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etrader
29-03-2007, 12:02 PM
http://www.nzherald.co.nz/section/3/story.cfm?c_id=3&objectid=10431407

NZFSU have announced another $40 mill injection into the business, originally they were taking over subscriptions which they did, since that they've extened to that. I see this as a positivie step, i purchased at christmas into the pre float offer, will be interesting once it's listed as it's an iliquid stock at the moment due to it not been floated.

They now have updated their web site after settling on their fourth farm a larger farm which was settled at Christmas.

www.nzfsu.co.nz

duncan macgregor
29-03-2007, 03:27 PM
Since no one is answering might i be allowed to ask a question?. Why in all the hell would you be silly enough to think that other people might confess to this stupidity. Surely you can pour your money down the drain in a more enjoyable activity. macdunk

etrader
12-04-2007, 06:11 PM
quote:Originally posted by duncan macgregor

Since no one is answering might i be allowed to ask a question?. Why in all the hell would you be silly enough to think that other people might confess to this stupidity. Surely you can pour your money down the drain in a more enjoyable activity. macdunk

Appreciate your view MacG obviously you are risk adverse in some areas and nzfsu does not fit into your investment strategy.

I'm happy to diversify into offshore with this investment, there was good support on the subscription, and i think it will prove a reasonable investment.

I know the investors from RPI would not put good money into bad, but i guess only time will tell.

happy investing MacG

duncan macgregor
12-04-2007, 06:38 PM
Thats what makes the market you think this i think that. Farming world wide has a very low capital return on investment. Take any country in this world then show me a decent return other than a capital gain at the end if you can. Farming is a family life style business not a company business, just ask the russians.:D:D
Good luck with your investment, i expect of myself much higher returns than you could possibly hope for with this one. MACDUNK

D_Pick
13-04-2007, 11:10 AM
Are NZ Farming Systems Uruguay listed on the NZX? If they are what is their ticker code? I couldn't find this info on their website only the statement

"161,934,177 part paid to 50 cents with second instalment of 50 cents due 14 December 2007.
Application to list on NZX is expected to be made immediately after this date."

Macker would you also say that property is a bad investment because investors can't make a decent return other than capital gain?

Aren't NZFSU investing in property, developing properties using 'best practice' and aiming to generate cashflows by converting to dairy or beef. Enhancing a property has to be good for its value.

I'm under the impression most NZ style farms are run as companies as that is the best structure to make a profit.... and that is the reason for being in the game, a family doesn't need to own a farm to have a life style. Additionally scale typically improves margins, therefore why not be a bigger coporate farmer.

biker
13-04-2007, 11:27 AM
quote:Originally posted by D_Pick

Are NZ Farming Systems Uruguay listed on the NZX?
second instalment of 50 cents due 14 December 2007.Application to list on NZX is expected to be made immediately after this date."

D_Pick
13-04-2007, 11:36 AM
Thanks biker
So no market prices inbetween?

duncan macgregor
13-04-2007, 11:55 AM
quote:Originally posted by D_Pick
Macker would you also say that property is a bad investment because investors can't make a decent return other than capital gain?
I'm under the impression most NZ style farms are run as companies as that is the best structure to make a profit.... and that is the reason for being in the game, a family doesn't need to own a farm to have a life style. Additionally scale typically improves margins, therefore why not be a bigger coporate farmer.
What I am saying is if i buy a commercial building to rent out in NZ i can expect a return on capital between 6% to 8% in rent plus a capital gain when i sell. If I buy a farm in any country in this world take your pick [excuse the pun]I can only expect a 3pc return on capital if i run it myself plus a capital gain when i sell.
To place managers in and run it like a company is a fools investment.
Thats only my opinion having been around farms in quite a few different countries. The investors coming into this will be city people i cant see any practical farmers investing in this. macdunk

etrader
13-04-2007, 02:45 PM
You probably saw the report pre placement MacD that around 50 farmers from nz went over to view the system and farms, they have invested in a heavy way into this Pre float, I'm sure these farmers are not going to buy into something that had a pre management cost of 3% of the capital value otherwise net of wages it would always loose money, there does not seem to be to many farmers broke in this country, also the farms are without debt so althought they've stated dividends are a way off the business is aquiring land at good present values with an increase expected from presures outside south america for this land, this is already happening with soy and corn crops requiring land there.

living2
13-04-2007, 03:11 PM
What I can't figger
So they are going to do a NZ type dairy conversion in uruguay.BUT in NZ there is other infrastrucure in place outside the farm gate .
What infrastructure is in place in Uruguay???
Who and how are they going to sell the milk????

etrader
13-04-2007, 04:15 PM
quote:Originally posted by living2

What I can't figger
So they are going to do a NZ type dairy conversion in uruguay.BUT in NZ there is other infrastrucure in place outside the farm gate .
What infrastructure is in place in Uruguay???
Who and how are they going to sell the milk????


There are large farming co ops that process, pgg also own the largest grain producer there. From memory they have forward sold a lot of production and it's on par with Fonterra Kg solids here.

etrader
14-04-2007, 12:05 PM
quote:Originally posted by D_Pick

Thanks biker
So no market prices inbetween?


No market prices inbetween, there will be some private transfers through the lead broker only between private sales. So will not know more till end of the year.

the updated site has reasonable info on it for interests sake.

Winston001
17-04-2007, 10:09 AM
I'll have to agree with Duncan. Farming is one business which is not easily corporatised. It does happen successfully here and there around the world, but as a general rule, farming is a 24/7/365 day job. It requires absolute commitment from the farmer and this only happens when he owns his land.

Managers can be loyal and committed but ultimately their incentive just isn't the same. Plus corporate ownership imposes an inevitable extra administration tier on the business. Small syndicate farming businesses avoid this but large companies inevitably require bureaucracy - reporting standards etc.

None of this means the Uruguay investment is a bad idea - it may work very well - for a few years anyway. Personally I'm happy to watch.

Dubdee
18-04-2007, 10:36 AM
Absolutely agree with Winston. Where is Tasman Agriculture now? Farm prices reflect the lifestyle (life sentence) benefits of the farmers which cannot be accessed by corporations. Still they remain cash flow poor with returns only being saved by the greater fool theory of gain through on sale

etrader
20-07-2007, 03:01 PM
quote:Originally posted by D_Pick

Thanks biker
So no market prices inbetween?


Hi to the few of you out there who've bought into nzfsu, i know it's not a widly sought share as it was minimum $20k to buy into but a few updates.

nzfsu have purchased another 6000 hec approx since the inital float taking their holding to over 12000 hec now.

Land prices are continuing to climb due to the other uses that corn farmers are producing for bio fuel and soy crops in south america.

There have been recent trades in the partly paid stock at .56c so a 12% premium to original cost.

