distributors could engage in activities that are harmful to our brand and to our business. Our seed products are sold primarily through distributors, and those distributors are responsible for ensuring that our products have the appropriate licenses to be sold to farmers in their provinces. If those distributors do not obtain the appropriate licenses, their sales of our products in those provinces may be illegal, and we may be subject to government sanctions, including confiscation of illegal revenues and a fine of between two and three times the amount of such illegal revenues. Unlicensed sales in a province may also cause a delay for our other distributors in receiving a license from the authorities for their provinces, which could further adversely impact our sales. In addition, distributors may sell our products under another brand licensed in a particular province if our product is not licensed there. If our products are sold under another brand, the purchasers will not be aware of our brand name, and we will be unable to cross-market other seed varieties or other products as effectively to these purchasers. Moreover, our ability to provide appropriate customer service to these purchasers will be negatively affected, and we may be unable to develop our local knowledge of the needs of these purchasers and their environment. Furthermore, if any of our distributors sells inferior seeds produced by other companies under our brand name, our brand and reputation could be harmed, which could make marketing of our branded seeds more difficult."

Blimey, a penalty of two or three times your revenues if you get the paperwork wrong! Looks like there may be issues of brand piracy here too. Yes I know these risks are theoretical. But I think PGW have a hard road ahead of them in China.

SNOOPY

[Snoopy]

From p10, a comment on the reformation of the seed market in China:

"According to the Opinion on Enhancement of Market Supervision regarding Seed Administration Reform issued by the General Office of the PRC State Council in May 2006, local government agricultural administrative offices were required to separate their governmental administrative functions from seed production activities by the end of June 2007 and, therefore, more privately-owned seed companies may emerge in the future. Our competitors may be better positioned to take advantage of industry consolidation and acquisition opportunities than we are. The reform and restructuring of state-owned equity in seed enterprises will likely lead to the reallocation of market share in the seed industry, and our competitors may increase their market share by participating in the restructuring of state-owned seed companies. Such privatization would likely result in increased numbers of market participants with more efficient and commercially viable business models."

"In addition, the PRC government currently restricts foreign ownership of any domestic seed development and production business to no more than 50%. When and if such restrictions are lifted, multinational corporations engaged in the seed business may expand into the agricultural market in China. These companies have significantly greater financial, technological and other resources than we do and may become our major competitors in China. As competition intensifies, our margins may be compressed by more competitive pricing and we may lose our market share and experience a reduction in our revenues and profit."

It seems like Agria are playing the 'first mover' game and good on them for doing so. It seems clearer to me now why the tie up with PGW was needed. Agria see PGW as their own multinational 'white knight'. My impression though is that the acquisition of a controlling interest in PGW has stretched them to the limit. Agria won't be taking part in any China state owned seed company privatisations for that reason.

SNOOPY

[Snoopy]

Looks like there may be issues of brand piracy here too.


Well we all knew it. But very sobering to see piracy risk for seed sellers laid out in the Agria F20 report (YE 30th June 2011, p11):

"Historically, implementation of PRC intellectual property laws has been lacking, primarily because of ambiguities in PRC law and difficulties of enforcement. Accordingly, intellectual property rights and confidentiality protections in China may not be as effective as those in the United States or other countries, which increases the risk that we may not be able to adequately protect our intellectual property."

SNOOPY

[Snoopy]

My impression though is that the acquisition of a controlling interest in PGW has stretched them to the limit. Agria won't be taking part in any China state owned seed company privatisations for that reason.


p14 of the Agria 20F filing confirms my impression:

"For example, both Agria Asia, our subsidiary that ultimately holds our investment in PGW, and PGW had substantial indebtedness as of the date of this annual report (30th June 2011). Depending on the quantum and timing of cash flows arising from its indirect holding in PGW, we may need to refinance some or all of the debt in Agria Asia. Furthermore, New Hope International has the right to sell its shares in Agria Asia to Agria Group Limited, or Agria Group, on the terms and conditions provided in the shareholders agreement at a certain repurchase price determined pursuant to a supplemental agreement entered into between Agria Group and New Hope International in June 2011. The obligation of Agria Group in connection with this put option held by New Hope International may be on terms that are not commercially favorable to us."

I think we can infer from this that Agria's joint venture status with the much larger New Hope has an out clause that is very unfavourable for Agria. If Agria stumbles, then watch the much larger PRC government backed New Hope run. Agria is not the fountain of Asian cash that many PGW shareholders think it is. An outright takeover offer for the rest of PGW will never happen because Agria can't afford it, and I can't see them ever being in a position to afford it.

SNOOPY

[Snoopy]

From p18 of the Agria report:

"The PRC government has in recent years reduced taxes and increased subsidies and other support across the agricultural industry. For instance, the government subsidizes farmers for their seed purchases, and has increased spending on rural infrastructure. Sales of agricultural products from producers to intermediaries or to farmers are exempt from PRC value-added tax, or VAT."

SNOOPY

[Snoopy]

...but getting a seed subsidy is not certain!

Also from p18:

"Farmers can buy corn seeds designated as "high-quality" at subsidized prices, but the designation of seeds as "high-quality" is at the discretion of the local government, companies owned by the local government and local private seed companies. Because of local protectionism, this policy could result in preferential treatment for local seed producers, with locally produced seeds being designated as "high-quality", while ours are not designated as such. If such preferential treatment were to occur, the price for our seeds to farmers in those provinces would be higher than the subsidized local seeds, and our sales in those provinces could suffer, which could materially and adversely affect our results of operations."

SNOOPY

[bung5]

woolworths own 100% of DSE thou?

[Steve]

woolworths own 100% of DSE thou?

It appears so.

Had a quick flick thru the financials and noticed that the registered office listed there (Albany) is different to what is recorded at the Companies Office (Mangere). Obviously just an oversight in basic company administration...

[bung5]

yeah is kind of like how PGW did to NZS and milked it for huge mgmt fees huh

[Snoopy]

yeah is kind of like how PGW did to NZS and milked it for huge mgmt fees huh


Yes except PGW owned under 10% of NZS at the time, so hardly a majority shareholding. That makes me think that this 50% ownership threshold threat is a red herring.

I am intrigued that Belg thinks that Agria can suck money out of PGW by the way of management fees. What does Agria know that PGW does not know? How could such a scam work in this case? Could someone more devious than me please explain? The proprietary seed technology rests inside PGW. I can't see how Agria can charge fees to PGW to allow PGW to use their own seed cultivars!

SNOOPY

[bung5]

I think when the mgmt arrangment was setup they had a controlling stake and it just stayed in place as they diluted their stake milking it for all they could.

[Snoopy]

I think when the mgmt arrangment was setup they had a controlling stake and it just stayed in place as they diluted their stake milking it for all they could.


I think you are right Bung. However once NZS was sold to the public, the mechanism then existed for overturning the PGW management contract. However it took a shareholder with the will to do it (Olam) to make it happen.

Still not sure how all this relates to Agria potentially milking PGW.

SNOOPY

[bung5]

I'm back in today , as it has been holding 36/37c long enough. Hoping for a good results next month and some clairty around the dividend returning

[bung5]

Lazy question, apologies in advance: When can Agria start their creep?

next month

[Snoopy]

Lazy question, apologies in advance: When can Agria start their creep?

From memory the Agria partial offer for PGW shares was announced coming up to Christmas 2010. The target company statement was released on February 7th 2011. But the offer was not scheduled to close until April 15th 2011. From memory that date was further extended until after Easter. The PGW shares that I sold into the offer weren’t deregistered from my name until 2nd May 2011. Digesting all that information, I don’t think Agria can start increasing their holding by creep, should they so choose to do so, until May 2012.

Agria is legally allowed to make a brand new formal offer for more PGW shares at any time of course.

SNOOPY

[Snoopy]

I'm back in today , as it has been holding 36/37c long enough. Hoping for a good results next month and some clarity around the dividend returning


I wonder how many investors ‘hungry for a dividend’ have done any work on what size of dividend from PGW that they might expect in 2012? I have been amazed even talking to brokers at the number of people who think the PGW share price is due for a rapid recovery due to NZ’s farming upturn. I would argue to the contrary: Any upturn is more than fully reflected in the share price already. My revelation came after fine tooth-combing the segmented profit section and desegmenting the annual profit of last year’s annual report. I did that because I wanted to gauge PGWs ongoing profitability net of the cloud of confusion caused by the one off ‘write downs’ and ‘write ups’ of recent years.

I have a different approach to looking at divisional profitability to that taken by PGW management. I prefer NPAT over EBIT. That’s because I consider that interest charges and tax bills do have to be paid by shareholders. And I don’t consider it an honest assessment of company operations if ‘I’ and ‘T’ are left out. This approach has the added effect of netting off ‘gross profits’ against ‘a measure of cost of capital’. This method also shows up low margin divisions that are really loss making once all company costs are tallied.

Specifically I also took out the once crown jewel finance division that was simply given away at the end of FY2011. I consider the remaining underlying profit for the slimmed down PGW group for FY2011 was about $NZ 5m. Spread that profit over the 755m shares now on issue and I get a profit of 0.66cps. That is not a misprint. Normalized profit is now well short of 1c per share by my calculations. OK last year was not a great one. But underlying profit must rise by 50% from FY2011 to even reach a meagre 1c earnings per share.

Let’s assume profit will rise 50% this year. That means PGW would be sitting on a PE ratio of 36 for FY2012 with the share price at 36c. From a purely ongoing earnings perspective, I consider this PE is way too high. A 1c dividend per share, if PGW chose to pay out all of these improved profits, on a price of 36c gives a gross yield of around 4%. Nothing to get excited about.

There is the great hope of things kicking off in China. But PGW has experience in another exotic market, specifically Uruguay. After ten years, that market as breaking even at best (my estimate is that PGW Uruguay lost $NZ0.3m last year). Consequently I see any profits coming from China as ten years away too.

Having a rump of residual PGW shares post takeover myself, I would dearly love to be wrong about all this. I am looking forward to all you aspiring ebullient PGW stakebuilders taking my analysis apart. It is rare that my own fair valuation of a share (I think PGW is fairly valued at about 20c) is so far from market valuation. But it looks to me as though Winner’s earlier advice on this thread, to take the Agria offer at 60c and dump the rest of your PGW shares on market at something over 40c (a price that was on offer at the time) is looking shrewd

SNOOPY

[bung5]

Nice work snoopy, but I have to question some of the numbers. ( their numbers, not yous)

I have no idea what the "other operating expenses" are but the have jumped 50% in the last 3 years from 60 milllion to 90 million.
Also spent 28 million on finance and interest costs. Now I don't see how that can be the case this year?

[Snoopy]

I have no idea what the "other operating expenses" are but the have jumped 50% in the last 3 years from 60 milllion to 90 million.


Bung, where we have a company operating on very thin margins such as PGW (<1% in FY2011), small differences in the cashflows can make a big difference to the bottom line. So I appreciate you highlighting a couple of areas where I might be able to close the gap between my own PGW valuation (20c) and what the market is telling us (36c).

As you will appreciate my valuation is based on historical FY2011 figures, and that includes the effects of the historical debt structure of the company.

At this point I need to throw a bouquet PGWs way for the comprehensive nature of their annual report. It is one of the best I have seen from any company, if not the best. Dig down into the report and many awkward questions can be answered, even yours Bung!

Those $90m in ‘Other operating expenses’ you rightly query Bung are further broken down under Note 7. It looks to be much of a muchness with the previous year with one exception. There was a sharp $8.5m increase in doubtful debts; possibly lined up with preparing the Finance Division for sale? Fingers crossed that won’t be repeated in FY2012! That will affect my ongoing earnings projections. As for rising from $60m to $90m in the last three years, I can’t find the evidence for that comment. If you are able to be more specific about where you pulled those figures from Bung, then I will look into it.



Also spent 28 million on finance and interest costs. Now I don't see how that can be the case this year?


Bung, you comment that the interest bill is likely to be lower in FY2012. The initial and most substantial capital raising with Agria and subsequent rights issue to shareholders took place in FY2010. Nevertheless there were large cash inflows in FY2011 as well (AR2011 p4) which has affected the debt profile. These included:

1/ $19.7m from PGW being bought out of NZ Farming Systems Uruguay (NZS).
2/ A further $25.5m in cash from NZS that amounted to previously capitalized and current management fees.
3/ $7.6m from the sale of New Zealand Merino.

These were offset by a write down in PGWs other wool interests of $18.3m, $9.6m from the failed stock supply guarantee offered to Silver Fern farms and $4m from the ridiculously over generous exit package ‘negotiated’ (sic) with departing CEO Tim Miles amongst other negatives.

PGW maths says this reduced core bank debt reduced from $177.9m to $124.2m over FY2011, a drop of $53.7m. Of course that drop in debt did not occur right on the last day of the financial year. If we assume the average debt balance dropped by half the declared figure ($26.9m) in FY2011, that nevertheless could still amount to a $2m interest payment saving in FY2012 (based on bank interest charges of 7.5% - my best estimate).

Further examination of the bank interest burden (AR2011 Note 11) shows a $5.5m rise in bank facility fees, presumably paid to set up the new PGW long term bank loan facilities. If that high level of establishment fee is not repeated in FY2012, and I can see no reason why it should be, then we have a potential benefit of $NZ5.5m for PGW cashflow in FY2012.

To summarize Bung, the potential restructuring benefits you have highlighted over and above my predicted flat operational divisional performance are as follows, based on a 28% tax rate:

(1.0-0.28)($8.5m+$2m+$5.5m)= $11.5m after tax.

That means with a flat operational performance at customer interface level, we could still see an after tax profit of $5.5m+$11.5m= $17m in FY2012. $17m equates to NPAT of 2.25cps. At a share price of 36c, PGW would be trading on a PE of 16 and a gross earnings yield of 8.9%. That sounds more like it. Perhaps Mr Market knows what he is doing after all! I am happy to be wrong and sleep more easily in this instance.

If the traditional 1/3 2/3 split between half year profits continues, then look for the HY2012 profit to be around $5.6m net of one off items if things are on track.

Nevertheless I won’t be buying any more PGW shares myself at 36c. Company debt levels are very high. IMO, there is not the margin of safety there to risk PGW as a stash for any more of my precious cash.

SNOOPY

[Snoopy]

Snoopy, as you note, PGW is almost a charity as far as its margins are concerned. I factored in slightly better margins as I thought their reduced debt burden would probably mean they could focus a bit more on margins rather than cashflows and on the basis the farmers would be a little more bullish than the year before. Thus I get a slightly lower PE based upon a marginally higher NP.


Fair enough Belg. You could be right. From a shareholder perspective I hope you are right! Farmers had quite a good year last year, but used the cashflow to reduce debt. I am figuring they might need a few more good years to pay down that debt mountain even if farmers continue to do well. That is certainly the case with 'my farm' (NZS shares) in Uruguay ;-).

Perhaps I should have added that my estimate of a PE of 16 with PGW shares at 36c was made with assumption that things will get better to a new normal. A PE of 16 for a company like this is still far too high, but OK if we are at the bottom of a trough. I am not expecting the PGW share price to rise as fast as profits increase as that PE just has to come down over time.

SNOOPY

[Queenstfarmer]

Ok so PGW opens up 1 at 38c on approx 5k volume. Nothing on ASB sell wall at lower than 38c..however somone sold 5000 shares at 37c. Go figure..am I the only suspecting one here???

[Queenstfarmer]

Perhaps I should drop the conspiracy theory? Who can you trust these days mind??

[Queenstfarmer]

No it went back to 38 ten mins..now someone sold at 37 just now. Why would one sell lower when first thing on a Monday it appeared to be going up???

[winner69]

methinks you seeing things that aren't there ...... and a bit pissed PGW not going up

As I see it the 38 was a result of the pre open matching .... when that processs was finished the early spread was 36/38 and a sale went through at 37 .... since then the spread has been mostly 37/38 and sales at both prices

Queen St .... you cast aspersions on that seller at 37 ..... remember that the clever people in Wellington are on holiday today and only the Queen St punters are interested today .... maybe a intellect issue

[Queenstfarmer]

Me thinks Agria knows a lot of people in New Zealand...??? Easy to find people to help keep the price down...not hard to do.... Illegal!!

[Snoopy]

Me thinks Agria knows a lot of people in New Zealand...??? Easy to find people to help keep the price down...not hard to do.... Illegal!!


Queenstfarmer, perhaps you can tell me if the game has changed.

By my following of the situation Agria want PGW Agritech to be the Monsanto of the Southern Hemisphere. They aren't so much interested in the PGW Agriservices half. Agria borrowed heavily to buy into PGW. Agria only need 50.01% to steer the board of the company and they have that already. I see the Agria controlled PGW selling the PGW Agriservices division with Agria pocketing their proceeds of that sale to stabilize their own debt situation.

In the meantime with 750 million+ PGW share on issue, every cent fall in the PGW share price will badly affect the holding value of PGW on the Agria books. Agria are really struggling the keep their US share price above $US1, which they have to do to retain their US listing. If it is possible to manipulate the PGW share price, I would guess it is being manipulated upwards not downwards. That possibly explains why the PGW share price is so stubbornly high today in relation to their earnings?

Personally I believe there is a significant risk that Agria will collapse unless the share price of PGW rises significantly within five months. Call me perverse but I don't understand why you think Agria wants the PGW share price lower given that a Agria full takeover of PGW is:

1/ Not significant in allowing Agria to control PGW going forwards.
2/ Unaffordable by Agria anyway, as just buying half of PGW has stretched them to the brink of collapse.

SNOOPY

[Master98]

if my memory is right, Agria buy into PGW is backed by china heavyweight agri company NewHope which is listed both on shanghai and shenzhen stock market.

[Queenstfarmer]

Perhaps its best to keep stum on a bunch of theories for now..with the 22nd results looming. Fingers crossed its going to be a goodie!

[Snoopy]

if my memory is right, Agria buy into PGW is backed by china heavyweight agri company NewHope which is listed both on shanghai and shenzhen stock market.


Your memory is correct Master 98. From the 16th December 2011 Agria SEC 20F filing, page 10.

"In January 2011, Agria Singapore made an offer to the shareholders of PGW to acquire an additional 31%
of the shares in PGW at the offer price of NZ$0.60 per share. On April 29, 2011, the Group completed this acquisition and increased its shareholding of PGW to 50.01% (Notes 3 and 4)."

"In April 2011, New Hope International (Hong Kong) Limited invested US$20 million in the equity of Agria Asia Investments, upon which the Group's equity interest in Agria Asia Investments was 88.05%. In April 2011, the Group also entered a conditional sale and purchase agreement to sell a 7.24% stake in Agria Asia Investments to Ngai Tahu Holdings for approximately US$12 million. This sale became unconditional when the shareholders of PGW approved the transaction in June 2011, and these amount were received subsequently. Upon the completion of this sale, the Group's equity interest in Agria Asia Investments became 80.81%."

The combined holding of Ngai Tahu and New Hope in Agria Asia, the vehicle for holding the 50.01% interest in PGW, is 19.19%, with Ngai Tahu holding 7.24% of that. That leaves New Hope with 11.95% of Agria Asia.

SNOOPY

[Snoopy]

Your memory is correct Master 98.
The combined holding of Ngai Tahu and New Hope in Agria Asia, the vehicle for holding the 50.01% interest in PGW, is 19.19%, with Ngai Tahu holding 7.24% of that. That leaves New Hope with 11.95% of Agria Asia.


Nevertheless it does appear that the support of New Hope for this PGW partial takeover is rather soft. This is a quote from the Agria 20F filing for the year ended December 2010 (the end of year has since been changed to June) on page 14.

"...both Agria Asia, our subsidiary that ultimately holds our investment in PGW, and PGW had substantial indebtedness as of the date of this annual report. Depending on the quantum and timing of cash flows arising from its indirect holding in PGW, we may need to refinance some or all of the debt in Agria Asia."

"Furthermore, New Hope International has the right to sell its shares in Agria Asia to Agria Group
Limited, or Agria Group, on the terms and conditions provided in the shareholders agreement at a certain repurchase price determined pursuant to a supplemental agreement entered into between Agria Group and New Hope International in June 2011. The obligation of Agria Group in connection with this put option held by New Hope International may be on terms that are not commercially favorable to us."

My reading of this is that New Hope have covered their backs and probably have an agreement with Agria to sell the New Hope share of "Agria Asia" back to Agria, most likely at the price they paid for it. That means that New Hope can bail out of Agria Asia at any time, and at any whiff of trouble. New Hope is a substantial organisation. But I think Agria have got them involved simply to add credibility to the takeover deal. Because the credibility of Agria itself is effectively non existant.

SNOOPY

[root]

Despite all this very solid looking FA (which I always enjoy reading Snoopy), PGW seem to have broken through the upper trend line of a downward trend they have been stuck in for the past 12 months. A conservative EMA (14,42) moving average seems to confirm this, along with RSI approaching 70% and a positive OBV.

Still early days but the next few weeks may confirm a new trend.

[Snoopy]

That means with a flat operational performance at customer interface level, we could still see an after tax profit of $5.5m+$11.5m= $17m in FY2012. $17m equates to NPAT of 2.25cps. At a share price of 36c, PGW would be trading on a PE of 16 and a gross earnings yield of 8.9


Net profit $3.3m for the half year ended December 31st. Revenue $693m. That works out at a margin of 0.48%. No that is not a misprint. The PGW HY2012 profit margin is less than half of one percent.

With margins as tiny as a half of one percent, small changes in cashflows can have large effects on the bottom line. With PGW now trading at 40c, or a projected PE of over 30 (based on a full year profit of $9.9m Assuming 1/3 of profit in the first half) obviously some investors are thinking those cashflows must move in shareholders favour soon. However, based on my own calculations the operational performance (not allowing for the reduction in interest bills lowering debt repayments) of PGW has not improved in HY2012 and in fact has probably deteriorated since HY2011.

CEO George Gould says that last year’s equivalent profit was a loss of $5.9m. But this is a misleading comparison. The 31st December 2010 half-year result included $9m in one off writedowns from restructuring of the company, its superannuation plan, and other non-operational items. Take those non-operational items out and I get an operational profit for HY2011 (last year) of just over $2m. And this with the huge debt costs before recapitalization!

The details, which were not spelled out by Gould, may make up the worst chapters of this disappointing result release story. Following the dissolution of the preferred supplier agreement with NZ Farming Systems Uruguay, it could be the Uruguayan operations of PGW are hurting. Furthermore, no progress has been reported in sorting out the distressed financial assets that could not be on-sold to Heartland.

The fact that Agritech, the so-called golden goose of PGW, has made no improvement in profitability, despite numerous supposedly value enhancing acquisitions over the last few years, has to be cause for major concern. Last years after tax operating margin at Agritech was 0.3% (just one third of one percent) by my estimations. The half-year result for FY2012 says ‘no improvement’. So Agritech is continuing to drag the rest of PGW backwards.

Another topic conspicuous in not being remarked upon was the lack of progress towards a dividend. On 30th December 2011, PGW refinanced its Convertible Redeemable Notes (CRNs) by replacing them with lower cost bank debt. The CRNs were originally issued to Agria on 15 January 2010 and have now been fully redeemed. Up until 30th December Agria was getting interest payments from PGW. That means that as of 2012, Agria has no income stream from its largest investment. Yet Agria has a significant debt burden of its own to service. It will be very informative to look at the sweat on the brows of those two Agria directors at their next appearance in front of PGW shareholders. In the meantime George Gould should be hanging his head in public shame for delivering PGW shareholders such a pathetic operational return.

SNOOPY

[Snoopy]

Furthermore, no progress has been reported in sorting out the distressed financial assets that could not be on-sold to Heartland.


Have now checked out some more details. The half year result contains a nasty little $2.8m write down of Heartland shares that were acquired at 58c and have now been marked to market.

Then subsequent to the balance date Heartland have given back to PGW another $9.6m in loans under the sale of loans guarantee. For a finance division that was apparently sold so it could be forgotten about, this Heartland thing is turning into a nasty little boil on the backside for PGW shareholders.

SNOOPY

[Snoopy]

Have now checked out some more details. The half year result contains a nasty little $2.8m write down of Heartland shares that were acquired at 58c and have now been marked to market.

Then subsequent to the balance date Heartland have given back to PGW another $9.6m in loans under the sale of loans guarantee. For a finance division that was apparently sold so it could be forgotten about, this Heartland thing is turning into a nasty little boil on the backside for PGW shareholders.




Wednesday 7th March 2012

"Pyne Gould Corp, the company controlled by George Kerr and Baker Street Capital, has sold down its stake in the rural supplies company PGG Wrightson, while lifting its holding in finance company Heartland New Zealand."

"The Christchurch-based Pyne Gould reduced its holding in Wrightson to about 7 percent from 9.5 percent on March 5. It began buying shares in Heartland through its wholly owned subsidiary Torchlight Securities from March 1 increasing its holding to about 10.4 percent from about 6 percent."

I saw a spike in PGW share sales go through a day or so ago. Then I remembered there are near on a billion PGW shares in existance. So a few tens of millions going through the market would be just small change in a bankers back pocket.

Nevertheless, when that banker is George Kerr, long time shareholder via PGC, I think the move deserves some comment. Is this an endorsement of Heartland NZ, at the expense of PGW? Or is the move just to equalize the business risk, with the PGW stake even at 40c/share being clearly being more valuable than the Heartland stake before the share shuffle.

I guess any move that reduces the overhang of PGW shares on the market is good. Nevertheless it is interesting this selldown in PGW comes a mere days after Kerr declared that the PGC stake in PGW was no longer for sale due to a change of plan. I guess this is a timely reminder to pay more attention to what people do, rather than what they say!

SNOOPY

[corlemar]

Should there not be a disclosure on NZX as to who acquired PGW shares which PGC sold, given over 1% movement in holding?

[winner69]

Should there not be a disclosure on NZX as to who acquired PGW shares which PGC sold, given over 1% movement in holding?


only if the acquirer goes over or is already over 5%

[Snoopy]

Is this an endorsement of Heartland NZ, at the expense of PGW? Or is the move just to equalize the business risk, with the PGW stake even at 40c/share being clearly being more valuable than the Heartland stake before the share shuffle.

Nevertheless it is interesting this selldown in PGW comes a mere days after Kerr declared that the PGC stake in PGW was no longer for sale due to a change of plan. I guess this is a timely reminder to pay more attention to what people do, rather than what they say!


It was interesting to see that PGC sought to clarify their position the day after I wrote the above:

------------

PGC
08/03/2012 13:58
GENERAL

REL: 1358 HRS Pyne Gould Corporation Limited

GENERAL: PGC: Pyne Gould Corporation Limited Market Update

Pyne Gould Corporation Limited Market Update

Pyne Gould Corporation Limited ("PGC") disclosed to the market yesterday
afternoon that it had sold 19,171,074 shares in PGG Wrightson Limited
("PGGW") at 40 cents per share and had acquired 17,000,000 shares in
Heartland New Zealand Limited at just under 45 cents per share.

PGC Chairman Mr Bryan Mogridge said "This was an opportune trade to reweight
our holdings in two companies in which we expect to make enhanced efforts to
grow shareholder value over the near term."

"This trade reduces our holding in PGGW to 7.02% and increases our holding in
Heartland to 10.39%

For more information, please contact:
Bryan Mogridge

---------------

SNOOPY

[Snoopy]

I don’t think there are any analysts who seriously cover PGW any more. The best I could find was a prediction of earnings of 4cps in FY2013, with no explanation. That equates to a profit of over $30m. $30m is a 300%+ increase on where profits are today, and similar to the all time best boom profits of FY2008. It looks to me like an excessively rose tinted view.

So this is why I have taken on the ‘analyze PGW’ challenge myself. I have gone back to FY2007. This was the first year that PGW traded as the newly merged entity combining the old Pyne Gould Guinness (incorporating Reid Farmers), Wrightsons and Williams and Kettle.

My own analysis preference, when looking at a company as diverse as this, is to consider operational divisional performance measured on the basis of net profit after tax. These figures are not published by PGW. However I could estimate what the figures would be by sharing corporate and interest costs against the divisional EBIT (and EBT in earlier years) data that is provided. I apportioned corporate costs in proportion to divisional revenue and interest costs in proportion to segment liabilities.

We know that PGW is as good as split into two companies already: The global seeds business (Agritech) and the NZ centric farm supplies business (Agriservice). I have retrospectively applied this split to all the previous years’ results. Furthermore I have stripped out the finance business after it was sold early in the 2012 financial year. The South American business I have kept separate. That is because I think it is instructive to see what progress PGG Wrightson has made in this market since the first tentative investment in the, at that time 51% owned, Wrightson PAS (Uruguay) seed company made in FY1999.

My last challenge was to de-couple what was left of the finance division (insurance and real estate) and roll that into what is now called Agriservices in a representative way. I am not entirely convinced that the way that I have done it is right. If you have a finance guy at a desk, how do you apportion his resources when he is writing out an insurance policy and a loan to the same customer at the same time, for example? I am however, convinced that what I have done is consistent. And when one is looking for trends, I think consistency is important.

The resulting ‘divisional chart’ I present in my next post.

SNOOPY

[Snoopy]

The resulting ‘divisional chart’ I present in my next post.


Does anyone suspect that I have been secretly worked for PGG Wrightson, (judging by all the effort I have put into researching it)? You can now rest assured that -even if that were true- I would now be firmly on the end of a George Gould steel capped gumboot after publishing the data chart below.

3932

This chart does not include any effect of:
1/ Writedowns from the company’s holding of NZ Farming Systems Uruguay, sold at a huge loss.
2/ The multi-million dollar cost of the failure of the Silver Fern farms joint venture and the subsequent failed stock procurement guarantee,
3/ Walking away from a multimillion dollar farm deal purchase in Brazil and the associated millions lost on the deposit,
4/ The mega-payment made to Tim Miles for him ‘to not lead the company’.
5/ The hundred million dollars of difficult finance loans, not yet sorted, retained within the company, when the rest of the finance division was simply given away (albeit with a warranty that if any of the loans given away did go bad they could just be given back to PGW). Arrgh! The trickle back of bad loans has already started!
6/ And all the other multimillion dollar restructuring provisions (failed real estate and livestock procurement ventures in Victoria Australia come to mind).

I can feel a deep depression coming on, bringing all this to the forefront of my memory again!

PGW certainly has an orchestrated litany of failed headline deals, all of which have proved headline hitting distracters from the day to day business performance. Yet my chart highlights that behind all of those deals, the remaining core business has had an utterly appalling performance record, with little hint of recovery through good times or bad. Agria must surely be wondering just what it is they have bought into?

SNOOPY

[Snoopy]

The great shareholder hope is that PGW will be able to establish their seeds division in China. I saw a BBC documentary on my recent visit to Australia. It documented the growth of ‘White Horse Village’ in China from a rural community of a few hundred people to a city of 200,000 in under a decade. The story centered on a subsistence farming family who had to send the father to the big smoke to earn money. That left the wife at home working a patch of land to feed the family of two children: Back breaking work she said. She longed for the village to be transformed into a city so that her children could look forward to a better life. Somehow I can’t see PGG Wrightson selling this woman too many beans. I hope there are other parts of China better-organized farming wise.

I think it is informative to consider the record of Agritech in the other green field market PGW have entered - in Uruguay. By my calculations PGW has lost a cumulative $NZ1.75m selling seeds in Uruguay over the last five years. The previous profit situation turning into a loss from FY2009 onwards. Remember they have been in Uruguay since 1999! Granted things may move a bit faster and hopefully more profitably, for PGW/Agria in China if they can crack it, because of the government structure there. But even taking an optimistic view, if consistent profits cannot be had from Uruguay after twelve years of trying, anyone like to guesshow many years will it take for PGW Agritech to drag any profits out of China?

SNOOPY

[Snoopy]

Agritech today derives most of its turnover form the Australian and New Zealand markets, while maintaining their ‘beachhead’ in Uruguay. So how are PGW performing in their Australasian home market? Agritech down-under has been carefully nurtured over the past five financial years with the following annual report mentioned initiatives:

FY2007:
i/ Opened new logistics centre in Melbourne (Victoria) to provide world class warehousing and distribution
ii/ Launched Grasslands Innovation joint venture with Agresearch NZ
iii/ Purchased ‘Fecpak International’ a Dunedin based supplier of technology to counter animal health issues: worm related production losses and drench resistance.

FY 2008:
iv/ Purchased ‘Auswest Seeds’ (formerly Kahibah Holdings Pty.Ltd), the largest independently owned wholesaler of pasture seeds in NSW and Southern Queensland (12-08-2007). Auswest contribution to Agritech profit $NZ0.886m for FY2008.
v/ Acquired 4 Seasons Molassas (NZ) business (01-10-2007)
vi/ Disposed of port assets at Tauranga and New Plymouth.

FY2009:
vii/ New joint venture signed with “Plant and Food Research Ltd.”
viii/ Purchased “Stephen Pasture Seeds Company” operating in Victoria and South Australia. (31-10-2008). Contribution to Agritech profit for FY2009 $NZ0.408m
ix/ New manufacturing facility for ‘Time capsule’ Hamilton delivers a 50% improvement in productivity.