With the US dollar high it's been effective to take the IPO deposits over to purchase and as the exchange rate drops over time it increases the underlying value in the land also.

Dairy prices have also climbed around the world giving their future earnings a better financial model.

Updates can be seen on their website www.nzfsu.co.nz

This update is simply to give a few views on this stock, it's not for all investors as it does have risk and the financial dividends will be some years away, it's just simply my view on this company.

Snoopy
20-07-2007, 06:02 PM
quote:Originally posted by etrader



Hi to the few of you out there who've bought into nzfsu, i know it's not a widly sought share as it was minimum $20k to buy into but a few updates.

nzfsu have purchased another 6000 hec approx since the inital float taking their holding to over 12000 hec now.

Land prices are continuing to climb due to the other uses that corn farmers are producing for bio fuel and soy crops in south america.

There have been recent trades in the partly paid stock at .56c so a 12% premium to original cost.

With the US dollar high it's been effective to take the IPO deposits over to purchase and as the exchange rate drops over time it increases the underlying value in the land also.

Dairy prices have also climbed around the world giving their future earnings a better financial model.

Updates can be seen on their website www.nzfsu.co.nz

This update is simply to give a few views on this stock, it's not for all investors as it does have risk and the financial dividends will be some years away, it's just simply my view on this company.


Thanks for the update etrader. Do you have a reference on that 56c partly paid share transaction? I would be interested to know if there is any volume involved. I couldn't see anything on the NZFSU website.

There is still the 50c second installment due on 14th December 2007. Does that mean the NZFSU share price has really only risen 6%, being 6c on '50c + 50c'?

The dairy price payout rise in NZ will be good for those farmers who have invested in NZFSU. Falls in commodity prices might have led to forced sales of NZFSU partly paid shares, as farmers struggled to meet their second payment. Of course I am assuming that it is primarily dairy farmers that have invested in NZFSU. If the principal investors are sheep farmers then we might still get some bargains!

Whether the dairy commodity price rises are good for NZFSU is open to debate. Price rises are good for any existing farm assets. But if the price rises have pushed up the price of land in Uruguay significantly it could mean we shareholders get less land for our buck - not so good.

There is some personnel risk too, for those who can't stand the pain of living in a different culture. Didn't one of their NZ recruited managers quit? Still overall I think it is a good business to be in. I intend to hold onto my shares for a while.

SNOOPY

discl: hold NZFSU

etrader
20-07-2007, 06:54 PM
Snoop

*The .56c was traded through abn amro craigs who were the lead broker they told me when i bought in that it would be rare to have transactions in this stock before they list so i have no idea of volume sorry, i look at the fact that it's 12% up on a partly paid share, so it's up for debate if they would sell for $1.12 when fully paid up.

*You're right that farming values rising would give less land for your buck, what we need to look at is nzfsu is paying $3k per hec which is proabably 10% of the price of nz farms "don't quote me exactly". Remember that nzfsu already owned 6k hec before the ipo and have still been purchasing farms at very good hec prices. If we say a 10% rise in farm values per hec on 12k hec that's $3.6 mill without thinking in increase, so if they keep buying and you dollar cost average over the entire hec by the current market price of land i'm sure their ave in is still good.

The float happened before the latest surge in dairy payouts so even if they'd stayed flat i'm sure the mostly farming investors who bought in could have easily come up with the second installment. You'd be crazy to commit to an investment where 9 months out you had no way of paying up your shares.

You're right that one of the farm managers quit, he already owned a farm in nz and moved back to run that again, I know he made some inroads in his short employment.

The latest video on their site is a good update.

Hope that helps.

etrader
22-08-2007, 02:28 PM
NZFSU have today announced an upgrade in land holdings previous they owned around 12000 hct today they've announced a total land holding after recent purchases of just over 26500 hctr, this has still been purchased around the $2000 per h mark making a $53 million land value pre IPO. IPO is still heading for a mid Dec listing and a possible further capital raising for expansion could follow shortly.

gisborne_gold
19-11-2007, 11:55 AM
NEWS RELEASE
8.00AM 12 NOVEMBER 2007

NZ Farming Systems Uruguay - Institutional placement and non-renounceable rights issue to shareholders


NZ Farming Systems Uruguay announced today that it will seek to raise a minimum of $50 million of new equity capital to expand its operations in Uruguay. The company is planning an institutional placement and considering making a non-renounceable rights offer to its shareholders.

The shares will be issued at $1.50, which is a substantial premium to the $1.00 per share pricing of the company’s Initial Public Offer, which closed oversubscribed in December 2006.

The decision to raise additional capital follows a year in which the company has acquired 30,980 hectares of farms and farmland in Uruguay and has made significant progress in its development into New Zealand style intensive dairying. The capital raising will allow the company to expand its land holdings and farming operations, yielding administrative and operational economies that will benefit shareholders, and will deepen the company’s
share register.

Asked to comment on the $1.50 price at which shares will be issued, Keith Smith, the Chairman of NZ Farming Systems Uruguay, said;

“The price for the institutional placement was set on the basis of a Discounted Cash Flow analysis of the company’s forecast revenues, discounted for country risk, and allowing for the placement occurring prior to listing. It was confirmed at the end of an investor roadshow to Uruguay last week, when more than 70 existing and potential shareholders and institutions visited the company’s farms and met with Uruguayan bankers and lawyers and the directors of the company.

“The Board is considering making the same offer to existing shareholders shares at the $1.50 price, in the form of a non-renounceable rights issue in the ratio of one share for every two held. The Board considered this was the most appropriate way to give shareholders who wish to increase their participation in the company the opportunity to do so.

“$1.50 represents a significant uplift in value compared to the $1.00 per share the original shareholders subscribed in December 2006. It reflects the inherent value at that time, the progress the company has made in acquiring and developing land over the past year and the potential for a sustained increase in milk prices at levels above those prevailing last year.”

Mr Smith said the institutional placement and any non-renounceable rights issue were expected to raise a minimum of $50 million, but oversubscriptions may be accepted by the company. NZ Farming Systems Uruguay will be writing to its shareholders with more information later this week.

PGG Wrightson has a 10.57% shareholding in NZ Farming Systems Uruguay and manages the company under contract.

gisborne_gold
19-11-2007, 11:56 AM
Last week's announcement suggests that the $1 shares issued last year, partly paid to 50c, are now valued at $1.50 ahead of next month's listing.

Snoopy
19-11-2007, 01:18 PM
Last week's announcement suggests that the $1 shares issued last year, partly paid to 50c, are now valued at $1.50 ahead of next month's listing.

Or put another way the partly paid shares issued at 50c are now worth $1, for a 100% return in just one year! There can't be many shares on the NZX (or should that be 'not on the NZX'?) that have done as well as that!

Thanks for the advance warning on the extra rights issue. I'll have to make sure I have some cash ready.

SNOOPY

discl: hold NZFSU

etrader
19-11-2007, 01:44 PM
Yes Snoopy I'm very happy to date with this investment, talking to my broker today it appears that the share should list at $1.50 or slightly above, given the fact that the balance is only due days before they list, giving a 100% return on your investment. As one of the few ways get get exposure direct to farming on the nzx it will be interesting to see given the fact that they'll be capped at over $300 mill how long will it be before fundies take a position in this stock.

Disc: Hold

gisborne_gold
19-11-2007, 01:48 PM
Agreed, it appears the punt on NZFSU could prove very successful. We'll all know for sure when the shares list on the NZX. Based on the company's announcements, and with the second 50c payment due on 14 December, it seems listing will take place on Monday 17 December or soon after.

I also hold NZFSU.

etrader
19-11-2007, 01:49 PM
Since no one is answering might i be allowed to ask a question?. Why in all the hell would you be silly enough to think that other people might confess to this stupidity. Surely you can pour your money down the drain in a more enjoyable activity. macdunk

Thats what makes the market you think this i think that. Farming world wide has a very low capital return on investment. Take any country in this world then show me a decent return other than a capital gain at the end if you can. Farming is a family life style business not a company business, just ask the russians.
Good luck with your investment, i expect of myself much higher returns than you could possibly hope for with this one. MACDUNK

Hey Macdunk amazing how the economics of this investment have changed over the last year, trust you have had a lot of stocks finish over 100% up in the last year.

duncan macgregor
19-11-2007, 04:03 PM
Since no one is answering might i be allowed to ask a question?. Why in all the hell would you be silly enough to think that other people might confess to this stupidity. Surely you can pour your money down the drain in a more enjoyable activity. macdunk

Thats what makes the market you think this i think that. Farming world wide has a very low capital return on investment. Take any country in this world then show me a decent return other than a capital gain at the end if you can. Farming is a family life style business not a company business, just ask the russians.
Good luck with your investment, i expect of myself much higher returns than you could possibly hope for with this one. MACDUNK

Hey Macdunk amazing how the economics of this investment have changed over the last year, trust you have had a lot of stocks finish over 100% up in the last year.
ETRADER i have had more than 100% return on my nvestment account. My trading account far exceeds 100% this year. I started the year with MCR,SMY,AGM,SMM, MCR was $2-15 its now $4-50 SMY was $2-20 now $5-99. AGM was 59c sold most of them at $1-05 the sp is now 74c SMM was $3-20 sold at $5-94 at the take over bought IGO at $4-63 its now $8-20. I removed my initial investment ammount and left slightly more than half in which i will stick under the bed. Investment account long term holds AGM MCR SMY IGO. I am now a full time trader which is much safer more fun and so far highly profitable. Macdunk

etrader
19-11-2007, 04:17 PM
Well done on 07 investments you're on the case with your stocks i see.

duncan macgregor
19-11-2007, 04:32 PM
Well done on 07 investments you're on the case with your stocks i see. The one thing that should be mentioned is the exchange rate which has added about 8% this year so far by investing in Australia. The AUD will trend up over time against the NZ dollar which makes the ASX the only place to be. Macdunk

BRICKS
21-11-2007, 12:36 PM
WOW,, Mr full time trader MacDuck.. Australian non resident lucky for US..

Balance
26-11-2007, 05:11 PM
Met a few farmers from Canterbury who are investing in farms in South America. Land there is dirt cheap compared to NZ although productivity is much lower. As the dairy industry there matures, the support system will grow with the industry and productivity will then go much higher.

Threat for NZ farmers in the future?

FarmerGeorge
26-11-2007, 05:19 PM
Balance: in a word YES. Huge potential threat in my opinion.
However my opinion is also that many farmers are underestimating the work involved in getting this terrain up to scratch, and the cultural differences in employing local south americans among other things. This is a long term play and I hope those sending their cash across the pacific understand that: it's a long way to go to try and get any back!
But again, huge potential if you know what you're getting into.

The Great Gold Guru
28-11-2007, 10:05 AM
Dairy farmers have by nature been a conservative bunch over the last few decades , wow how things have changed over the last few years though. Equity partnerships , conversions on a massive scale , Fonterra heading to the NZX and the more ambitious now moving into places like Uruguay , Chile , Brazil , Ukraine and even Russia. With these places having poor infrastructure , dubious central and local government , bribery , corruption and extortion are rife then the carrot of cheap land would have to be bigger than the one in Ohakune's main street for me to go near these places. I invested in my first dairy farm ( 700 cows near Dunsandel ) via an equity partnership in Oct2003 , most my friends said I was mad , I was a townie who didn't know anything about dairying ... not true as I knew the black and white things with the four teets were the cows and the milk came twice a day !! , also dairying had had a huge boom ( 2 x $5+ payouts in 2001/02 ) and was about to collapse ... here we are 4 years later and my $400k investment is now worth $1.1m and it is THE HOT SECTOR in the New Zealand economy ... anyway , the moral of the story is that you don't need to go off to far flung places you know little about to make good money out of dairy farming . You may think we are in a boom at the moment but in my opinion .... you ain't seen nothin' yet !!

Snoopy
28-11-2007, 02:41 PM
Dairy farmers have by nature been a conservative bunch over the last few decades , wow how things have changed over the last few years though. Equity partnerships, conversions on a massive scale, Fonterra heading to the NZX and the more ambitious now moving into places like Uruguay, Chile, Brazil , Ukraine and even Russia. With these places having poor infrastructure, dubious central and local government, bribery, corruption and extortion are rife then the carrot of cheap land would have to be bigger than the one in Ohakune's main street for me to go near these places.


I don't go along with your implied assertion that lumps Uruguay in with Russia 'Great Gold Guru'. Uruguay has been a stable democracy for nearly 25 years. Spain has only been that way for just over thirty years. Perhaps there is more corruption in Uruguay than in New Zealand, but again to lump it in with the likes of Russia is IMO quite wrong.

I agree there is country risk. But the question is what discount level in land prices do you need to mitigate that risk? For comparably productive land, the price is only about one quarter of what you pay in NZ and the farm working expenses are about half. To me that makes the risk 'worth it'.

The other thing in favour of NZFSU is that I didn't have to shell out $400,000 to be an investor. For many people $400,000 would be a decent whack of their wealth, and that could skew their investment portfolio away from diversification in a way that would be unwise.



I invested in my first dairy farm ( 700 cows near Dunsandel ) via an equity partnership in Oct2003 , most my friends said I was mad , I was a townie who didn't know anything about dairying ... not true as I knew the black and white things with the four teets were the cows and the milk came twice a day !! , also dairying had had a huge boom ( 2 x $5+ payouts in 2001/02 ) and was about to collapse ... here we are 4 years later and my $400k investment is now worth $1.1m and it is THE HOT SECTOR in the New Zealand economy ... anyway , the moral of the story is that you don't need to go off to far flung places you know little about to make good money out of dairy farming . You may think we are in a boom at the moment but in my opinion .... you ain't seen nothin' yet !!