FY2010:
x/ Purchased “Premier Seeds” trading in NSW and South Australia (12-11-2009). Contirbution to Agritech profit for FY2010 was a loss of $NZ0.3m.

FY2011:
xi/ Commissioning of new seeds distribution centre Rolleston near Christchurch (shelving subsequently disrupted by September 2010 Canterbury earthquake).
xii/ Purchased “Keith Seeds” in South Australia after more than a year of due diligence (22-11-2010). Contirbution to Agritech profit for FY2011 was a loss of $NZ1.2m.
xiii/ Purchased maize seed division of “Corson Grain” (01-12-2010). Contirbution to Agritech profit for FY2011 was a loss of $NZ0.6m.
xiv/ Purchased “Southedge Seeds” (Northern Queensland) (09-05-2011). Contirbution to Agritech profit for FY2011 was a loss of $NZ0.2m.

Revenue in this division has been steadily increasing, but unfortunately profit margins have consummately shrunk by 90% with no sign of improvement. Profits are reducing at a greater rate than any loss making acquisitions would suggest.

3933

It is therefore hard to draw up a case for the expansion of Agritech being well managed even in the ‘home’ NZ/Oz market. There is no evidence that any of the new acquisitions have improved the business and profit margins at any time over five years to FY2011 year-end. FY2011 profit margins are at record lows (a measly 0.6%) and the HY2012 interim report tells us that ‘seeds results are broadly in line with last year’ (p1). I think the senior management at Agritech owes PGW shareholders an explanation.

SNOOPY

[Snoopy]

Yet my chart highlights that behind all of those deals, the remaining core business has had an utterly appalling performance record, with little hint of recovery through good times or bad. Agria must surely be wondering just what it is they have bought into?


Agriservice now includes the real estate and insurance revenues and profits that were formerly part of the now sold finance division. I have systematically gone back through previous finance division results and separated out real estate and insurance revenues and profits. I have added this back on top of the traditional Agriservice categories. ‘Traditional Agriservice’ includes rural supplies, livestock, plus smaller contributions from irrigation and the AgNZ training programs.

The performance of the ‘New Agriservice’ has been a steady decline since the peak year of FY2008 to a new low over FY2011. The profit margin has collapsed to less than half of one percent. Nevertheless to dismiss the performance of Agriservice just on the bare numbers is not telling the whole story. Agriservice possibly more than any other business is constrained by the whims of Mother Nature and Father Bollard. So here is what PGG management says happened, climate and currency wise from 2007 to 2011:

2007 (AR2007 p3):
“Operating conditions worsened progressively as the year unfolded, driven largely by the impact of the rising New Zealand dollar exchange rate and the flow on effects of reduced product prices at the farm and orchard.”

“For dairy farmers in particular, the economic climate started to improve in the last quarter of the year.”

2008: (AR2008 p2):
“Operating conditions in the first half of the year were generally difficult with dry weather in New Zealand and Australia, the high New Zealand dollar limiting returns from agricultural commodities and farmer returns for red meat and wool remaining at historically low levels. Conditions for dairy farming were the exception, with international commodity prices maintaining farm returns at a high level.”

2009: (AR2009 p2):
“The impact of the worst global recession in 70 years on the rural sector and the significant slowdown in dairy activity towards the end of the reporting year had a detrimental effect on PGG Wrightson’s performance.”

2010 (AR2010 p3):
“The results are considered positive in light of tight liquidity on farm and with it reduced appetite for expenditure on agricultural inputs as well as intensifying competition in our core markets.”

2011 (AR2011 p4):
“The results were considered to be broadly in line with expectations at the trading level. Positive performance from livestock and rural supplies were offset by unseasonal and difficult market conditions experienced particularly in Australia. Restructuring costs and the impact of the September 2010 Canterbury earthquake further affected results.”
(Note: the positive performance of the ‘old Agriservices’ became relatively negative when I added in the effect of the Real Estate and Insurance sections. This effect was principally owing to PGW management restructuring the way group liabilities were allocated once the finance division was on sold).

All of these ‘excuses’ read plausibly on their own. But I have to ask the question: Can management be described as being ‘on top of things’ when only six months in FY2008 can be described as ‘normal’ over a five year period? Or am I being unfair asking that question?

3935

If farming really is going to dig NZ out of the hole, then surely investing in one of New Zealand’s most iconic companies that supports farming will eventually reward shareholders? PGW is one company I want to like, but perhaps I am just a “supper dish half-full” kind of mutt? Nevertheless of all the shares I hold, this is the one that sits most uncomfortably in my NZ share portfolio. That is probably why it remains the smallest part of my NZX portfolio by some margin.

SNOOPY

[GTM 3442]

PGW is one company I want to like, but perhaps I am just a “supper dish half-full” kind of mutt? Nevertheless of all the shares I hold, this is the one that sits most uncomfortably in my NZ share portfolio. That is probably why it remains the smallest part of my NZX portfolio by some margin.

SNOOPY

Yeah. With over a decade of revitalization plans gone west, you have to wonder. Like you, Snoopy, I want to like Wrightson, but they just don't seem to let me !

[Balance]

Yeah. With over a decade of revitalization plans gone west, you have to wonder. Like you, Snoopy, I want to like Wrightson, but they just don't seem to let me !

Farming is about 3 good years and 2 bad years.

PGGW is about 4 bad years and 1 good year.

2012 could be the good year so get in and get out!

Then, wait for another 4 years before touching this loud barking puppy!

[GTM 3442]

2012 could be the good year so get in and get out!

Then, wait for another 4 years before touching this loud barking puppy!




A puppy's still a dog - no matter how loud it barks.

[Snoopy]

A puppy's still a dog - no matter how loud it barks.


The art of investment is buying value.

If you see a dog, then you have to buy it for the price of a flea ridden ringworm bearing dog.

If you have a thoroughbred hound, buy it for the price of an ordinary dog.

If you don't buy something -ever- because you have categorized it as a dog then you are going to miss out on a lot of investment opportunities.

Any share that has an expected positive cashflow, however small, is not a dog though. You have to take a position when the share is priced so that the projected cashflow is at a significant discount to the market. In my view 37c for PGW is not that price.

SNOOPY

[Queenstfarmer]

I think it`s time for some heads to roll at executive level in this company. At times we all say "why doesn`t someone do something about it?"...well..we as shareholders are are all someone. Would love to hear some opinions on this. I`m sure if we can get their attention with numbers...they will take us seriously.

[Felix]

This is a notice on 15 March from PGG commenting on a 'low ball' offer -
"We have been advised that Stock & Share Trading have written to some PGW shareholders offering to buy their PGW shares for 0.35c per share. This is a 12.5% discount to the current market price with PGW shares today trading at 0.40c".

I hope many shareholders took up the low-ball company's kind offer, given the share price is now below 35c.

On a serious note, it's really sad to see this once great company reduced to such a basket case. Sure there were some really tough times in the late 1990s and early 2000s but they came back strong and were looking really formidable. Then the financial crisis hit, they got caught with their pants down and have never recovered.

[Snoopy]

I think it`s time for some heads to roll at executive level in this company. At times we all say "why doesn`t someone do something about it?"...well..we as shareholders are are all someone. Would love to hear some opinions on this. I`m sure if we can get their attention with numbers...they will take us seriously.


I think you are looking at PGW viewed through historical spectacles Queenstfarmer. The bare facts of the situation as I see them are these.

1/ Sheep, beef and dairy farmers have had an exceptionally good year.
2/ This confidence has been reflected with PGW trading at exceptionally high multiples, a PE ratio of above 30
3/ The market norm is for rural related businesses to trade at a significant discount to asset backing, yet PGW trades consistently above asset backing.
4/ At the point we sit in the business cycle with the heavy debt burden the company carries it is unlikely that PGW will pay a dividend for at least eight years.
5/ Performance of the company has greatly exceeded comparable listed entities such as Allied Farmers and Elders.

Surely George Gould and his team should get some credit for keeping the PGW share price exceptionally high, at 33c, with both assets and earnings rated so much in excess of the NZX and industry averages? The real question I see is, what should be engraved on GGs medal when it is presented to him at PGWs next AGM?

SNOOPY

[Queenstfarmer]

Eight years till they pay a dividend you say Snoopy? Well Mr Gould is then misleading shareholders by saying he expects there to be a dividend this year??

[Snoopy]

Eight years till they pay a dividend you say Snoopy? Well Mr Gould is then misleading shareholders by saying he expects there to be a dividend this year?


Queenstfarmer, I am very happy if Uncle George is indeed promising a dividend. With my remaining rump of shares I would like it and Agria is in no doubt in desparate need of it. My eight year dividend time horizon guess was based on the need to rebuild the PGW balance sheet. Please supply any quote by GG that a dividend is imminent!

I would vote against Uncle George if a superior CEO candidate and strategy can be found going forward. But I am not sure how many years of profit I would want to give away just to be rid of him. Indeed I am not quite sure what you perceive it is that GG has done badly. Personally I would rather see some of the board with their ahem, 'previous strategic initiatives' behind them bow out first before GG was shown the door.

SNOOPY

[Queenstfarmer]

I heard these exact words from GG himself whilst connected to a conference call during the AGM in November of last year. "We expect to pay a dividend within the next year"

[kiwi_on_OE]

Snoopy - care to give us your rationale for thinking there won't be a dividend for eight years?

EBITDA - HY11 14m, FY11 49m, HY12 22m, FY12 could be more like 70m.
Debt is 230m from what I can see, so EBITDA/Debt ratio of 4.6 for last year wasn't good, but a ratio of 3.3 for this year is acceptable isn't it?
I wouldn't have thought it would take eight years to get into a position to pay a dividend. If this FY is a good year, and they can pay down a chunk of debt, then a dividend next FY seems possible to me, maybe as a final dividend rather than an interim dividend.

[Snoopy]

Snoopy - care to give us your rationale for thinking there won't be a dividend for eight years?

EBITDA - HY11 14m, FY11 49m, HY12 22m, FY12 could be more like 70m.
Debt is 230m from what I can see, so EBITDA/Debt ratio of 4.6 for last year wasn't good, but a ratio of 3.3 for this year is acceptable isn't it?
I wouldn't have thought it would take eight years to get into a position to pay a dividend. If this FY is a good year, and they can pay down a chunk of debt, then a dividend next FY seems possible to me, maybe as a final dividend rather than an interim dividend.


A fair question Kiwi on OE.

I go back a long way with PGW, right back to the days when PGW sold their finance division the first time around. That left the company 'debt free' but also largely 'profit free' with the finance golden goose transferred to Rabobank. The company spent years in the doldrums before Craig Norgate became involved through his Rural Portfolio Investments.

Having been through those hard and fickle farming times, I can see the rationale in a company like PGW being long term debt free. As at 31st December 2011 PGW had long term debt of $130m (p12 HY2012 interim report) , which equates to $130m/754.8m= 17.2cps. Profit for HY2012 was $3.11m. If I add back in $4.486m of 'non operating losses' I come out with a normalised half year profit of $3.11m + $4.486m= $7.60m. Dividing by the number of shares on issue gives the HY2012 earnings of $7.6m/754.8m= 1.0cps. The PGW earnings rule of thumb has seen earnings split 1/3 2/3 between the first and second half years. So I am working on normalised earnings of 2.5cps for FY2012.

Assuming FY2012 to be typical then earning at this rate would require 17.2/2.5= 6.88 years (near enough to 7) to fully pay that long term debt back. By year 8 it would then make sense to resume paying dividends. My basic rationale here is that interest rates being paid by PGW are so high and margins are so low that it would improve shareholder value most if the long term debt was paid off first, rather than prematurely return to paying shareholders dividends.

SNOOPY

[Master98]

Assuming FY2012 to be typical then earning at this rate would require 17.2/2.5= 6.88 years (near enough to 7) to fully pay that long term debt back. By year 8 it would then make sense to resume paying dividends. My basic rationale here is that interest rates being paid by PGW are so high and margins are so low that it would improve shareholder value most if the long term debt was paid off first, rather than prematurely return to paying shareholders dividends.

SNOOPY

So, you are assuming that PGW earning is 2.5cps for next 8 years?

[Snoopy]

So, you are assuming that PGW earning is 2.5cps for next 8 years?


Yes. Given we are on a 'high' in global farming terms, I believe the outlook for the rural supplies division is for lower earnings as the years roll forward to 2017, after which farm earnings may pick up again in the next farming cycle. The seeds business Agritech is on a low and hopefully there will will some recovery to balance out declining earnings from Agriservices. Nevertheless I haven't seen any evidence of any synergy benefits coming through from all those external seed business acquired by PGW over the last few years. On the contrary, Agritech margins have plunged. I do not expect any positive earnings contribution from selling seeds to China for at least five years.

I would certainly hope for greater earnings going forward than 2.5cps. But since I have seen no inkling let alone evidence that this can be achieved, I am forced to conclude that an eps of 2.5cps may be as good as it gets for PGW.

SNOOPY

[Queenstfarmer]

Snoopy..to me it makes no sense to put all the profits into clearing the debt. If that were the case id advise anyone out there to forget buying PGW for a number of years. Its like asking a family to pay off their mortgage in ten years instead of 25 and go without food and clothes in that time. You must give shareholders a little food however small. Telecom has huge debt but have always kept up with a good dividend policy. Yes?

[Snoopy]

Snoopy..to me it makes no sense to put all the profits into clearing the debt. If that were the case id advise anyone out there to forget buying PGW for a number of years. Its like asking a family to pay off their mortgage in ten years instead of 25 and go without food and clothes in that time. You must give shareholders a little food however small. Telecom has huge debt but have always kept up with a good dividend policy. Yes?


Queenstfarmer, your point is well made and I accept it as a broad brush argument. However I do feel that in the particular case of PGW this broad brush creates a messy painting.

If you go to p12 of the HY2012 report, the Condensed Interim Statement of Financial Position, you will see that total assets of PGW amount to $1,066,012,000. If you take my projected after tax profit for FY2012 of $22.8m then you can work out the return on total company assets:

$22.8m/$1,066.0m= 2.14%

The shareholders have had to borrow money to buy some of these assets. We don't know exactly how much interest PGW are paying for their loan money. We do know it is below 8% because PGW have recently repaid their convertible redeemable notes issued to them by Agria at that rate because they could borrow that some money from the bank at more favourable rates. However I am willing to bet those bank interest rates are nowhere near as low as 2.14%.

I would guess that PGW are borrowing money at around 7%, and using that capital to earn an after tax income of 2.14%. The way I read it, this means PGW is going backwards by the difference (about 5%) based on all their borrowed long term capital while that long term loan remains outstanding. I don't think it makes sense to borrow money at a relatively high rate when the return on those funds for shareholders is so far below the rate of borrowing. This is why I favour repaying the debt at the expense of dividends. In theory the increase in share price due to debt reduction should more than compensate shareholders for any dividend foregone.

Telecom I believe has a much higher return on assets and dare I say it, lower borrowing costs. So the same argument does not apply there.

SNOOPY

[Queenstfarmer]

Cheers Snoopy...fair point re Telecom. I agree with your theory on SP increase with debt reduction..but oh to having a crystal ball to make accurate projections to what may or not be 5,6,7 or even 8 years from now. With more than doubling the amount of ordinary shares on issue at the end of 2009...my imaginary crystal ball would like to see an SP of at least half of what it was back in the hay day.

[Snoopy]

Snoopy ... Is it just PGW in this sector that has such low margins? I.e. is there a price war going on and we're waiting for the death of others (PGW might be one [evil grin]? ... Or is PGW truely awfully managed and it is as you say - Eight years before we see share price appreciation and divies?


Here in the South Island Belg, we have already seen the elimination of competition as Reid Farmers and the old Pyne Gould Guiness were folded into the PGG Wrightson brand. Superficially the biggest beneficiary has been the co-operative CRT (Combined Rural Traders). I think the main obstacle for PGW going forwards is that farmers are just too smart in keeping competition alive. RD1 has one or two stores down here I think, but my own view is that there isn't a lot more shaking out of the weak that can be done.

How is PGW ever going to improve without some unique selling point? I thought the in house finance division might be that advantage and Craig Norgates leveraging of NZ farm expertise into South America, pitching the like of NZS to farmers as an alternative to bidding up the capital value of their own land each boom showed promise. Both are now dead as far as PGW shareholders are concerned.

The best way to improve profitability going forward seems to be to just pay down that high cost debt. It sounds dull, but this seems to me to be the best way to shore up the PGW share price. I may be advocating no dividends for eight years, but a do expect a share price that slowly creeps upwards before then because of the debt mountain being paid down as compensation.