I am glad you dairy farmers are confident Great Gold Guru. I know that NZFSU shares when floated last year were being offered to farmers. I guess the way the market was, it would be mostly dairy farmers that took them up(?) But the second installment on these shares is now due. I wonder if we look like heading for a drought this summer, if some of these farmer investors will need to cash up their NZFSU shares by selling on market as soon as it lists? I know that institutions have been snapping up fully paid shares offered to them at $1.50. But I have a feeling that unless we get a decent dump of rain in the next week or so, the shares may list at rather less than $1.50. Anyone else got opinions as to the listing price?

SNOOPY

duncan macgregor
28-11-2007, 03:30 PM
I really dont like the idea of assisting the competition to undercut you at your own game. Its like cutting your nose off despite your face. Then we have the money situation exchange rates etc etc the list goes on. Farming other than property gain has always been a poor investment i would be more interested in buying commercial property for capital gain than rely on farm income. We then have overseas trips on a regular basis business class of course with my investment money. Who would buy NZ dairy products if they can buy from there at cheaper rates. Its a bit like having a free market with China with everything ending up manufactered over there and all your grandchildren having to bugger off to work in Australia. Its not for me at any price. Macdunk

kura
28-11-2007, 06:05 PM
I really dont like the idea of assisting the competition to undercut you at your own game. Its like cutting your nose off despite your face. Then we have the money situation exchange rates etc etc the list goes on.

MacDunk, I recall (many years ago) complaints when some of our nurserymen were exporting Kiwifruit plants to the likes of Chile etc ( Have a vauge memory that those "gold" kiwifruit have been copyrighted somehow & plants can't be exported) Ask yourself if the Chinese had developed the modern kiwifruit, weather they would allow the export of the plants ?

By the way, is this company actually listed ? I've tried to find NZ Farming Systems on NZX but no luck !

Snoopy
28-11-2007, 11:40 PM
By the way, is this company actually listed ? I've tried to find NZ Farming Systems on NZX but no luck !

Not yet. NZFSU are looking at mid December before the shares are available to the general public.

SNOOPY

Nevl
29-11-2007, 12:44 AM
ok a few facts on the ground as I was in Uruguay last week.

The land is as green as in the Waikato witheven less hills. there is also plenty of land for sale just looking out the window of the bus I saw many for sale signs. Bascially build a fence and a dairy shed and off you go. Seriously it is easier than farming in Southland! Wide open and very flat. The basic roads are fine and places like Punta Del este make Mt Maunganui look pretty basic. The country is small but for all that easy to get around and has 2 large markets next door in Brazil and Argentina. Ok quailty staff will be hard to find at first but with a little imagination not impossible. Employ farm hands pick the best and sponser them in NZ for 2 years where they work on NZ farms and then send them back and let them mangage with a decent incentive scheme and good wages. In the meantime hire young farmers from NZ and send them on and OE for few years to get things running. Very easy if you are willing to invest in your staff. To be honest though NZ firms are probalbly the worst at investing in there staff so am worried about this!!

Actually I am more bullish on the NZFSU now than I was before. There seem to be too main buyers for dairy products which are Nestle and Parmalat. Nestle has a Sth American joint venture with Fonterra. Also various local milk suppliers. As to undercutting ourself that won´t happen as the demand is mostly for fresh milk and local productsd. The commosity based dairy demand is not increasing by as much as the demand for fresh milk. The change is from Milk powder to liquid milk. NZ cannot supply this even if we wanted. What we need to get involved in the local supply hence the investing in farms in the local markets!!!

etrader
03-12-2007, 03:44 PM
http://www.nzherald.co.nz/section/3/story.cfm?c_id=3&objectid=10479686

Good article pre IPO, shareholders should be happy with potential gains

Snoopy
12-12-2007, 01:01 PM
http://www.nzherald.co.nz/section/3/story.cfm?c_id=3&objectid=10479686

Good article pre IPO, shareholders should be happy with potential gains

I am still undecided as to whether I should take up my non-renouncable rights etrader.

I am undecided at the portfolio level. Granted we haven't see the NZ Farming Systems Uruguay shares trade yet. But if the opening price is near $1.50, I may be in the position that NZFSU becomes my largest NZ listed shareholding! Coupled with the stake I own through my shareholding in PGW, I don't want to become seriously overexposed to NZFSU, even if things look very good for the company at the moment 'on paper'.

I am also undecided at the company level. I have managed to go to the NZFSU website and download the spreadsheet that management been hauling around the country presenting to the institutions (see the investor information bit of the NZFSU website). I am concentrating on the 'performance and valuation' sub-worksheet and that indicates the shares are worth $1.95 each on a discounted cashflow basis.

The thing that is making me 'think twice' are the assumptions behind that $1.95 figure.

The original prospectus made it clear that NZFSU was both a dairy product and a beef play. However, with the rise and rise of 'white gold', the beef side of the equation has been almost forgotten, bar a one liner in the latest roadshow:

"At US26c per litre, returns are eight times more profitable than beef."

No-one is suggesting that returns will continue at US26c per litre, although NZFSU *are* claiming that returns will continue for ten years at US23c per litre.

The discount rate used is 11% in the discounted cashflow analysis. That seems a bit high with the way farming is currently going, although we must remember the climatic risk in any farming that is pushed to the back of the mind during 'farming boom times. Perhaps there is some political risk built into that figure too?

The Uruguay risk premium is put down at 2%. The Market risk premium (MRP) is listed separately at 6.5% and the risk free rate of return (RFR) is listed at 6.5% and the asset Beta is listed as 0.65-0.8. I am not clear if the 'Market Risk Premium' includes the 'Urugauy Risk Premium', or if the two figures are additive.

It would be interesting to know what figures NZ bankers use for NZ dairy farms. Would 11%-2%=9% be about right?

Anyway, I am going through the process of 'stress testing' the NZFSU 'MS Excel' model to see what alternative scenario valuations I can come up with.

SNOOPY

discl: hold NZFSU, PGW

etrader
12-12-2007, 02:19 PM
I look at this as a 3 pronged investment: Land owner "growth in land values" Commodity prices "driven by demand for milk" and Beef value.

I'm not taking up the rights at $1.50 simply because i think it's going to be more for the new investors who did not buy in on the original $1 last year, being their chance to get in on IPO. I'm sure plenty of existing investors will take them up but it ends up dollar cost averaging your investment up not down so it seems no point.

anyway only time will tell, I know there were plenty of people negative on this was it was not for the faint hearted dropping $20k into South America.

happy investing

Snoopy
12-12-2007, 04:13 PM
I look at this as a 3 pronged investment: Land owner "growth in land values" Commodity prices "driven by demand for milk" and Beef value.