SNOOPY

[Snoopy]

Companies office has RD1 returns ...

2011 Gross margin circa 21%
2011 Net Margin circa 1.8%

So they're similar?


Nice bit of sleuthing there Belg. Of course 'net margin' implies 'net profit'/'revenues'.

The equivalent figure for PGW Agriservices as I apportion it is $3m/$750m = 0.4%

So PGW Agriservices is lagging a long way behind RD1 if your 1.8% margin figure is correct. George Gould has moved down to the silver medal position!

Now all we need is for some friendly farmer to anonymously spill the beans on the CRT co-operative to see if GG is still worthy of a step on the dias :-)

SNOOPY

[Queenstfarmer]

So Agria must be over the moon with their investment almost halving in value...well done PGW..you fine Kiwi icon!

[elZorro]

So Agria must be over the moon with their investment almost halving in value...well done PGW..you fine Kiwi icon!

Hello QSF and Belg, I have done my own in-depth research on the rural supply stores, and why they struggle to make a profit. For a kickoff, there's too many of them, and they're too polite to farmers. The margins are terrible. Why is that?

When a farmer wants to buy anything over about $500-$1000 from a supply store (regardless of whether they stock this item or not) they get on the blower and ring up all the different stores asking for the best price. Fair enough.

But the stores have seen all this before, and they know that the margin they can put on the goods, and still get the sale, is about 8% to 12% (so I've been told). So if they get the sale at this small margin, they'll buy in only the goods they need for the sale, because there's no fat in it, and no other farmer will see this new bit of gear to form an opinion on it. The manufacturer of the goods might not know his product is being sold just above trade, so that farmers look at him sideways when he offers his normal advertised end-user price for a direct sale.

So NZ farmers are getting a great trade deal quite often, but that shows up in a slower uptake of new gear by farmers, reduces funds for development and marketing by manufacturers, and sends the rural supply stores nearly broke. A better way of looking at it would be for farmers to realise that the new gear might save them a great deal more than it costs, or provide huge value, so delaying purchases and haggling for a better price is just poor business all round.

But I suppose we all do this to some extent. Sometimes it just feels like a race to the bottom.

[Snoopy]

So Agria must be over the moon with their investment almost halving in value...well done PGW..you fine Kiwi icon!


Queenstfarmer it pays to keep an eye on Agria (NYSE: GRO). Share price currently $1.07. But if it trades under $1 for a specified period of time the share will be suspended from trading. Come 30th June and Agria will have to 'mark to market' the value of their PGW stake. With such a large writedown coming, the prospects of Agria still being listed on the NYSE by the end of the year do not look good. There doesn't look to be any prospect of any cashflow from PGW for Agria which won't help.

The prospect of Agria going bankrupt must now be considered a better than average bet. The kiwis will then be able to buy their shares back from the receivers, and our stitch up of the Chinese will be complete.

SNOOPY

[Snoopy]

Having a rump of residual PGW shares post takeover myself, I would dearly love to be wrong about all this. I am looking forward to all you aspiring ebullient PGW stakebuilders taking my analysis apart. It is rare that my own fair valuation of a share (I think PGW is fairly valued at about 20c) is so far from market valuation.


Looks to be coming true? Got a bid in the mail today offering to buy all my PGW shares for 20c!

Will be sending an empty envelope by fast post as a reply. Will probably wait until 1st July until responding as that is when the postage rate goes up.

SNOOPY

[POSSUM THE CAT]

Snoopy you are just costing NZ Post money as the recipients do not have to pay the postage & accept the envelope. And I take it like most they are no longer send post paid envelopes.

[root]

Looks to be coming true? Got a bid in the mail today offering to buy all my PGW shares for 20c!

Will be sending an empty envelope by fast post as a reply. Will probably wait until 1st July until responding as that is when the postage rate goes up.

SNOOPY

I got one of those a few weeks ago, I thought at the time (SP was mid 30s) how pointless it was. But I suppose it must work or they wouldn't be trying it. I'd like to know the percentage of people who accept offers like that.

Your empty envelope idea is a little bit more elegant than my reply was.

[Queenstfarmer]

Hey snoopy....re your msg about agri? If receivership does indeed eventuate...do we as shareholders have first option for agrias shares?

[kiwi_on_OE]

Receivership of Agria? The receiver of Agria would own the shares, and it would be up to them to sell them how they thought best.

The only way that existing shareholders might get in on the action is if PGW had loaned some money to Agria, or the receiver thinks the best way to get some money for the shares is to offer them to existing shareholders.

[Master98]

Receivership of Agria? .

It’s rumours or education guess? but don’t forget china agriculture giant New Hope which backed the Agria T/O will grab it if Agria on receivership

[Snoopy]

It’s rumours or education guess? but don’t forget china agriculture giant New Hope which backed the Agria T/O will grab it if Agria on receivership

As I previously posted in post 1947 on this thread, quoted from the risk section of the Agria annual report

--------------

"Furthermore, New Hope International has the right to sell its shares in Agria Asia (the takeover vehicle used to hold the PGG wrightson shares) to Agria Group Limited, or Agria Group, on the terms and conditions provided in the shareholders agreement at a certain repurchase price determined pursuant to a supplemental agreement entered into between Agria Group and New Hope International in June 2011. The obligation of Agria Group in connection with this put option held by New Hope International may be on terms that are not commercially favorable to us."

My reading of this is that New Hope have covered their backs and probably have an agreement with Agria to sell the New Hope share of "Agria Asia" back to Agria, most likely at the price they paid for it. That means that New Hope can bail out of Agria Asia at any time, and at any whiff of trouble. New Hope is a substantial organisation. But I think Agria have got them involved simply to add credibility to the takeover deal. Because the credibility of Agria itself is effectively non existent.

---------------

If I was the MD of 'New Hope' I would pull my money out of Agria Asia at no cost (using the put option) let Agria go bankrupt then buy the 50.1% of PGW shares that Agria used to own at a receivers discount. Why would I do the alternative and put more capital into Agria Asia, effectively locking in my purchase price at 60c, when I could buy those same shares off the Agria receivers at a far lower price?

SNOOPY

[Snoopy]

It’s rumours or education guess?


The potential receivership of Agria is an educated guess on my behalf, based on the following:

1/ Agria is heavily indebted.
2/ Agria has no income, bar selling a few corn seeds in China. This represents about 5% of Agria business verses the 95% from their controlling shareholding in PGG Wrightson.
3/ Agria is facing a large writedown on their PGW shares come 30th June, the end of their business year.

On top of this NYSE listing rules requires a share price consistently above $1 (NYSE:GRO) or the offending share will be suspended from trading. The current share price for Agria is down to $1.01.

Draw your own conclusions. I have drawn mine.

SNOOPY

[Snoopy]

The potential receivership of Agria is an educated guess on my behalf, based on the following:

1/ Agria is heavily indebted.
2/ Agria has no income, bar selling a few corn seeds in China. This represents about 5% of Agria business verses the 95% from their controlling shareholding in PGG Wrightson.
3/ Agria is facing a large writedown on their PGW shares come 30th June, the end of their business year.



I see PGW dipped down to 29c yesterday although it has recovered to 30c today.

I have been doing some more homework on the potential problems that Agria faces in debt repayment. This involves looking at the SEC 20F filings which have taken the place of what we would call the annual report in New Zealand.

p22 shows principal and debt repayments of 575.8RMB, about $NZ115m, to be paid by 30th June 2012. But the bigger hurdle is 1245.5RMB (about $250m) due on 30th June 2013.

A significant loss of around $NZ150m will have to be booked to the Agria accounts on 30th June to take into account the decline in the PGW share price from about NZ50c to about NZ30c over the year.

On p15 we learn Agria has $550RMB or $NZ100m of cash resources acting as a guarantee for the bank loans. It does look as though this will be wiped out by 30th June 2012, leaving Argia in a difficult position. If they do pull a rabbit out of the hat this June then surely the June 2013 repayment schedule will finish them.

Note 24 shows total end of year equity as at 30th June 2011 of 1,613,451,000 RMB, or $NZ322m

But the banks won't let them go to that zero equity wire. I think Agria are probably already gone

SNOOPY

[Snoopy]

On top of this NYSE listing rules requires a share price consistently above $1 (NYSE:GRO) or the offending share will be suspended from trading. The current share price for Agria is down to $1.01..


Agria now trading at 93c. Seems to have been under $1 since June 11th. The clock is ticking on suspension of trading of Agria shares on the NYSE!

From

http://www.ehow.com/about_6589961_happens-falls-below-_1-nyse_.html

----------

Stocks That Fall Below $1

Stocks listed on the NYSE have a number of strict rules and guidelines they must follow to protect shareholders and provide transparency and effective regulation. The principal rule is Section 802.01C of the Exchange's Listed Company Manual, which stipulates that the price of a stock must not fall below $1 for a consecutive 30-day trading period, nor should it have an average stock price closing below $2 in the same period. If this happens, the stock is considered non-compliant, and the company has six months to bring its share price and the average share price back above $1. If the company fails to do so or fails to acknowledge the fact, suspension and delisting procedures can take place.

----------

SNOOPY

[Master98]

I think Agria are probably already gone

SNOOPY

If Agria gone then New Hope will grab the 50.1% pgw shares at a good bargain( maybe) and become a new real cornerstone shareholder, it is great for pgg wrightson.

When crafar farms going unconditional next month, pgw suppose to get about $30m( $25m in 2010) loan repayments from the receivership used to pay down debt or distribute to shareholders:)

[Newman]

If Agria gone then New Hope will grab the 50.1% pgw shares at a good bargain( maybe) and become a new real cornerstone shareholder, it is great for pgg wrightson.

When crafar farms going unconditional next month, pgw suppose to get about $30m( $25m in 2010) loan repayments from the receivership used to pay down debt or distribute to shareholders:)

Are you sure the loan repayment would go to PGW? I think the loan was from the former PGW Finance, now a part of Heartland NZ.

[Balance]

If Agria gone then New Hope will grab the 50.1% pgw shares at a good bargain( maybe) and become a new real cornerstone shareholder, it is great for pgg wrightson.

When crafar farms going unconditional next month, pgw suppose to get about $30m( $25m in 2010) loan repayments from the receivership used to pay down debt or distribute to shareholders:)

Means a takeover?

[Master98]

Are you sure the loan repayment would go to PGW? I think the loan was from the former PGW Finance, now a part of Heartland NZ.

PGW keep the crafar loan in a special vehcile, didn't sell to HNZ.

[Master98]

Means a takeover?

My understanding is this 50.1% holding already in foreign hand, if New hope buy this lot they don’t need to get OIO approve, also New Hope was part of the group to partially takeover pgw.

[Snoopy]

My understanding is this 50.1% holding already in foreign hand, if New hope buy this lot they don’t need to get OIO approve, also New Hope was part of the group to partially takeover pgw.


I think Master that if an overseas outfit wanted to buy the 50.01% Agria stake they would still need OIO office approval. However, unless the buyer was of dubious character I would suggest that this is unlikely to prove a problem. And yes such an acquisition would probably mean that the buyer would have to bid for the whole company - probably.

I say probably because the Agria listed on the NYSE is the parent company of Agria Singapore that holds the PGW shares. So it might be that shareholder shuffling in the unlisted Agria Singapore could pay out the listed USA arm. If that were to happen the ownership of the controlling stake in PGW would still belong to Agria Singapore (albeit with different shareholders) so no takeover bid for the rest of PGW would be necessary under the NZ takeover code.

SNOOPY

[Snoopy]

Agria now trading at 93c. Seems to have been under $1 since June 11th. The clock is ticking on suspension of trading of Agria shares on the NYSE!


Agria (GRO) is putting up a fight! After spending most of June below $1, on 28th June there was a rally, if the rise in share price to $1.02 can be called that!. Has been bouncing between $1 and $1.02 since then. Knife edge stuff.

SNOOPY

[Master98]

40m shares changed hand, who are they?

[Master98]

40m shares changed hand, who are they?


Only PGC has such large stake, it is good let this troubled shareholder go.

[Master98]

The vultures have been waiting for this ... :)

We are just little bugs, but be quick untill everthing is gone:)

[Newman]

We are just little bugs, but be quick untill everthing is gone:)

What did you mean by "everything is gone"?

[Snoopy]

Agria (GRO) is putting up a fight! After spending most of June below $1, on 28th June there was a rally, if the rise in share price to $1.02 can be called that!. Has been bouncing between $1 and $1.02 since then. Knife edge stuff.


Agria dips below $1 on 5th July. 6th July price is 96c!

SNOOPY

[Master98]

As I know PGW already ramp up to sell seeds and live stock to china market through their beijing office, so there will be a big jump in revenue in fiscal year 2013.

[The BOWMAN]

As I know PGW already ramp up to sell seeds and live stock to china market through their beijing office, so there will be a big jump in revenue in fiscal year 2013.

Interesting info. How credible is your source? If it is something so material that will lead to a "big" jump in revenue, surely it should have been announced to the market.

[Master98]

Interesting info. How credible is your source? If it is something so material that will lead to a "big" jump in revenue, surely it should have been announced to the market.


Master, Beijin office rev was zero (near zero?) so any number will be a big jump from there :)

What's the source Master?

From a reliable source bro.just part of pgw business i don't think will lead to a announcement, actually pgw has history of trade with china including livestock and wool.I had increased my holding when sp at 29c and 30c because i don't think pgw sp should be cheaper than pgc;), i sold my holding at 40c, at that time i realise vultures:) could smash pgw sp to grap some big loser shares. FingerCross.

[Agrarinvestor]

Hallo together,

kindly greetings from Germany. I am new on sharetrader.nz, and very impressed of the high standard in this discussion about PGG.http://www.sharetrader.co.nz/images/icons/icon14.png
I have currently 30000 shares in Agria. For that i am very interested in the success of PGW.
A few weeks ago there were a "low ball offer" for PGW shares. Do you think that there is some stock manipulation around ?
Is there a link available were we can see how the short interest of PGW shares are ?

For give me about my bad english http://www.sharetrader.co.nz/images/icons/icon7.png

[Snoopy]

Hallo together,

kindly greetings from Germany. I am new on sharetrader.nz, and very impressed of the high standard in this discussion about PGG.


Welcome to 'Sharetrader' Agrainvestor. Glad to have you on board.



I have currently 30000 shares in Agria. For that i am very interested in the success of PGW.
A few weeks ago there were a "low ball offer" for PGW shares. Do you think that there is some stock manipulation around ?


These low ball share offers have been in the news a lot over the last couple of years on the NZX. Fortunately the law has been changed so that those making such offers must also show the recent market price of the shares in their offer documents. I certainly hope this law change will eventually bring an end to low ball offers. But unfortunately 'shareholder stupidity' will never be a crime.

I for one doubt that the price of PGW shares is being manipulated. Agria may hold 50.01% of PGW shares, but there are still well over 300m PGW shares out there for others to buy and sell. The sell down of the substantial shareholding of shares owned by PGC over the last week has removed an overhang in the market. That has to be good for remaining shareholders. The next point of interest lies in finding out just who has bought those shares!



Is there a link available were we can see how the short interest of PGW shares are ?


Others may correct me on this. I believe there are moves afoot to be able to short certain NZX listed shares. But I don't think PGW is one of them.

SNOOPY

[Master98]

Agria may hold 50.01% of PGW shares, but there are still well over 300m PGW shares out there for others to buy and sell. The sell down of the substantial shareholding of shares owned by PGW over the last week has removed an overhang in the market. That has to be good for remaining shareholders. The next point of interest lies in finding out just who has bought those shares!

SNOOPY

Just correct you snoopy, Agria hold 50.22% pgw, The sell down of the substantial shareholding of shares owned by PGC.

[Snoopy]

Just correct you snoopy, Agria hold 50.22% pgw.

Interesting. Does that mean Agria are now using the creep provision of the NZ takeovers code and are buying PGW shares on market?

SNOOPY

[Master98]

Interesting. Does that mean Agria are now using the creep provision of the NZ takeovers code and are buying PGW shares on market?

SNOOPY

About Agria Corporation
Agria Corporation (NYSE: GRO) is a China-based agriculture company with operations in China and internationally. In China, we engage in research and development, production and sale of seed products, including field corn seeds, edible corn seeds and vegetable seeds. We own through Agria Asia a 50.22% equity interest in PGG Wrightson, New Zealand's largest agricultural services company. PGG Wrightson reported turnover of NZ$1.2 billion (US$1.0 billion) for the 12 months ended June 30, 2011. For more information about PGG Wrightson, please visit www.pggwrightson.co.nz. For more information about Agria Corporation, please visit www.agriacorp.com.