I'm not taking up the rights at $1.50 simply because i think it's going to be more for the new investors who did not buy in on the original $1 last year, being their chance to get in on IPO.


Yes, I recall reading somewhere that part of the reason for the application price increase is because the project is now 'derisked' with more land actually purchased, personnel on the ground and production figures looking realistic despite less than ideal weather in Uruguay over recent months.

IOW 'etrader' our capital gain, while extraordinary, is really only just reward for being in 'on the ground level' while there were so many skeptics out there. Giving us existing sharehoplders an option to buy more shares is perhaps primarily to make sure we existing shareholders don't feel hard done by and bypassed in the process of the pursuit for more bigger corporate shareholders.



I'm sure plenty of existing investors will take them up but it ends up dollar cost averaging your investment up not down so it seems no point.


One thing is clear. Those that buy in at $1.50 will not get as good a deal as we got, buying in at $1. What I am trying to determine is, what sort of a deal are those new $1.50 shareholders getting? Is the deal still good enough to warrent me buying some more shares myself at that price?

I have had a bit more time to play with the spreadsheet now. It is nicely integrated so that playing with the input price on the '1000 ha Info' worksheet flows all the way through to the 'Performance and Valuation worksheet'.

Personally I think the US23c/litre price used as a basis for earnings for years 5 to 10 is in the future is too high. I have knocked that back to US21c/litre, and knocked back the average price over the next four years from US26c/litre to US23c/litre. If you think those figures sound low, remember the price being paid in Uruguay was only US11.2c/litre five years ago. So I am still talking about prices up 100% from the most recent price trough. Current prices being paid in Uruguay are US30c/litre which at an average milk solids content of 6.8% equates to the kiwi farmer equivalent of $NZ5.77 per kg of mild solids, based around $NZ1= $US0.77.

Like many DCF models, the terminal growth rate part of valuing the business has more effect than what is going to happen over the next ten years. I wouldn't like to depend on the forecast of what is going to happen ten years out and more. So to be a little more conservative I have reduced the terminal growth figure from 2% per year to 1% per year. I have also bumped up the NZD/USD exchange rate to 80c (from 75c) as I feel long term weaknes in the NZD/USD relationship is most likely entrenched. All those changes gives me a fair value share price today of $NZ1.39, rather less than the $1.50 being touted as 'fair value' that the new investment money is paying.

Completely separately, There also seems to be an unresolved issue around the application of wealth tax on this investment. The 1.5% rate shown on the spreadsheet made me think this was the new Cullen-Dunne wealth tax in New Zealand. However, I have just rung up NZFSU and confirmed that this is a 'Uruguayan wealth tax', which just happens to be levied at near to the same rate as the New Zealand wealth tax. The clever accountants at NZFSU have got around most of this Uruguayan tax obligation by having a type of debt offset arrangment between the New Zealand and Uruguayan banks which means that the farms in Uruguay are largely debt rather than equity funded. NZFSU are lobbying in Uruguay to have themselves exempt from this Uruguayan tax altogether anyway, as they believe it was not set up to catch companies like theirs. If they succeed the DCF share valuation will go up by around 2cps. But if the Uruguayan government changes the rules, or nips the existing tax loophole, so that the entire land value is subject to 'wealth tax', then the DCF valuation of the whole NZFSU operation could fall by around 15cps - ouch!

I am coming around to the idea of sitting on my hands etrader, being content with my initial application amount. But I have one more sleep to go. I could go down to the post office tomorrow, purchase an e-mail stamp and still participate in the offer. I will see what I think tomorrow after I 'sleep on it'.

SNOOPY

etrader
14-12-2007, 04:33 PM
Well with the float looming what are the calls on the IPO list price.

Given that more info keeps coming out for global dairy demand it seems that
nzfsu have timed the float to perfection.

$1.55 my call on opening day

Snoopy
15-12-2007, 10:29 PM
Well with the float looming what are the calls on the IPO list price.

Given that more info keeps coming out for global dairy demand it seems that
nzfsu have timed the float to perfection.

$1.55 my call on opening day

I'm bearish short term, but bullish medium term. I think in a years time we could easily hit $1.80, which is a 10% discount to what NZFSU tell us is the the *current* discounted cashflow valuation of the business. By current I mean the 32,000ha of farms in the just circulated listing profile *without* the latest capital raising. Any new capital isn't going to get new land into production for a few years so that's why I don't think an announcement that the business will be 'scaled up' yet again will bring more initial interest.

In the short term I reckon some farmer shareholders will be cashing in their chips as part of the farming season in NZ gets off to a bad start - in some regions, for some farmers. My call at the close of trading on day 1 is $1.45. I also predict that if that happens Macdunk will pop up and claim that because the closing figure is below the $1.50 listing price expected, (also the figure that the Johnny come lately institutions paid), that I have lost money (!)

SNOOPY

discl: hold NZFSU

etrader
16-12-2007, 11:35 AM
Snoopy you might be right on opening day, regardless most of the investors have only paid $1 for their shares and i guess the new investors who paid $1.50 might be at break even short term but they're buying in for a longer term investment, as their prospectus showed they'll make a loss in first year and dependant on their growth they might turn a profit second year they list with a div expected in 09.

Maybe MacDunk might think that but give it time one will be wishing they had got in early as we did.

Some farmers might be selling down on list but good times are still coming for farmers at the consumers expence. Fonterra are trying to keep their farmers from going to independants to sell their milk so paying higher prices, then just charge the consumers more to cover that top up.

Hopefully they also expand over the boarder one day to Brasil as land there is varst and well priced also.

AMR
16-12-2007, 11:49 AM
I'm looking at this as well but the time to buy is after this subprime shakeout. The fundamentals look great but I don't like buying in IPOs.

Would any of you know where I can get a spot price chart for the price of milk?

etrader
17-12-2007, 04:45 PM
does anyone know the trading code for the stock tomorrow ?

COLIN
17-12-2007, 10:30 PM
does anyone know the trading code for the stock tomorrow ?

NZS - according to the Listing Notice.

ratkin
18-12-2007, 10:12 AM
Looks like a couple of big sell orders in place , hopefully the price will drop some in the next few days

Snoopy
18-12-2007, 10:41 AM
Looks like a couple of big sell orders in place , hopefully the price will drop some in the next few days

Yes, trading down to $1.45. So far the trades look like bigger players passing the parcel between themselves. Not much evidence of small shareholder involvement yet.

Now all I neeed is Macdunk to pop up and say that I should have sold out at $1.50 on the opening bell and that I have now 'lost money' for my prediction to be complete.