[Snoopy]

About Agria Corporation
[FONT=Arial,Arial][SIZE=3][FONT=Arial,Arial][SIZE=3]Agria Corporation (NYSE: GRO) is a China-based agriculture company with operations in China and internationally. In China, we engage in research and development, production and sale of seed products, including field corn seeds, edible corn seeds and vegetable seeds. We own through Agria Asia a 50.22% equity interest in PGG Wrightson, New Zealand's largest agricultural services company. PGG Wrightson reported turnover of NZ$1.2 billion (US$1.0 billion) for the 12 months ended June 30, 2011. For more information about PGG Wrightson, please visit www.pggwrightson.co.nz. For more information about Agria Corporation, please visit www.agriacorp.com.


According to the note sent to the stock exchange on 2nd May 2012 after the Agria partial takeover offer closed, Agria's shareholding was 50.01%. Yet if you look in the PGW Annual Report 2011, on 30th June 2011 Agria owned 50.22% of shares. Now the difference represents about 1.6m shares that Agria obtained between the takeover offer closing on 30th April 2011, and when they had to report on 30th June 2011. Interesting.

SNOOPY

[Master98]

According to the note sent to the stock exchange on 2nd May 2012 after the Agria partial takeover offer closed, Agria's shareholding was 50.01%. Yet if you look in the PGW Annual Report 2011, on 30th June 2011 Agria owned 50.22% of shares. Now the difference represents about 1.6m shares that Agria obtained between the takeover offer closing on 30th April 2011, and when they had to report on 30th June 2011. Interesting.

SNOOPY

Any possibility that Agria will lunch a full takeover some day? very interesting to know who brought this 40m shares, no market announcement yet, could be distributed.

[Agrarinvestor]

Any possibility that Agria will lunch a full takeover some day? very interesting to know who brought this 40m shares, no market announcement yet, could be distributed.

i think you can register your shares via computershare and after that you can ask for a copy of the "book of shareholders"

[Master98]

i think you can register your shares via computershare and after that you can ask for a copy of the "book of shareholders"

Cheers. Mate

[Snoopy]

Any possibility that Agria will lunch a full takeover some day?


Let's see.

Market capitalisation of Agria $US50.95m (based on 9th July closing price of US92c).
Market capitalisation of PGW $NZ243m(based on 9th July closing price of NZ32c).

What chance a little fish with no income and huge debts can swallow a four times bigger fish with low income and very large debts?

SNOOPY

[bung5]

Let's see.

Market capitalisation of Agria $US50.95m (based on 9th July closing price of US92c).
Market capitalisation of PGW $NZ243m(based on 9th July closing price of NZ32c).

What chance a little fish with no income and huge debts can swallow a four times bigger fish with low income and very large debts?

SNOOPY

Makes Agria look like a good buy ....

[Master98]

looks like PGC is forking out the rest of 13m shares

[Balance]

looks like PGC is forking out the rest of 13m shares

The bad smell of George Kerr will lift soon from PGW then.

The vultures sure know how to squeeze him.

[Master98]

The bad smell of George Kerr will lift soon from PGW then.

The vultures sure know how to squeeze him.


The last 5.5m shares i think vultures will be quite happy to pay at "lowball offer" 35cps:), or even 37cps after they got 40m at 29cps and 7.5m at 32cps.

[Balance]

The last 5.5m shares i think vultures will be quite happy to pay at "lowball offer" 35cps:), or even 37cps after they got 40m at 29cps and 7.5m at 32cps.

Maybe last opportunity to pick a few cheap shares off George Kerr.

Remember that he got the shares at 39 cents when he made the takeover offer for PGC?

Well, that's $4.0m hit on the 40m shares sold and $525,000 hit on the 7.5m sold.

His selling looks like the act of a desperate man - mortgagee sale time.

[Master98]

Maybe last opportunity to pick a few cheap shares off George Kerr.

Remember that he got the shares at 39 cents when he made the takeover offer for PGC?

Well, that's $4.0m hit on the 40m shares sold and $525,000 hit on the 7.5m sold.

His selling looks like the act of a desperate man - mortgagee sale time.

That's what i said we are just little bugs, BUT we do have the opportunity to pick up something left from the vultures mouth;)

[Snoopy]

Makes Agria look like a good buy ....

According to Agria's 20F filing for FY ending June 2011 their debt is described as follows (Note 12):

------

As of June 30, 2011, short-term and long-term bank borrowing facilities included:
• A term debt facility denominated in New Zealand dollars of NZ$124.5 million (RMB666.4 million, $103.1 million) that matures on August 31, 2012 provided by a syndicate of three banks.
• A working capital facility denominated in New Zealand dollars of NZ$75.0 million (RMB401.4 million, $62.1 million) that matures on February 29, 2012 provided by a syndicate of three banks. As of June 30, 2011, this facility had an outstanding balance of NZ$11.0 million (RMB58.9 million, $9.1 million) and available balance of NZ$64.0 million (RMB342.6 million, $53.0 million).
• Overdraft and guarantee facilities denominated in New Zealand dollars of NZ$40.0 million (RMB214.1 million, $33.1million) that is provided by a syndicate of three banks.
• Banking and overdraft facilities denominated in New Zealand dollars of NZ$25.0 million (RMB133.8 million, $20.7 million) relating to Wool Partners International Limited (WPI), a subsidiary of the Group. As at June 30, 2011 and during the period ending June 30, 2011 WPI was not in compliance with banking covenants imposed by the lending bank. Subsequent to June 30, 2011 we have agreed new facilities with the lending bank for this subsidiary effective from September 28, 2011. The facilities are subject to separate reporting covenants with the first reporting period being December 31, 2011.
• Acquisition debt denominated in New Zealand dollars totaling NZ$63 million (RMB337.2 million, $52.2 million) that matures on October 31, 2012 with a mandatory repayment of NZ$27 million (RMB144.5 million, $22.4 million) on April 30, 2012 provided by a bank and Livestock Improvement Company.
• Loan facilities denominated in RMB of RMB62.0 million ($9.6 million) that matures on April 7, 2012 provided by one bank.
• Loan facilities denominated in US Dollars of RMB369.7 million (US$57.2 million) that mature between January 23, 2013 and April 19, 2013 provided by two banks.

Other than the working capital facility denominated in New Zealand dollars, the short-term and long-term bank borrowing
facilities detailed above were fully drawn at June 30, 2011.
Several of the borrowing facilities require the Company to maintain certain operating covenants. Except for the WPI facility.

The long-term bank borrowings RMB1,228,993 (US$190,144) are due during the year ending June 30, 2013.

-------------

Some of those debt entries look a little odd for an American company.

Could Agria be consolidating PGW debt into their own balance sheet? If so then maybe Agria is not as heavily weighed down with debt as I thought?

SNOOPY

[Snoopy]

Could Agria be consolidating PGW debt into their own balance sheet? If so then maybe Agria is not as heavily weighed down with debt as I thought?


These look like Chinese and US denominated debt, so they are unlikely to be held by PGW as at 30th June 2011.

• Loan facilities denominated in RMB of RMB62.0 million ($9.6 million) that matures on April 7, 2012 provided by one bank.
• Loan facilities denominated in US Dollars of RMB369.7 million (US$57.2 million) that mature between January 23, 2013 and April 19, 2013 provided by two banks.

Perhaps Agria have until the end of the year to breathe after all?

SNOOPY

[Snoopy]

The last 5.5m shares i think vultures will be quite happy to pay at "lowball offer" 35cps :), or even 37cps after they got 40m at 29cps and 7.5m at 32cps.

Hard to see a third party making a bid for PGW when Agria already has control. Furthermore Agria could not buy all of those PGC shares without making another bid (5% max under the provisions of the takeover code). I think it is likely the PGC shares have been scattered among institutions who won't be bidding. And Agria itself has no reason to bid or even access to funds to support a new bid, from my reading of the Agria balance sheet.

SNOOPY

[kiwi_on_OE]

PGW is a subsidiary of Agria, so PGW's debt should be consolidated into Agria's balance sheet.

[Agrarinvestor]

In terms of your questions on, PGG Wrightson, Agria consolidates PGG Wrightson's results and then backs out the non-controlling portion. A declining share price does not impact such treatment on the income statement nor would it on the balance sheet. It would impact the valuation if there was some type of liquidity event. It would also impact the share valuation of Agria as investors tend to look for arbitrage opportunities buying shares of Agria if the underlying PGG asset is worth more than the implied value of shares of Agria. The investment by Agria and partnership with PGG has been and remains mutually beneficial, positive and productive. As the markets improve, we are confident the company will be more properly valued.

thats what IR told me a few month ago

[Snoopy]

In terms of your questions on, PGG Wrightson, Agria consolidates PGG Wrightson's results and then backs out the non-controlling portion.


Right. So if Agria owns 50.22% of PGW, then 50.22% of PGW debt will be consolidated into the Agria accounts. (that agrees with what you said kiwi_on_oe.) Of course this has only happened because Agria now controls PGW. When Agria owned only less than 20% of PGW, then the PGW debt was not consolidated.



A declining share price does not impact such treatment on the income statement nor would it on the balance sheet. It would impact the valuation if there was some type of liquidity event. It would also impact the share valuation of Agria as investors tend to look for arbitrage opportunities buying shares of Agria if the underlying PGW asset is worth more than the implied value of shares of Agria.


This doesn't quite ring true to me. While the market value of PGW shares does not affect Agria cashflows, I believe there is a requirement to 'mark to market' any controlled entities that Agria invests in at year end balance date. If Agria was an NZX listed company that would certainly be the case.

Also given the low turnover in Agria shares (today 24,000 Agria shares changed hands at 90c), I find it scarcely credible than any serious arbitrage is taking place




The investment by Agria and partnership with PGG has been and remains mutually beneficial, positive and productive. As the markets improve, we are confident the company will be more properly valued.

thats what IR told me a few month ago

Well investor relations would say that wouldn't they? But if the PGW share price goes down and stays down (as it has), this will surely have serious consequences for Agria whne the time comes to roll over Agria's own debt (January 2013). Of course there is a very real possibility that Agria will be delisted from the NYSE by then, due to the Agria share price being persistently under $1.

SNOOPY

[Agrarinvestor]

>>I believe there is a requirement to 'mark to market' any controlled entities that Agria invests in at year end balance date.<<
That were exactly my concerns, that were my questions:

i am a small shareholder of PGW in Germany and own currently 18000 shares. I have a question about the impact of the decreased shareprice of PGW for Agrias accounting. As far as i know Agria, purchased the 50.01 stake in PGW for round about 60 cent and today we are a facing a shareprice of 33 cent. Can these decline in shareprice be responsible for a potential bancrupty of AGRIA ? What kind of impact has these decrease for the balance sheet and the earnings of Agria ? How has Agria benefit from the investment in PGW ?

The answer:

In terms of your questions on, PGG Wrightson, Agria consolidates PGG Wrightson's results and then backs out the non-controlling portion. A declining share price does not impact such treatment on the income statement nor would it on the balance sheet. It would impact the valuation if there was some type of liquidity event. It would also impact the share valuation of Agria as investors tend to look for arbitrage opportunities buying shares of Agria if the underlying PGG asset is worth more than the implied value of shares of Agria. The investment by Agria and partnership with PGG has been and remains mutually beneficial, positive and productive. As the markets improve, we are confident the company will be more properly valued.


I have some experience with a company in the year 2000 were emprise was a mayor shareholder of mediascape and it was exact like IR response to my email.
But if you are sure, it would be nice to hear more from you about this point. Currently i am waiting for the earnings release of PGW and then i decide to buy more
or to be more patient.
Agria has 50% insiders as investors and 20% mutual funds. I am sure that they are knowing why they purchased PGW.

What is the earnings release date of PGW ?

[Snoopy]

What is the earnings release date of PGW ?


Not yet announced for 2012 but my guess (based on previous years) is any time forward from the third week in August 2012

SNOOPY

[Snoopy]

The answer:

In terms of your questions on, PGG Wrightson, Agria consolidates PGG Wrightson's results and then backs out the non-controlling portion. A declining share price does not impact such treatment on the income statement nor would it on the balance sheet. It would impact the valuation if there was some type of liquidity event.


The resetting of Agria loans starting from early 2013 surely is just such a liquidity event.

Whether this is a problem for Agria will depend on how friendly they are with their bankers. Interest rates in the US are certainly low. Maybe the Chinese government will provide a low interest loan to Agria in recognition of the strategic worth of their PGW holding? I do not know the answer to these questions.

What I do know is that PGW currently pays no dividend, so Agria will get no income from this investment. It is possible that PGW will pay a small final dividend, but I can't see any circumstance where it will be more than 1c per share and it may be nothing.

For these reasons I would not invest in Agria.



Agria has 50% insiders as investors and 20% mutual funds. I am sure that they are knowing why they purchased PGW.


The story of PGW being the southern hemisphere version of Monsanto is certainly a grand vision. It may yet have a happy ending. PGW has been aggregating disparate seed companies but so far has only accomplished the erasing of virtually all profits in their Agritech division. I think there is a divergence between 'the vision' and the reality of what has been achieved so far.

SNOOPY

[Master98]

According to PGC today's announcement, they sold 6.25m shares at 32c on 12/07, so today's 6.75m shares traded after market closed sure to be from PGC last holding at 32c, total 53m shares sold at average 0.297c( (40*0.29+6.25*0.32+6.75*0.32)/53=0.2973585).

[Agrarinvestor]

Has PGC sold all ists shares ? What are with the directors like Bruce Irvine , does he have to step back ?

What is the impact of price development for livestock like cattles. Is it good for PGWs shareprice ?

http://www.nzfarmersweekly.co.nz/article/9392.html

[Master98]

Has PGC sold all ists shares ? What are with the directors like Bruce Irvine , does he have to step back ?

What is the impact of price development for livestock like cattles. Is it good for PGWs shareprice ?

http://www.nzfarmersweekly.co.nz/article/9392.html

if PGW board has any directors from PGC, they should step down, annual result will be out end of next month, let's see.

[Queenstfarmer]

This share price has got to be getting manipulated....love to be able to prove it. I can't believe that the average kiwi would sell small numbers of shares at times where it looks like its on its way north again. Heading to 32/33c...then a sell on less than 1000 shares at times. Has been that way for months....someone wants this sp to stay low.

[Master98]

Queenstfarmer, my advice is hold your shares and let them to play.

[Queenstfarmer]

Agree with you 100%

[Agrarinvestor]

The same is true for the shares of AGRIA. A lot of trades with 100shares . Of course always on the bid. And if you see a large size in the ask for example 30000, you can buy 5000 shares and you see the remaining 25000 are gone. If i sell 100 shares i have to pay more for fees and expenses then i will get for my shares.

[janner]

I am sure that Shakespeare had a quote for your sitiuation.. :-))

[Queenstfarmer]

Did corporate greed exist back in Shakespeares day?

[Balance]

The same is true for the shares of AGRIA. A lot of trades with 100shares . Of course always on the bid. And if you see a large size in the ask for example 30000, you can buy 5000 shares and you see the remaining 25000 are gone. If i sell 100 shares i have to pay more for fees and expenses then i will get for my shares.

Relax and take the opportunity to pick up some cheap shares - if that's indeed the case that someone or some corporate is attempting to keep the share prices of Agria and PGW down.

Having looked at the trades in recent times, I am inclined to agree but sometimes it is important to note that it could be a predator for the company's assets (rather than the company) which is keeping the sp down to force the majority shareholders to default.

So be careful.

[Queenstfarmer]

I can understand PGC offloading at 29/30 very recently...but unless the average Kiwi shareholder is as desperate as they were...I can see no logic in selling such small volumes for pittance. PGW has more than twice the number of ordinary shares issued than they did before the offering back in 2009. A few years earlier the SP was heading for $3...so yes hang in there fellow Kiwi holders...Im sure in time PGW can be worthy of an SP north of $1.

[Master98]

I am sure the share price is manipulated( unknow reason ), so pick up some cheap shares if you have spare money and hanging there, will take off some day.

[Queenstfarmer]

I don't recall anyone saying the SP would return to what it was in the good ol days. With more than twice number of shares since the offering its unlikely to get anywhere close. Do you know what PGW's main focus is? It's certainly not their stores. Where do you think RD1 buy their seeds??

[Agrarinvestor]

I have read that there is an audio conference available. Will they capture the conference ?

https://www.nzx.com/companies/PGW/announcements/225317

Is there an Impact of US drought for PGWs earnings ?