SNOOPY

discl: hold what was NZFSU, now NZS, and intend being on the share register for some time.

duncan macgregor
18-12-2007, 12:21 PM
Yes, trading down to $1.45. So far the trades look like bigger players passing the parcel between themselves. Not much evidence of small shareholder involvement yet.

Now all I neeed is Macdunk to pop up and say that I should have sold out at $1.50 on the opening bell and that I have now 'lost money' for my prediction to be complete.

SNOOPY

discl: hold what was NZFSU, now NZS, and intend being on the share register for some time. SNOOPY, I blame you mate, everything you touch turns to custard. To be serious about it for a moment first trading day could not have been timed at a worse time. Any new share without a TA record of market sentiment is a straight out gamble. PRC did exactly that, listed downtrended straight away showed a buy signal at 86c then trended right up. The buy signal for this share will be when it breaks the 30 day moving average on the way up later on once it becomes established. It opened at $1-50 now its $1-40 which shows the gamblers how silly they are for investing blind. KEEP me honest SNOOPY let me know how my buy signal works on this one later on compared to your buying gamble. Please dont come out with your usual waffle about cant time the market when i do it all the time. Macdunk

Arbitrage
18-12-2007, 01:04 PM
[QUOTE=Snoopy;177440]Yes, trading down to $1.45. So far the trades look like bigger players passing the parcel between themselves. Not much evidence of small shareholder involvement yet.

Duncan, have you got another parcel to pass?

etrader
18-12-2007, 02:00 PM
Well despite some who took the options up at $1.50 i'm happy been up 45%ish today, yes shocking day for it to ipo Macdunk given what's happening in oz and around the world, there will probably be a bit of a shake out in those who punted on the options stagging. Like you said could be a little weakness and then when the markets calm down the price could slowly move up again.

ratkin
18-12-2007, 02:29 PM
There will be plenty of original 1.00 holders who will be more than happy to take the easy profits. After all it is likely to be a very long wait before the company makes any money . In this current climate a quick profit cant be sniffed at.
Probably a good stock but hard to find any reasons to bother to invest at the present time. May as well keep the cash in the bank , it not as if the sp going to go anywhere for a while.

Those who got it at 1.00 did well , 1.50 was probably too much , it can hardly be a 50% better company than it was when it started. 1.25 probably about right

duncan macgregor
19-12-2007, 02:06 PM
Well despite some who took the options up at $1.50 i'm happy been up 45%ish today, yes shocking day for it to ipo Macdunk given what's happening in oz and around the world, there will probably be a bit of a shake out in those who punted on the options stagging. Like you said could be a little weakness and then when the markets calm down the price could slowly move up again. It is to early in the game to hold this share with likely dividends not likely for some considerable time. The share price has got to drop to a much lower level over the next few months then find its level of profitability to adjust the share price to what ever level. Its nothing to do with if is a good or bad investment long term, its all in timing your entry at a realistic level. Absentee Farming shows a poor return on invested money, the property side of it is a different story. Why pay $1-50 when you can sit it out, then buy more of them later at a cheaper price. The winners here is PGW selling to the city people. PGW cant lose you lot can taking gambles on something you know nothing about. Macdunk

ratkin
20-12-2007, 09:22 AM
It is to early in the game to hold this share with likely dividends not likely for some considerable time. The share price has got to drop to a much lower level over the next few months then find its level of profitability to adjust the share price to what ever level. Its nothing to do with if is a good or bad investment long term, its all in timing your entry at a realistic level. Absentee Farming shows a poor return on invested money, the property side of it is a different story. Why pay $1-50 when you can sit it out, then buy more of them later at a cheaper price. The winners here is PGW selling to the city people. PGW cant lose you lot can taking gambles on something you know nothing about. Macdunk

Many projects take a long time to pay dividends, your beloved mining shares are an example. Remember when resourses were seen as having poor return on investment? Not so long ago.

Farming is going to be the next big boom , it has to happen , population growth industrialisation and urbanisation of third world, global warming etc etc.

I picked the price wel at 1.38 , it looks like the buyers are now coming out from watching , these shares will be in demand , after all there are not many similar opportunities around to gain exposure to dairy

AMR
20-12-2007, 09:45 AM
A bit too early stage for me as well, but I'll be watching technically to see if any smart money buys in. A bit too early to call it an uptrend as well, this peak might provide an opportunity for people to get out.

For those who are into commodity charts, I've found some dairy prices on the Chicago Merchantile Exchange.

Disc : A city dweller whose only knowledge of farming is from watching footrolt flats.

duncan macgregor
20-12-2007, 09:49 AM
RATKIN, First of all i dont have any beloved shares in any sector, mining or otherwise. I dont give a damn about any company, good or bad they are looked upon only as a means to an end. I couldnt care less if the company prints bibles, or produces weapons of mass destruction, or stuffs the world up with global warming, my only focus is on the company making me money. Absentee farming is a very low profit operation which may or may not improve in time, [Ask the Russians]. To sit it out long term requires you either get sp appreciation, or be content with dividends being paid.
If you want to be a doo gooder, join the salvation army or grow a beard, and sit up trees protesting about this or that. If you take away property and capital appreciation from a farmers income, in general you will find its a slave labour occupation. It is a lifestyle supported by a high capital base in a high risk industry going by the number of forced sales and bankrupts. PGW are on the pigs back with this one, its you that carries the risk. I hope your blind faith works out for you with this one i dont gamble so not interested. Macdunk

tim23
20-12-2007, 09:05 PM
Agree with you Ratkin - if nobody ever bought a stock on the basis you are buying (which appears logical) then companies wouldn't float, I suspect the number of traders in any given stock represent a very low % of total holders.

COLIN
20-12-2007, 10:21 PM
A bit too early stage for me as well, but I'll be watching technically to see if any smart money buys in. A bit too early to call it an uptrend as well, this peak might provide an opportunity for people to get out.

For those who are into commodity charts, I've found some dairy prices on the Chicago Merchantile Exchange.

Disc : A city dweller whose only knowledge of farming is from watching footrolt flats.
I guess some would say that quite a bit of smart money has already bought into the IPO - see the SSH Notices of the last few days. However I tend to agree with McDunk who notes that PGW will be the significant winners out of all this - did you notice from the PGW update a day or two ago that NZS is expected to contribute something like $8m to PGW's NPAT for next year, from management fees etc? Its enough to tempt one to entertain the idea that maybe it is time to creep back into PGW again - in fact, I took the plunge and bought a few myself, including for other reasons than just the Uruguay business.

ratkin
21-12-2007, 05:06 AM
Suprisingly , it did occur to me that PGW was the risk free way.
However i soon rejected that option, it also means buying into their debt and all the lesser performing aspect of their buisness while diluting your interest in the Uruguayan venture.