[Master98]

Is there an Impact of US drought for PGWs earnings ?

Milk power price already rose from Fonterra's dairy auction, because US drought .

[Master98]

Alas, so has NZD. .... Just need this underperforming puppy to fire so I can catch up to Liz in the NZX share comp.


Maybe you have to wait for a while until the blood 40m shares are absorbed by market,unless has a very good annual result and a dividend declared.

[stoploss]

Alas, so has NZD. .... Just need this underperforming puppy to fire so I can catch up to Liz in the NZX share comp.

http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=10824351

[elZorro]

I don't recall anyone saying the SP would return to what it was in the good ol days. With more than twice number of shares since the offering its unlikely to get anywhere close. Do you know what PGW's main focus is? It's certainly not their stores. Where do you think RD1 buy their seeds??

Yes, PGGWrightson has made a lot of profit from their seeds business, in a trade channel. Makes up for the stores. Of course PGW runs the stores mainly for sheep/beef customers, and RD1 for dairy customers. When they do sell comparative product (don't forget CRT and Farmlands), they are at the mercy of the phone and the web. If the goods are over say $1,000 as an order, someone is going to be comparing prices. Unless they're crazy. And that limits the markup at the retail level. Limits it to about 10% average, which is not enough to run a profitable business.

The stores (any of them) don't generally add value to the goods they sell. So maybe the margins that they've ended up with are a recognition of that. It's just a pity that this also means that most productive capital items won't be in the stores, as the stock turnover rate and profit margin won't allow it. Suppliers of those kinds of goods have to do their own marketing in NZ.

It's my hope that one of the big rural supply stores (and a nationally based one would be best) will take the best of the locally produced items for the rural sector and showcase them properly, add value and not be afraid to take a decent margin. None of the manufacturers want to see their products sold off just above a trade price from an enduser enquiry. Farmers can profit by many times the cost of capital items as a general rule.

PGW trending down from $2.30 to about 30c...cripes, I may as well stick with GEL, there I have a chance for something impressive.

[Snoopy]

PGW trending down from $2.30 to about 30c...cripes


Not true elZorro. That $2.30 share price quote includes the right to buy 9 for 8 new shares at 45c which invalidates your bare figures comparison.

However your overall point that there has been a significant decline in share price, albeit less than half of what you said, is a fair point to make. Of course those of us who subsequently sold around half our shares into the Agria takeover offer have not been as badly hit as that.

SNOOPY

[Snoopy]

• Loan facilities denominated in RMB of RMB62.0 million ($9.6 million) that matures on April 7, 2012 provided by one bank.
• Loan facilities denominated in US Dollars of RMB369.7 million (US$57.2 million) that mature between January 23, 2013 and April 19, 2013 provided by two banks.

Perhaps Agria have until the end of the year to breathe after all?


The NYSE on 19th July has officially given Agria the yellow card

----

Agria Notified by NYSE of Non-Compliance With Minimum Average Closing Price Listing Standard

Jul 19, 2012 (Marketwire via COMTEX) --Agria Corporation (NYSE: GRO) (the "Company" or "Agria"), a China-based agricultural company with operations in seeds in China and internationally and in agri-services, today announced that the Company was notified by the New York Stock Exchange ("NYSE") that the Company is not in compliance with the NYSE continued listing standard requiring a listed security to maintain a minimum average closing price of $1.00 per share over a consecutive 30-trading-day period. The NYSE noted that the minimum average closing price is the only listing criteria the Company is not in compliance with. The Company has six months from receipt of the notification to bring its ADS price and average ADS price back above $1.00.

----

I would say this means the end of those smiling Chinese faces arond the PGW board table. The next board meeting they will be showing up in Kung Fu gear. Officially Agria has just over five months to sort their PGW investment out. In practice they are unlikely to go to the wire. I would expect PGW to be broken into two by Christmas. It is probably because of this anticipated corporate action that the price of PGW shares remains so stubbornly high. If Agria goes down I would be looking to picking up a few PGW at the receivership sale, for no more than 20c each.

SNOOPY

[Agrarinvestor]

The NYSE on 19th July has officially given Agria the yellow card

----

Agria Notified by NYSE of Non-Compliance With Minimum Average Closing Price Listing Standard

Jul 19, 2012 (Marketwire via COMTEX) --Agria Corporation (NYSE: GRO) (the "Company" or "Agria"), a China-based agricultural company with operations in seeds in China and internationally and in agri-services, today announced that the Company was notified by the New York Stock Exchange ("NYSE") that the Company is not in compliance with the NYSE continued listing standard requiring a listed security to maintain a minimum average closing price of $1.00 per share over a consecutive 30-trading-day period. The NYSE noted that the minimum average closing price is the only listing criteria the Company is not in compliance with. The Company has six months from receipt of the notification to bring its ADS price and average ADS price back above $1.00.

----

I would say this means the end of those smiling Chinese faces arond the PGW board table. The next board meeting they will be showing up in Kung Fu gear. Officially Agria has just over five months to sort their PGW investment out. In practice they are unlikely to go to the wire. I would expect PGW to be broken into two by Christmas. It is probably because of this anticipated corporate action that the price of PGW shares remains so stubbornly high. If Agria goes down I would be looking to picking up a few PGW at the receivership sale, for no more than 20c each.

SNOOPY

Hi, i am sure that Agrias management is not nervous to get the shareprice over 1$. Just look at he Chart and look for the jump in July 2011. I have watched the trades every day, since 3 month, the decline was possible because Agrias IR has not released any news and nobody pays attention to AGRIA.
But we all know that AGRIA as the mainshareholder have to consolidate the results of PGW in their earnings.
And if PGW is succesfull, Agria will benefit. On the other site you can not be sure that Agria will be fair to PGW shareholders, maybe you see some earnings were transfered to china because of cheaper taxes.
I have read in several sources that price for corn haas raised about 20% percents because of US drought. Will this also be true foor seeds ?
PGW has aquired corson, a austrailian based producer of maize seeds and Keith seeds also australian based. Does anybody know how much revenue will be generated out of this business ?

[Snoopy]

What is the impact of price development for livestock like cattles. Is it good for PGWs shareprice ?

http://www.nzfarmersweekly.co.nz/article/9392.html


Good question.

The only bit of rival "Allied Farmers" rural business to survive the Hanover hangover was the animal auction business. Perhaps we might take from that "Livestock Auctioning" is one of the more lucrative rural businesses to be in?

I would guess that an increase in livestock prices would generally be positive for PGW. The caveat to that might be that the reason prices went up was because of scarcity i.e. volume went down. Profitability would also be connected to total sales volume I would imagine. Little money will be made if livestock does not sell at all, when prices are really depressed.

The livestock auction system might be like the car auction system (a tenuous connection I know, but being a TUA shareholder I know a bit about how car auctions work). At TUA the are bands of commission depending on the price range of the beast for sale. It may be that a cow selling for $2100 will earn no more money for the livestock agent than a cow selling for $2000. Perhaps someone with a better understanding of how this works can confirm or deny my speculation?

SNOOPY

[Balance]

Good question.

The only bit of rival "Allied Farmers" rural business to survive the Hanover hangover was the animal auction business. Perhaps we might take from that "Livestock Auctioning" is one of the more lucrative rural businesses to be in?

I would guess that an increase in livestock prices would generally be positive for PGW. The caveat to that might be that the reason prices went up was because of scarcity i.e. volume went down. Profitability would also be connected to total sales volume I would imagine. Little money will be made if livestock does not sell at all, when prices are really depressed.

The livestock auction system might be like the car auction system (a tenuous connection I know, but being a TUA shareholder I know a bit about how car auctions work). At TUA the are bands of commission depending on the price range of the beast for sale. It may be that a cow selling for $2100 will earn no more money for the livestock agent than a cow selling for $2000. Perhaps someone with a better understanding of how this works can confirm or deny my speculation?

SNOOPY

The surprise may be Wrightson Real Estate division?

[Snoopy]

I have read in several sources that price for corn has raised about 20% percents because of US drought. Will this also be true for seeds?


PGWs principal lines of seeds for sale come under the heading 'grass', despite the recent Australian diversification you note Agrarinvestor.

On p13 of PGW AR2011, there is comment to the effect that wet weather produces an abundance of grass that in turn reduces the demand for new seed. When the weather is very wet the ground becomes too boggy to resow pasture. The HY2012 forecast was for a year slightly wetter than normal. Taking all that together I am not expecting a good performance from the PGW NZ seeds business in FY2012. But with results due to be released in a couple of weeks it will be interesting to see if my suspicions are confirmed.

In general I don't believe that looking at the corn price will give guidance to the profitability of PGW Agritech.

SNOOPY

[Snoopy]

I have read in several sources that price for corn haas raised about 20% percents because of US drought. Will this also be true foor seeds ?
PGW has aquired Corson, a austrailian based producer of maize seeds and Keith seeds also australian based. Does anybody know how much revenue will be generated out of this business ?


There is limited information in the annual report, so I am going to indulge in some dubious numerology.

End of year inventory for Corson is listed as $494k, say $500k (PGW AR2011 p69). Multiply that my 12 to get annual inventory and I get $6m. Because seeds are a seasonal business it is unlikely that this calculation is correct, as presumably the June inventory reflects the stock build up in anticipation of spring sales. So $6m in sales is likely an overestimate of actual annual sales, which I will nevertheless stick with for this exercise.

If all of the 20% increase in corn sales is realised as extra profit (probably unlikely), then that might amount to $1.2m. Divide that by the 754.8m shares on issue. That means the increase in eps from a higher corn price, assuming constant sales levels from FY2011 amounts to an increase in profit of:

$1.2m/754.8m = 0.0016cps

That doesn't do much for my excitometer.

Keith Seeds is a much bigger business (end of year stock on hand $1.798m). Keith's specialize in pasture, oil seed a variety of legumes and birdseed. They were loss making when acquired. I wouldn't like to speculate as to whether PGW has made any progress in turning things around at Keith Seeds.

SNOOPY

[Snoopy]

Hi, i am sure that Agrias management is not nervous to get the share price over 1$. Just look at he Chart and look for the jump in July 2011. I have watched the trades every day, since 3 month, the decline was possible because Agrias IR has not released any news and nobody pays attention to AGRIA.

But we all know that AGRIA as the main shareholder have to consolidate the results of PGW in their earnings.
And if PGW is succesful, Agria will benefit.

There is a key difference between FY2011 and FY2012. Come January Agria has some significant debt to refinance and they have made a massive loss on their PGW investment to date. If you were a banker, would you refinance Agria given they have lost the income stream they had from the PGW debt instruments which have been repaid by PGW?

SNOOPY

[Agrarinvestor]

There is a key difference between FY2011 and FY2012. Come January Agria has some significant debt to refinance and they have made a massive loss on their PGW investment to date. If you were a banker, would you refinance Agria given they have lost the income stream they had from the PGW debt instruments which have been repaid by PGW?

SNOOPY

Yes i would lend them money. The shareprice of PGW isn't important for Agria. If PGWs shareprice would double it has no impact on the balance sheet nor on the income. Shareholder assets are worth 224 million, market cap is 50 million.The shareholder assets are already reduced of the debt.. That means they could loan more than 200 additional millions. But you talk only about refinancing, so i can not see smallest problems in that area. See statement of the SVP.

http://finance.yahoo.com/q/bs?s=GRO+Balance+Sheet&annual

My concerns are more about revenue and earnings of PGW. That is the key factor for PGW and Agria!

Keith Seeds and Corson seems to be only peanuts, thanks for you investigation.
Hopefully PGW has good reasons for that aquisation.



David Pascaöe, SVP of AGRIA:
>>In terms of your questions on, PGG Wrightson, Agria consolidates PGG Wrightson's results and then backs out the non-controlling portion. A declining share price does not impact such treatment on the income statement nor would it on the balance sheet. It would impact the valuation if there was some type of liquidity event. It would also impact the share valuation of Agria as investors tend to look for arbitrage opportunities buying shares of Agria if the underlying PGG asset is worth more than the implied value of shares of Agria. The investment by Agria and partnership with PGG has been and remains mutually beneficial, positive and productive. As the markets improve, we are confident the company will be more properly valued. Thank you for your continued support, David<<

[Master98]

The chinese buyer of crafar farms has cleared the last hurdle, so pgw 100% sure get the money back from the loan to crafar, it is all good.

[Agrarinvestor]

The chinese buyer of crafar farms has cleared the last hurdle, so pgw 100% sure get the money back from the loan to crafar, it is all good.

I have read through annual report because of the loan to crafar, but I could not find anything about.

[tim23]

I think Wrightson held on to iffy loans while good loans went with finance book to HNZ so sale is good news.

[Snoopy]

The shareprice of PGW isn't important for Agria. If PGWs shareprice would double it has no impact on the balance sheet nor on the income.


Short term you are right. Come the end of the financial year international accounting rules require all listed investments, including PGW, to be marked to market.

On June 30th 2011 the PGW share price was NZ47c or US38.41c (based on $NZ1= US81.73c)

On June 30th 2012 the PGW share price was NZ30c or US23.88c (based on $NZ1= US79.61c)

This is a loss of US14.53cps, or $US54.8m (based on half of the 758.4m PGW shares on issue) that was booked into the Agria accounts that closed off on 30th June 2012.

SNOOPY

[kiwi_on_OE]

There is limited information in the annual report, so I am going to indulge in some dubious numerology.

End of year inventory for Corson is listed as $494k, say $500k (PGW AR2011 p69). Multiply that my 12 to get annual inventory and I get $6m. Because seeds are a seasonal business it is unlikely that this calculation is correct, as presumably the June inventory reflects the stock build up in anticipation of spring sales. So $6m in sales is likely an overestimate of actual annual sales, which I will nevertheless stick with for this exercise.
SNOOPY

Dubious numerology - yes, we don't know what their inventory turnover is. They may sell a large chunk of it each month, or hardly any of it.

Having said that, my excitometer is sufficiently low that I can't even be bothered to guess at other numbers, nor work out what sort of profit they may make this year.

[Agrarinvestor]

Short term you are right. Come the end of the financial year international accounting rules require all listed investments, including PGW, to be marked to market.

On June 30th 2011 the PGW share price was NZ47c or US38.41c (based on $NZ1= US81.73c)

On June 30th 2012 the PGW share price was NZ30c or US23.88c (based on $NZ1= US79.61c)

This is a loss of US14.53cps, or $US54.8m (based on half of the 758.4m PGW shares on issue) that was booked into the Agria accounts that closed off on 30th June 2012.

SNOOPY

@snoopy,

we had already financial year end . You are saying that Agria has a loss of 54 Million because of the declining shareprice. That means that the senior vice president of Agria is lying to me, or do i have misinterpretet his statement ?

David Pascaöe, SVP of AGRIA:
>>In terms of your questions on, PGG Wrightson, Agria consolidates PGG Wrightson's results and then backs out the non-controlling portion. A declining share price does not impact such treatment on the income statement nor would it on the balance sheet. It would impact the valuation if there was some type of liquidity event. It would also impact the share valuation of Agria as investors tend to look for arbitrage opportunities buying shares of Agria if the underlying PGG asset is worth more than the implied value of shares of Agria. The investment by Agria and partnership with PGG has been and remains mutually beneficial, positive and productive. As the markets improve, we are confident the company will be more properly valued. Thank you for your continued support, David<<

[Snoopy]

@snoopy,

we had already financial year end . You are saying that Agria has a loss of $US54 Million because of the declining shareprice. That means that the senior vice president of Agria is lying to me, or do i have misinterpretet his statement ?

David Pascaöe, SVP of AGRIA:
>>In terms of your questions on, PGG Wrightson, Agria consolidates PGG Wrightson's results and then backs out the non-controlling portion. A declining share price does not impact such treatment on the income statement nor would it on the balance sheet. It would impact the valuation if there was some type of liquidity event. <snip> David<<


I don't think what I have said and what David Pascaöe has said is inconsistent. When Agria took out their loan(s) to buy shares in PGG Wrightson, the loan would have been for a fixed term, greater than one year The first of those loans are due to be renewed on 23rd January 2013. This is a 'liquidity event' of the kind that David was referring to.

The decline in PGW share price is not a cash event for Agria. I think this is probably what David means when he says a declining share price won't affect the income statement.

SNOOPY

[Snoopy]

PGW is a subsidiary of Agria, so PGW's debt should be consolidated into Agria's balance sheet.


Time to try and disentangle the PGW debt from the underlying Agria debt.

From the PGW FY2011 Balance sheet:

PGW Total Liabilities: $NZ844.685m
PGW Total Equity: $NZ604.341m
PGW Total L & E: $1,449.026m

Convert that to USD using $NZ1= US81.73c

PGW Total Liabilities: $US690.36m
PGW Total Equity: $US493.92m
PGW Total L & E: $US1,184.29m

Reduce value to allow for Agria owning 50.22% of shares as at 30th June 2011

Agria PGW Liabilities: $US346.69m
Agria PGW Equity: $US248.05m
Agria PGW L & E: $US594.75m

Now we go to the Agria Balance Sheet for the same 30th June 2011 date, which includes the 50.22% share of PGW as a consolidated entity.

Agria Liabilities: $US831.1m
Agria Equity: $US412.3m
Agria L & E: $US1243.4m

Now use subtraction to look at the underlying Agria balance sheet.

Underlying Agria Liabilities: $US484.4m
Underlying Agria Equity: $US164.2m
Underlying Agria L & E: $US648.6m

That means the underlying Agria itself has an equity ratio of:

$US164.2m /$US648.6m= 25.3%

SNOOPY

[Snoopy]

Underlying Agria Liabilities: $US484.4m
Underlying Agria Equity: $US164.2m
Underlying Agria L & E: $US648.6m

That means the underlying Agria itself has an equity ratio of:

$US164.2m /$US648.6m= 25.3%


David Pascaöe, SVP of AGRIA:
"In terms of your questions on, PGG Wrightson, Agria consolidates PGG Wrightson's results and then backs out the non-controlling portion."

This is the quote and the above calculation is putting David's statement into numbers. From this I make the following observations.

1/ The underlying Agria is very heavily indebted, far more so than PGW which is itself constantly sailing to the lay line of its banking covenants.
2/ The underlying Agria has almost no income.
3/ The underlying Agria is facing a 'liquidity event' when it has to renew its US loans starting on January 23rd.

Trying to imagine myself as a 'management consultant' it is hard to know how to proceed from this position. Perhaps approach Harry Houdini to ask if he might take up a seat on the board?

SNOOPY

[Snoopy]

Underlying Agria Liabilities: $US484.4m
Underlying Agria Equity: $US164.2m
Underlying Agria L & E: $US648.6m

That means the underlying Agria itself has an equity ratio of:

$US164.2m /$US648.6m= 25.3%


I should add that these figures are from 30th June 2011. If we add in the $US50m write down that marking PGW shares to market in the Agria accounts will produce at 30th June 2012, I estimate the equity ratio will be looking even sicker.

$US114.2m /$US598.6m= 19.1%

The wider problem here is that with a market capitalization of only $US50m, the chances of Agria raising the amount of capital to make their underlying balance sheet even passably respectable is slim. A 'New Hope' bail out for Agria is possible if the Chinese government can be convinced of its worth. But that will mean a massive share dilution for existing shareholders.

With such risk, the idea of Agria being used as an arbitrage agent when the hidden PGW share price differs widely from the NZX quoted value of PGW does not seem credible.

SNOOPY

[Xerof]

http://www.stuff.co.nz/business/opinion-analysis/7452876/Accounting-rules-muddy-the-waters

Adds petrol to the fire......

[percy]

The surprise may be Wrightson Real Estate division?

Full page ad in today's Sunday Star Times page D17.PGC Wrighton Real Estate;
"Our sales in the past year are up over 54% and we are now seeking listings for spring."

[Balance]

Full page ad in today's Sunday Star Times page D17.PGC Wrighton Real Estate;
"Our sales in the past year are up over 54% and we are now seeking listings for spring."

Unfortunately, there may be a surprise as well on the bad loan book.

But then again, the CRafar farm situation could see a recovery?

All will be answered on 22 Aug.

Meanwhile, place your bets by buying or selling your shares.

"Who dares, wins!"

[winner69]

Maybe real estate doing OK .... but will the commissions cover any losses from distressed sellers

[janner]

QUOTE=percy;378795]Full page ad in today's Sunday Star Times page D17.PGC Wrighton Real Estate;
"Our sales in the past year are up over 54% and we are now seeking listings for spring."[/QUOTE][/[I]

Dollars or volume Perc ??

[Balance]

Maybe real estate doing OK .... but will the commissions cover any losses from distressed sellers

If you notice, the banks and mortgage financiers are holding fast to their farm security and working with the defaulting farmers to manage their way out of the mess that is the farming sector?

Hence, very few mortgagee sales.

The latest move is by real estate firms like Wrightson and Bayleys to bundle up farms to sell to overseas interests to maximise returns for the banks and financiers.

[percy]

QUOTE=percy;378795]Full page ad in today's Sunday Star Times page D17.PGC Wrighton Real Estate;
"Our sales in the past year are up over 54% and we are now seeking listings for spring."[/[I]

Dollars or volume Perc ??[/QUOTE]

Value. So I take that as dollars.

[janner]

Will take your " value " Perc..

To whom would be the next question.. Hao Ba !!..

[Snoopy]

Dubious numerology - yes, we don't know what their inventory turnover is. They may sell a large chunk of it each month, or hardly any of it.

Having said that, my excitometer is sufficiently low that I can't even be bothered to guess at other numbers, nor work out what sort of profit they may make this year.

Quite right Kiwi. But on this occasion I don't see any need to try to guess more exact numbers. Because July 1st represents the start of the period where southern hemisphere farmers are interested in seed buying I would make the guess that July seed stock levels are unrepresentatively high. I have also assumed that all the stock turns over in a month and that is probably optimistic too. Making a series of pumped up assumptions leads me to the conclusion that any incremental profit from corn price increases will be negligible. Any more realistic assumptions mean a lower contribution that that.

Here is an instance where starting from ropey assumptions and dubious data, does provide the more than useful answer we are looking for.

SNOOPY

[Snoopy]

I think Wrightson held on to iffy loans while good loans went with finance book to HNZ so sale is good news.


Probably more correct to say it is not bad news Tim. You may think I am being a pedant but look at the HY to December 2011 report.

The consolidated statement of financial position shows finance receivables of $52.844m, up from zero in the previous reporting period, before the finance division was divested. The way I see things this means the successful recovery of those supposedly bad loans is already built into the PGW accounts. IOW this good news is defacto built into the PGW share price already. There will be no windfall gain from recovering any of these Crafar loans!

SNOOPY

[Snoopy]

http://www.stuff.co.nz/business/opinion-analysis/7452876/Accounting-rules-muddy-the-waters

Adds petrol to the fire......

I did see the sharp decline in net PGW asset backing over the half year Xerof. I hadn't actually clicked that this was largely because a loan that was not listed as a loan was reclassified as a loan for the latest half year accounts. I appreciate you drawing this to our attention.

Tim Hunter is not right IMO to suggest that classifying debt as an asset because there is a clause that allows the debt to be converted to shares is just too baffling for the Mum and Dad investor to follow though. This sort of thing has been going on for a long time, and it is not difficult to check, if as an investor you remember to do so!

SNOOPY

[Snoopy]

Maybe real estate doing OK .... but will the commissions cover any losses from distressed sellers


The half year to December 2011 showed a real estate EBITDA profit of $456k. Compare that to the $1.268m loss in the December 2010 half year. Real Estate will contribute at last in FY2012, but not in a game breaking way IMO.

SNOOPY

PS From a PGW perspective I would be more concerned with the liquidity of 'distressed buyers' (sic) of land. Any overleveraged distressed sellers have got their comeuppance in this dangerous market - that is the brutal truth of the situation!

[Under Surveillance]

Changing topic, what's the bet there is a share consolidation coming up, perhaps 1:4, following the annual result?
That would assist PGW stay in the NZX50 (I think shares of companies in it are supposed to trade at above 50 cents).
And, if and when dividends are reinstated, the dividend per share would not appear more respectable.

[Under Surveillance]

Changing topic, what's the bet there is a share consolidation coming up, perhaps 1:4, following the annual result?
That would assist PGW stay in the NZX50 (I think shares of companies in it are supposed to trade at above 50 cents).
And, if and when dividends are reinstated, the dividend per share would not appear more respectable.

Please ignore the "not' in the last sentence.

[Lizard]

Result looks a fair one to me. Time to put it on the list of "possibles", although would prefer it if the price would stay down until agm time, when there will be more indication as to how 2013 is tracking.

[tim23]

No dividend I could see?

[Balance]

The last 5.5m shares i think vultures will be quite happy to pay at "lowball offer" 35cps:), or even 37cps after they got 40m at 29cps and 7.5m at 32cps.

OK result - no big surprises (which is important as market is fed up to back teeth with write-off after write-off).

Cash flow is outstanding and outlook statement encouraging.

Looks like the stock bought by those who squeezed Dodgie Georgie out at 29 cents has substantially been absorbed by others at 32 cents - nice 10% gain for them, courtesy of fire sale time at PGC.

[Master98]

a very solid result I think

[Balance]

No dividend I could see?

Buy now at 32 cents and get a 20% gross dividend yield 2 years from now?

I kick myself (hard) whenever someone mentions the 25% NET yield on RBD if you were brave enough to buy in 2009.

[Master98]

a very solid result I think

next year will be better after seeds ,grain and livestock business enter into china i hope.

[Balance]

next year will be better after seeds and grain business enter into china i hope.

Compared to Dodgie Georgie, George Gould has a pretty good record of delivering returns to shareholders even as he enriches himself.

Let's hope the Chinese and Maoris keep a close eye on him and on one another!

[Master98]

paying down debt is much important than paying dividend at this stage

[Master98]

Couldn't agree more! ... I think we'll see more of it in the next year with a small token divi. After that - a 50% payout will be pretty nice.

in three years time, pgw will distribute over 90% profit to shareholder i think, but not now.

[Agrarinvestor]

in three years time, pgw will distribute over 90% profit to shareholder i think, but not now.

Well done PGG-Wrightson. It looks like PGG has presented good results and i think we see nothing what can be interpreted as muddy waters ?
Can we say since Agria has taken over the board no bad decisions has been made ?
Can we say that the investments in Australia were good decisions ?

In a worst case scenario i asume that Agria itselfs earns 0$ in china (i don't hope so), but with its investment in PGG they have at least 50,2 % of the 25 Million NZ$
That means by a market cap of 49 Million US$ a P/E Ratio 0f 4. Keep in mind that Agria will report an increase in Revenue by 400% within the next weeks.
700 Million of Revenue for a 49Million market cap company.

[Master98]

well I make it earnings after tax of 3.2 cps which gives a PE of 11 @ 35 cents share price, good result, still alot to prove but a major improvement.
Dont think the share price will hang around at 35 cents to long.
Once short sited investors who were hoping for a dividend have sold their shares look for share price north of 40 cents.
I have put my money on it.


from related source, pgw Implied share price 43c, that is PE of 13, valuation of pgw is 444m, that is 59cps

[Snoopy]

from related source, pgw Implied share price 43c, that is PE of 13, valuation of pgw is 444m, that is 59cps


I have to admire the optimism of all you PGW celebrants. I think I must have been reading a different results announcement to what everyone else on this thread read. Agritech I though was a disaster. A PE of 13 is IMO not sustainable for a seller of agricultural commodities at the bottom of the world. Long term a PE of 6 to 10 is probably about as good as you can expect.

I have to admit to being surprised by the bounceback of Agriservices in FY2012. But what none of you have expressed is that this comes after the best year for farmers for some time. Dairy farmers probably did better in FY2008, but as a general overview this is about as good as it gets for farmers over the last decade. Since 30th June 2012 the NZ dollar has continued to appreciate while commodity prices have not. I haven't met anyone who doesn't think FY2013 will be a lot tougher down on the farm than FY2012. This represents a peak of earnings for Agriservices and the only way from here on in is downwards IMO.

SNOOPY

[Snoopy]

Can we say since Agria has taken over the board no bad decisions has been made ?


I am not sure Agria has taken over the board. They seem to have politely fallen in behind Sir John Anderson



Can we say that the investments in Australia were good decisions ?


No. All businesses acquired were loss making, and losses have increased since acquisition. As a result profits at Agritech have been effectively erased.



In a worst case scenario i asume that Agria itselfs earns 0$ in china (i don't hope so), but with its investment in PGG they have at least 50,2 % of the 25 Million NZ$


Yes, but that does not offset the capital write down they will have made on their PGW shares on 30th June. The net result is still a large loss for Agria.



That means by a market cap of 49 Million US$ a P/E Ratio 0f 4. Keep in mind that Agria will report an increase in Revenue by 400% within the next weeks.
700 Million of Revenue for a 49Million market cap company.


The reason why the PE is so low is that Agria has no income as collateral to finance the upcoming rolling over of their loans. No dividend from PGW extinguishes all short term hope. I believe that Agria is technically bankrupt. They will be delisted from the NYSE before the end of year and crawl off to die behind a rock away from the public gaze.

SNOOPY

[Master98]

I have to admire the optimism of all you PGW celebrants. I think I must have been reading a different results announcement to what everyone else on this thread read. Agritech I though was a disaster. A PE of 13 is IMO not sustainable for a seller of agricultural commodities at the bottom of the world. Long term a PE of 6 to 10 is probably about as good as you can expect.

I have to admit to being surprised by the bounceback of Agriservices in FY2012. But what none of you have expressed is that this comes after the best year for farmers for some time. Dairy farmers probably did better in FY2008, but as a general overview this is about as good as it gets for farmers over the last decade. Since 30th June 2012 the NZ dollar has continued to appreciate while commodity prices have not. I haven't met anyone who doesn't think FY2013 will be a lot tougher down on the farm than FY2012. This represents a peak of earnings for Agriservices and the only way from here on in is downwards IMO.

SNOOPY
Snoopy, if my memory is right, you said pgw earning is only 2cps for next 5 or 6 years which I totally disagree with you, you should surprise with this annual result, you only look at the dark side, but the bright side is more promising, as long as pgw can secure china market, I can say pgw will booming for next 5 or 6 years, I hope the seeds, grain and livestock business can successfully enter into china.

[Snoopy]

Snoopy, if my memory is right, you said pgw earning is only 2cps for next 5 or 6 years which I totally disagree with you, you should surprise with this annual result, you only look at the dark side, but the bright side is more promising, as long as pgw can secure china market, I can say pgw will booming for next 5 or 6 years, I hope the seeds, grain and livestock business can successfully enter into china.


Master in my post 1971 I said 2.5cps for FY2012. So yes I am impressed by something over 3c. But how that can be sustained over the next five years or so, well I would like to hear how you think this will be achieved?

If you are pinning everything on entry to the Chinese market, I think you are being optimistic. Look at how how PGW took to establish themselves in Uruguay. Why do you think China will be any different?

SNOOPY

[root]

It looks like there is a small parade, but someone is raining on it.

[Master98]

Look at how how PGW took to establish themselves in Uruguay. Why do you think China will be any different?

SNOOPY

i dont want to convinced you, snoopy, but you should know china is a totally different country and different story from Uruguay, these two country are not comparable, china is second large export market of nz and second large economy entity of whole world.china has 1.3b people need to be feeded.

[Snoopy]

I dont want to convinced you, snoopy, but you should know china is a totally different country and different story from Uruguay, these two country are not comparable, china is second large export market of nz and second large economy entity of whole world.china has 1.3b people need to be feeded.

Master you do not need to convince me of the potential of China. All I am saying is having 'the potentia'l and 'executing a business plan' are two different things. Many an exporter has come unstuck chasing just 1-2% of a large market. 1-2% from a very small base can be a very difficult transition.

Before putting more money into PGW, I would like to see some evidence that PGW can make any progress. Have a look at section 4 of the financial statements, the Segmental Report. You will see that current sales in China are nil. That is right, nothing at all. I fail to see how forming an association with the extremely shakey Agria is a certain passport for PGW exports to China.

SNOOPY

[Master98]

You will see that current sales in China are nil. That is right, nothing at all. I fail to see how forming an association with the extremely shakey Agria is a certain passport for PGW exports to China.

SNOOPY
Sales into china ramp up from 2012-2013 financial year, not supposed to included in year 2011-2012 result.

[Master98]

But this does not change the fact that, given this result, PGW shares are under valued @ 32 cents and I believe with-in a month they well break the 40 cent mark.
The market place will decide and time well tell.

Honestly, I have no idea what is the trend of share price even through had a solid finical result, the main factor is the 40m shares out of doggie Gogerie sold at 29c will impact the market which depend on what’s percentage of long-term holders or percentage of short-term holders.

[Master98]

Given the makeup of shareholder register I expect they'll be a few with bigger holdings wanting out and the result should have a few bigger players wanting in. E.g. those out want to book a capital gain and those in want the divies. (Quite a few funds can only buy stocks with dependable divie streams.) It'll take a while for these buyers and sellers to agree a price to exchange on.