Much prefer to be exposed to the pure play . May be more risky, but potential rewards likely to be higher.

During my O.E. days i travelled with Marina , a half uruguayan/german from Montevideo, Uruguay. Ever since then i have had a soft spot for the place.

Having been there ,im not going in totally blind as McDunk seems to think. The country is not so different from NZ . Small, similar population size , largely rural.
I would say that given the much cheaper land and labour costs that setting up dairy farms there was less risky than buying one in NZ at this time

Most people have an image of south america as being totally lawless, hyper inflation, coke growers and banditos. If they took the trouble to remove the blinkers they would realise that a place like Uruguay is probably safer than NZ

duncan macgregor
24-12-2007, 09:27 AM
RATKIN, its nice to know that you not only have been there, but give out your factual point of view to others who would not even have a clue other than blind faith. I would be interested to have more detail on GOVT stability, average wage, that sort of thing along with exchange rates and rate of inflation. There is so much of the unknown to the average investor to make a rational decision, other than blind faith in being told the truth,which you and i know can lead to disaster. Tell us what you know it would be of great interest to investors with open minds on the subject. Macdunk

Arbitrage
24-12-2007, 10:05 AM
For an "unbiased" cia view, here are some "facts":
https://www.cia.gov/library/publications/the-world-factbook/geos/uy.html

ratkin
24-12-2007, 10:27 AM
Snippets from the vwery good wikipedia section on Uruguay.

The economy (http://en.wikipedia.org/wiki/Economy) is largely based in agriculture (http://en.wikipedia.org/wiki/Agriculture) (making up 10% of the GDP (http://en.wikipedia.org/wiki/GDP) and the most substantial export) and the state-sector, and relies heavily on world trade. Consequently, it is badly affected by any downturn in global prices. However, the economy is on the whole more stable than surrounding states, and it maintains a solid reputation with investors.
According to Transparency International (http://en.wikipedia.org/wiki/Transparency_International), Uruguay is the second least corrupt country in Latin America (http://en.wikipedia.org/wiki/Latin_America) (after Chile (http://en.wikipedia.org/wiki/Chile)),[1] (http://en.wikipedia.org/wiki/Uruguay#_note-Transparency) with its political and labor conditions being among the freest on the continent.

Uruguay's financial indicators remained stabler than those of its neighbours, a reflection of its solid reputation among investors and its investment-grade sovereign bond rating — one of only two in South America.[14] (http://en.wikipedia.org/wiki/Uruguay#_note-11) In recent years Uruguay has shifted some of its energy into developing the commercial use of IT technologies and has become the first exporter of software in Latin America.[15] (http://en.wikipedia.org/wiki/Uruguay#_note-12)

Today, agriculture contributes roughly 10% to the country’s GDP and is still the main foreign exchange earner, putting Uruguay in line with other agricultural exporters like Brazil, Canada and New Zealand. Uruguay is a member of the Cairns Group (http://en.wikipedia.org/wiki/Cairns_Group) of exporters of agricultural products. Uruguay’s agriculture has relatively low inputs of labour, technology and capital in comparison with other such countries, which results in comparatively lower yields per hectare but also opens the door for Uruguay to market its products as "natural" or "ecological

winner69
28-12-2007, 03:30 PM
Price a healthy looking 165 today ....

Ratkin would ask ..... where have all the knockers gone?

AMR
13-03-2008, 09:07 PM
Unfortunately for my competition placing, NZS is in a downtrend.

The resistance at 135 got broken. Might buy later when things start rising.

ratkin
22-04-2008, 01:24 PM
Very positive update today, they ahead of expectations and prices for milk solids are going to be way ahead of those predicted in the prospectus

Snoopy
23-04-2008, 12:48 PM
Very positive update today, they ahead of expectations and prices for milk solids are going to be way ahead of those predicted in the prospectus

It looks as though you and I are the only ones on this horse Ratkin. I guess everyone else will be 'waiting for the market to turn' or looking for some other excuse (like farms only go up in value 3% per year which makes the fair value price around $1.05 now, so "I'm not buying" ;-P) before they invest.

With The December 2007 prospectus there was an associated downloadable spreadsheet in which you could input certain key variables and see how the valuation of the company changed. A milk price of US31c/litre was assumed for the coming season before prices fall away to a long term base price of 26c/litre. With an exchange rate of $1NZ= US75c an 11% discount rate and a 2% allowance for 'Uruguayan Country Risk'. The fair value share price for NZS came out at $NZ1.95.

Now as we know the NZS share price never got as high as $1.95. It peaked at about $1.65 and has since bedded in to a trading range of $1.30 to $1.50, which equates to a 25% to 35% discount to 'fair value'.

The headline increase in milk price that NZS have been experiencing since December is good news for we shareholders. But of course it doesn't all flow through to the bottom line. Farm input costs will be up too. I've done what Craig Norgate told us not to do: Change a few figures in the spreadsheet so that it spits out a new valuation. I've upped the milk price received by half of what is being experieced this year and added half the increase in forecast price in subsequent years. That is my way of allowing for the increase in input costs which have not been quantified.

The figures I have changed in the spreadsheet are as follows:

Current Milk Payout: US31c/l
Long Term Payout: US26c/l
Exchange Rate: $NZ1- = US79c

I crank the handle and out comes a fair value share price of $NZ2.37, a 22% increase on what was being forecast in December. If we carry that 22% increase to our market marked "$1.30 to $1.50 trading range", I get a new trading range of $1.58 to $1.82. As the farms get closer to full production we can expect the discount to fair value to lessen. So I'm fairly confident that within short order $1.60 will be seen as the new 'floor' for those trading in NZS shares.

SNOOPY

discl: hold NZS, and in for the long haul

Mick100
23-04-2008, 12:56 PM
bought in this morning @ $1.48

ratkin
23-04-2008, 01:36 PM
Im in for the long haul too , as derisking occurs the price should rise.
The next few years look good regarding the price of milk solids so it should be onwards and upwards at some point

ratkin
24-04-2008, 12:04 PM
Looks like your analysis is spot on Snoopy , straight up to your target area

Billy Boy
24-04-2008, 12:12 PM
Anyone done cost comparisions.
Against
over there
as to here
cheers BB

Mick100
24-04-2008, 12:21 PM
Anyone done cost comparisions.
Against
over there
as to here
cheers BB

that's the attraction of uraguay

costs are only a fraction of NZ costs while product prices are similar

I don't know exactly how much costs differ, but it's a substancial difference
.