Nothing new here, just how the game is played. Patience is required so don't read anything much into the fact that our sleepy little market didn't move much after the result.

yeah, agree

[Master98]

Repayment of Crafar farm loans expected soonPGG Wrightson says it expects to recover loans made to the Crafar family when the sale of the Crafar farms is finalised in October.
It is one of three lenders, along with Westpac and Rabobank, who are secured creditors of the 16 North Island farms put into receivership in 2009.
Ownership of the farms is expected to transfer to the Shanghai Pengxin company in the next couple of months, now that opponents of the sale have failed in their legal bid to block it.
Mr Gould says that will clear just about all of the property loans PGGW is still holding after selling its finance arm.
He says the company's non-Crafar loans amount to about $4 million.

Copyright © 2012, Radio New Zealand

[Balance]

Does anyone know if the banks are going to get all that is owed to them, princable and all outstanding interest and associated legal fee's.
Payment of the crafer debt will only further strengthen the PGW books.


Current PE of 11 looking very cheap.

Totally agree with you master98 the overhang of 40m shares sold at 29 cents p/s may or may not be an issue but I have never let what a minority shareholder may or may not be thinking sway my investment decisions. THAT WOULD BE CRAZY !!!

In my opinion given the current share price and company performance minority share holders should be topping up. Still think 40 cents p/s with in 4 weeks.

Have a close look at the price action of RBD after AMP sold off its 10% shareholding at 58 cents.

The sp initially ran up strongly to 66 cents and then, was hit by profit taking back down to 63/64 cents and was at that level for a while while those lucky enough to get stock at 58 cents took their quick 10% to 15% profits.

Even luckier were those who bought off them beacause they were able to get stock which made them 100% to 200% later.

PGW has the same potential - thanks to Dodgie Georgie.

[Master98]

Have a close look at the price action of RBD after AMP sold off its 10% shareholding at 58 cents.

The sp initially ran up strongly to 66 cents and then, was hit by profit taking back down to 63/64 cents and was at that level for a while while those lucky enough to get stock at 58 cents took their quick 10% to 15% profits.

Even luckier were those who bought off them beacause they were able to get stock which made them 100% to 200% later.

PGW has the same potential - thanks to Dodgie Georgie.

Sadly, Snoopy didn’t realize such potential at least yesterday;)

[Balance]

Sadly, Snoopy didn’t realize such potential at least yesterday;)

That's why it is called a market! Buyers and sellers, believers and doubters.

PGW could take just a little longer than RBD to really move along as the stench from PGC and Dodgie Georgie will take a little while longer to clear.

The stench from rotten fish gets into everything - carpets, wraps, etc - will need a few spring cleans to freshen the room! Meanwhile, the blue-arse blowflies will still buzz around even though the offending decomposing objects have been removed.

[Snoopy]

Snoopy on what basis do you come up with the idea that PGW should trade at 6-10 PE multiples in the future when over the past 9 years they have traded between 12 and 18 PE.


A fair question Snapiti. I make the following observations.

1/ PGW has not existed in its current form for nine years.

2/ The PGW that was formed from the merger or Wrightsons and Pyne Gould Guiness is a very different animal to the PGW that exists today. The finance division has gone. The global ambition to conquer the world with NZ farming practices (such as NZS) has been stopped and NZS has been cut loose. It makes sense that the PE multiple of the seasonal businesses that are left should be less.

3/ My 6-10 PE estimate for PGW comes from the yield I would expect in a good year. I would expect something like 8% net that equates to:

8/0.7= 11.4% gross

That means for every $1 (P) I spend I want 11.4c gross(E) back. So we immediately have an implied PE of ;

1/0.114= 8.75

Of course this assumes the company will pay out all of its earnings in dividends every year. That is probably unlikely. Lets say the company pays out 90% of its earnings. That means the PE on my prospective 'agricultural share' investment will be lower as my 'income demands' are now only for 90% of earnings.

0.9 x 8.75 = 7.9, close enough to 8.

Of course PEs are never constant. On good years they tend to be lower (in anticipation of the inevitable earnings drop). In bad years they are higher (because bad times do not last forever.)

Therefore I come to my 6-10 range about my PE of 8 average.

SNOOPY

[Snoopy]

Sadly, Snoopy didn’t realize such potential at least yesterday;)


What nonsense. My PGW shares rose the same amount as yours did Master. The shares are now worth more because of the good performance of Agriservices. The question is should I now add to my holding because of the potential for Agritech to do well in China.

I would argue the results do not support such an investment. I wouldn't right off the chances of PGW, which is why I still hold the shares.

But I am not a buyer either. I require a discount for a margin of safety. By my judgement, that is not there.

SNOOPY

[Master98]

What nonsense. My PGW shares rose the same amount as yours did Master. The shares are now worth more because of the good performance of Agriservices. The question is should I now add to my holding because of the potential for Agritech to do well in China.

I would argue the results do not support such an investment. I wouldn't right off the chances of PGW, which is why I still hold the shares.

But I am not a buyer either. I require a discount for a margin of safety. By my judgement, that is not there.

SNOOPY

Calm down snoopy, if your posts are true, i am sure my shares rose different amount from yours, my average share price just under 30cps, yours is still red.

[Master98]

master98 you are doing slightly better than me my average buy in is 32.5 cents but this includes a doubling of my shareholding @ 34 cents just after their announcement.
Share price and the trades are making the right noises, roll on 40 cents, maybe as soon as next week, but I dont mind waiting cause it well get there.


I sold my holding at 40c (41c?) just after half year report, and buyback at 30c and 29c. finger cross.

[Snoopy]

Calm down snoopy, if your posts are true, i am sure my shares rose different amount from yours, my average share price just under 30cps, yours is still red.


Ah I wondered what that little red sticker was on the top of my PGW share certificate. Now I know!

SNOOPY

[Snoopy]

Snoopy most of what you say is reasonable, but expecting an 8% dividend yield from any company in todays climate is sadly optimistic.


I hadn't reviewed the market yield on my 'income shares' for a while Snapiti, so I took your post as a signal to do so.

With the Friday valuation adjustment (SP=$2.52) and cum dividend Telecom does offer an 8% net yield cum an 11c dividend. Turner's Auctions (SP= $1.78) is also very close at 7.3% cum a 7c dividend. Restaurant Brands (SP= $2.26) is yielding a net 6.85%. Earlier this years all of these were yielding over 8% net, so an 8% net yield is not the impossible dream you think it is.

However it must only be a matter of time before those bruised by low bank rates realize they could double their income by investing in a basket of conservative income shares. Perhaps the process has already started and 7% is now the 'good as it gets' figure?

SNOOPY

[Snoopy]

Perhaps the process has already started and 7% is now the 'good as it gets' figure?


OK lets roll with the above assumption and see what happens.

7/0.7= 10% gross

That means for every $1 (P) I spend I want 10c gross(E) back. So we immediately have an implied PE of ;

1/0.1= 10

Of course this assumes the company will pay out all of its earnings in dividends every year. That is probably unlikely. Lets say the company pays out 90% of its earnings. That means the PE on my prospective 'agricultural share' investment will be lower as my 'income demands' are now only for 90% of earnings.

0.9 x 10 = 9, close enough to 9 ;-).

So assuming this is a mature business we might expect a PE of 7 at the top of the earnings cycle and a PE of roughly 11 at the bottom. Agriservices is at the top of the business cycle and I certainly hope Agritech is at the bottom! Historically they have made near equal contributions to the bottom line so probably a PE of 9 is about right for PGW at the moment. At 36c the PGW share price looks to be 20% overvalued to me.

SNOOPY

[Agrarinvestor]

wow snoopy you really get into it.
It sounds like you purely back a racehorse on its form.

I am more of a gambler and have become very good at recognising opportunities based on sentiment, charts and the old fair and greed thoery.

I think I am on the right pony this time, time well tell, 40 cps up ahead and just around a couple of cnrs


Hi,

Can someone who is aregistered shareholder, ask for a copy of the register of shareholders ?
enquiry@computershare.co.nz

It could be of interest if we see some neverheard funds and trusts collecting shares. I am sure that Agria has very good reasons why they bought 50,2% of PGW.
The often stressed problem that Agria has difficulties to raise money can turn into a big surprise.





Mr. Lai Guanglin, was appointed as a director and the Chairman of the board of the directors of the Company in February 2009. The Company is a leading provider to the construction sector offering a wide range of pipe related products, services and solutions to the constructors, designers, consultants and government agencies in Hong Kong and Macau. Mr. Lai’s wholly owned investment vehicle, Singapore Zhongxin Investment Company Limited, is the majority shareholder of the Company. Mr. Lai is the founder and the Chairman of the board of directors of Agria Corporation which is listed on the New York Stock Exchange. Agria Corporation is primarily engaged in research and development, production and sale of crop seeds to the agricultural sector in Australia, New Zealand, China and South America and the provision of rural services to the farmers in New Zealand and South America. Agria Corporation operates the Southern Hemisphere’s largest forage seed business in New Zealand. The activities in forage seeds and rural services are carried out by PGG Wrightson Limited which is a subsidiary of Agria Corporation. PGG Wrightson is a company listed on the New Zealand Stock Exchange. Mr. Lai’s wholly owned investment vehicle, Brothers Capital Limited, is its largest shareholder.
Mr. Lai has extensive experience in investments, acquisitions and operation management. Mr. Lai has established many other enterprises in China, Hong Kong and internationally, in particular, animation, logistics and transportation, pharmaceutical sectors, etc. He takes a leading role in respect of strategic planning and business development in his investment portfolio.
Mr. Lai is also the deputy Chairman of Chamber of Commerce in Shenzhen, China.
Mr. Lai holds a bachelor’s degree in accounting from Monash University, Melbourne, Australia and is a certified public accountant in Australia.
In December 2009, Mr. Lai was appointed as a director of PGG Wrightson Limited which is a company listed on the New Zealand Stock Exchange.
Mr. Lai is the elder brother of Mr. Lai Fulin, an Executive Director of the Company. Mr. Lai is the sole director of Singapore Zhongxin Investment Company Limited, a substantial shareholder of the Company which has an interest in the shares of the Company that is required to be disclosed under Part XV of the Securities and Futures Ordinance.

[Balance]

another 2.5 million shares in off market trade over night, looks like the overhang of shares bought for 29 cps is being sold off

Nice 13.8% profit - courtesy of Dodgie Georgie's fire sale.

[blockhead]

wow snoopy you really get into it.
It sounds like you purely back a racehorse on its form.

I am more of a gambler and have become very good at recognising opportunities based on sentiment, charts and the old fair and greed thoery.

I think I am on the right pony this time, time well tell, 40 cps up ahead and just around a couple of cnrs


Don't think "fair" comes into share trading too much Snapiti, there may be a fair bit of fear from time to time though !

[Snoopy]

What am I missing, it all look good for the next 12 months, can't forecast farming past that, never have and never will


Well I can forecast beyond that. There will be some major market disturbance, be it a disease or tit for tat trade sanction that will shut a major producer out of one of our markets for an extended period. NZ farmers will benefit due to product substitution. There will be a drought that will seriously affect our own farmers. And our currency will go up choking off the worldwide recovery form an NZ perspective when translated into NZ dollars. I am confident that all of these events will come to pass. However, I have no idea exactly when all that I have forecast will happen. This is how it always has been in the rural sector. And it prevents market prices being bid up too high because all farmers, if not investors, know that the only thing that is certain with farming is the unexpected.

The market does not like uncertainty. The way the market addresses this is through valuing agricultural shares at modest multiples.

In FY 2012 PGW made $24.4m. Divide that by the 754.8m shares on issue and I get earnings of 3.2cps. With PGW trading at 34c this is a PE of 10.5, which is IMO a little high for an agricultural company near to the top of the earnings curve. This can only mean one thing. The market is already pricing in a significant rise in profit for FY2013. The PGW profit must rise by around 20% to justify a share price of 34c. I would say that at 34c, PGW is fully and fairly priced.

SNOOPY

[Snoopy]

What am I missing?


It never hurts to look at alternative investments in the agricultural sector.

PGW: trades at 15% above asset backing.
NZS: trades at 15% below asset backing.

PGW: general exposure to all farming sectors.
NZS: specialized exposure to the cream of farming product, the dairy industry.

Both have substantial overseas shareholders as backers.

PGW: Agria: History of management disharmony that split the company. Faced lawsuits from shareholders alleging misrepresentation of business prospects in the prospectus. Faces suspension from the NYSE. Technically bankrupt IMO.
NZS: Olam International. Years of successful management of farming ventures of all kinds in the Americas, Africa and Asia. Over $NZ100m of capital set aside to support upcoming rights issue.

Now you are a successful farmer Snapiti. Where would you put most of your money?

SNOOPY

[Snoopy]

Mr. Lai Guanglin, was appointed as a director and the Chairman of the board of the directors of the Company in February 2009. The Company is a leading provider to the construction sector offering a wide range of pipe related products, services and solutions to the constructors, designers, consultants and government agencies in Hong Kong and Macau. Mr. Lai’s wholly owned investment vehicle, Singapore Zhongxin Investment Company Limited, is the majority shareholder of the Company. Mr. Lai is the founder and the Chairman of the board of directors of Agria Corporation which is listed on the New York Stock Exchange. Mr. Lai’s wholly owned investment vehicle, Brothers Capital Limited, is its largest shareholder.

Mr. Lai is the elder brother of Mr. Lai Fulin, an Executive Director of the Company. Mr. Lai is the sole director of Singapore Zhongxin Investment Company Limited, a substantial shareholder of the Company which has an interest in the shares of the Company that is required to be disclosed under Part XV of the Securities and Futures Ordinance.

I don't doubt that Alan Lai has plenty of money. And good on him for supporting the business of his brother.

Given Agria's capital position I would suggest that if Alan Lai wants Agria is to survive then Alan Li will pump more capital into it. However it is unlikely he will get a rights issue away with minority Agria shareholders as a rule being so disenchanted. That means Alan Lai will have to issue new Agria shares to himself. And that will dilute the interests of the minority Agria shareholders.

SNOOPY

[Balance]

Given the makeup of shareholder register I expect they'll be a few with bigger holdings wanting out and the result should have a few bigger players wanting in. E.g. those out want to book a capital gain and those in want the divies. (Quite a few funds can only buy stocks with dependable divie streams.) It'll take a while for these buyers and sellers to agree a price to exchange on.

Nothing new here, just how the game is played. Patience is required so don't read anything much into the fact that our sleepy little market didn't move much after the result.

After FPA, next one in the cross-sights of the Chinese.

Watch their modus operandi - they take a cornerstone shareholding and then, when things are turning around, they pounce.

This spring is certainly looking greener than the springs of the last few years!

[Snoopy]

After FPA, next one in the cross-sights of the Chinese.

Watch their modus operandi - they take a cornerstone shareholding and then, when things are turning around, they pounce.

This spring is certainly looking greener than the springs of the last few years!


Balance, I still can't fathom how you missed selection for the Olympic team. You are that good with the long-bow.

Your theory is good IMO, but the timing is out. Agria started with a 19.9% shareholding in PGW, then when things turned good they did pounce, which is why they now hold just over 50%. But that was over a year ago! Agria want the PGW proprietary seed technology. They have access and control of that through their 50.22% PGW stake. You have to convince me why Agria would want any more of PGW for your theory to have further legs.

Once you have established a need to mop up the PGW share register, you will then have to demonstrate a means. Agria at US84c has a market capitalization of $US46.52m. PGW at US26c has a market capitalization of $US197m. Of course Agria has already swallowed half of that, but it still leaves $US98m in the hands of other PGW shareholders. Little fish cannot swallow big fish. That is how it works in the ocean and the same rules apply to the financial sharks.

SNOOPY

[elZorro]

Very good point Belge, this is turning out to be a bad day for NZ Inc. Some of our best R&D work going offshore for a pittance.

[percy]

Once you have established a need to mop up the PGW share register, you will then have to demonstrate a means. Agria at US84c has a market capitalization of $US46.52m. PGW at US26c has a market capitalization of $US197m. Of course Agria has already swallowed half of that, but it still leaves $US98m in the hands of other PGW shareholders. Little fish cannot swallow big fish. That is how it works in the ocean and the same rules apply to the financial sharks.



SNOOPY[/QUOTE]

Luckily NZ's two most successful businessmen don't know that.!!!!!!!
Graeme Hart's Rank Group brought out The govt print office using debt.Once he got the taste of eating big fish he set about eating bigger and bigger fish.
Alan Gibbs had a history of buying big businesses using none of his own money.Totally debt funded.
You should find Serious Fun The alan Gibbs story enlightening.
l