Billy Boy
24-04-2008, 12:43 PM
that's the attraction of uraguay

costs are only a fraction of NZ costs while product prices are similar

I don't know exactly how much costs differ, but it's a substancial difference
.
Which makes me wonder....
How long will this dairy Bull market (no punn) run in NZ.
Theres a hell of a shift too diary farms happening in Southland,
Big bikkies going into conversions. Water getting short !!.
Another Factory opening in comp. to Fonteria.
Sheep and beef herds dropping to hell and a free trade deal
with china !!!
Worms will turn.
PGW will be ok coz they got a finger in all.
Next priorty .... IMO... Get rid of those silly old Barst**ds in the
NZ Meatboard and bring in some younger blood. Start digging the
ground in China.
BB

Mick100
24-04-2008, 12:55 PM
Which makes me wonder....
How long will this dairy Bull market (no punn) run in NZ.

BB

BB, the dairy and beef farmers in the northern hemisphere, who feed their cows and cattle on grain, will be put out of business well before NZ's pasture farmers. I think the future for both dairy and beef/sheep farmers in NZ is assured but prospects may be even better for the low cost south american farmers.
.

Billy Boy
24-04-2008, 02:23 PM
BB, the dairy and beef farmers in the northern hemisphere, who feed their cows and cattle on grain, will be put out of business well before NZ's pasture farmers. .
The NZ sheep and beef farmers are just holding on now. !!!
Thats why the cry for the meat board to get into china now and get
established. Northern hem farmers will hang on longer coz of their
subsidies.
$50.00 for a prime lamb ATG now. Have a look at the cost of a leg - lamb in the supermarket. Who's making the money ??? .... Not the nz farmer.
I just got a meat schedule for a beef kill. (2 yr cattle).
Cost of calf + winter feed + drenches + fuel + inferstructure + maintance pasture control. etc... dont leave very much for the farmer.
Sheep even worse....

A little exercise.
Go into the supermarket and add up the cost of all the bits to make one lamb. It wont be a prime lamb coz that goes o/seas.
The farmer will get about $35 - $40 a head ATG.
Cheers BB

duncan macgregor
24-04-2008, 02:58 PM
BILLY BOY, You are wasting your time trying to educate the people to what actually happens down on the farm. I had a similar experience with a lemon orchard, where rather than be exploited by the mafia style auction house, i cut the whole lot out. You make very little producing anything for consumption. The people that buy your produce or sell you the required ingrediants to produce are the ones to make the money. PGW will make money whatever happens. The money being spent in this project will make a very low return on the capital other than a capital gain. Most of the investors would be city folk with high expectations of the reality of this project.
This is a great idea coming from PGW to exploit the farm service market, so good on them. The sp will find its own level once the company gets into profit which will take some time after paying huge management fees to PGW. Macdunk

Mick100
24-04-2008, 03:06 PM
The NZ sheep and beef farmers are just holding on now. !!!
Thats why the cry for the meat board to get into china now and get
established. Northern hem farmers will hang on longer coz of their
subsidies.
$50.00 for a prime lamb ATG now. Have a look at the cost of a leg - lamb in the supermarket. Who's making the money ??? .... Not the nz farmer.
I just got a meat schedule for a beef kill. (2 yr cattle).
Cost of calf + winter feed + drenches + fuel + inferstructure + maintance pasture control. etc... dont leave very much for the farmer.
Sheep even worse....



Yes, I'm surprised meat prices have remained depressed considering that the price of corn (staple cattle feed) has gone from $2.00 a bushel to just under $6.00 a bushel over the past 2 yrs. I would have thought these increased costs would have flowed throught to higher meat prices by now.

I'm still think that sheep and beef farmers will have their day in the sun sometime soon along with dairy. Northern hem farmers cannot absorb these huge cost increases indefinately - surely they will reduce production if meat prices don't increase.
,

Billy Boy
24-04-2008, 08:10 PM
Mike100
Subsidies with the northern hem farmers is the problem from our point of view. Remember , not are they subsidised per animal, but the feed, drenches, rates, etc etc are also subsidised. Both Europe and America have direct and indirect subsidies. If it was a level playing field then ozzy and NZ would run them out of biz and they know it. In a nut shell POLITICS
Thats why I say , go for China.
BB

Billy Boy
24-04-2008, 08:22 PM
Mcdunk.
Yep you are right,and the bloody law see's that the producer get F**k all.
In doing my sums I am better off dollar wise using my acreage as winter grazing and hay production in the summer. $80 to $100 good bailage is selling for and my over heads and time are cut by 90%. Bye Bye meat industry. Sorry Mrs house wife but it may transpire that you will buying imported meat just like the pork industry.
BB
PS a lot of the beef we comsume now comes from ozzy.

blockhead
24-04-2008, 08:33 PM
I was talkin to a fellow who was at a clearing sale near here a few days ago and he was telling me $150 was paid for big bales of haylage, phew nearly make the cows sit at the table to eat it, certainly wouldn't want a Canterbury nor wester blowing it onto the neighbours farm !

Interestingly I got yarning to a couple of fellows from Uraguay in the main street of Geraldine last week, they had spied the PGG/ Wrightys yard and were keen to have a look, they recognised the name from what PGG are doing back at their home. In amongst a fair bit of gesticulating and calculating I seemed to get the idea a dairy cow is selling for around US$800 back there, they were calculating the cost of cow importing (to NZ) when I told them the same cow would be over US$2,000 here. !!

Billy Boy
24-04-2008, 09:09 PM
Gidday Blocky
Yep I went to a sale in Gore a while back.
Dairy heffers sold for $2000.00 each.
BB

FarmerGeorge
25-04-2008, 07:37 AM
Our cows are better than your typical Uraguan bovine though boys. You have the right idea though, the best way to make money off the land seems to be to supply feed to the dairy lads, or winter graze their stock. We're grazing our own 400 Freisians plus taking on about 500 from the highest bidder this winter. Feeding out can be a bit boring but it beats lambing in the snow and tailing/drenching in a nor' west.

Robomo
13-05-2008, 03:38 PM
SP has improved from $1.35 a month ago to $1.80 today on reasonable volume. All this for a company that won't pay a dividend for another 16 months yet.
There is obvious good buying interest out there and few sellers. Does anybody know what has caused this upsurge in interest?

redzone
13-05-2008, 03:43 PM
cheaper than buying a farm or cows ....and at this stage a better return...quick flick of the mouse and its sold....

Snoopy
13-05-2008, 05:56 PM
SP has improved from $1.35 a month ago to $1.80 today on reasonable volume. All this for a company that won't pay a dividend for another 16 months yet.
There is obvious good buying interest out there and few sellers. Does anybody know what has caused this upsurge in interest?

See my post on the previous page. But in summary: Milk price higher than anticipated in the prospectus, and USD/NZD exchange rate has (now) moved in NZ's favour.

The market put the share in a trading range of $1.30 to $1.50 shortly after listing. Adjust for differing exchange rates and milk prices and the same discounted cashflow analysis gives a trading range of $1.58 to $1.82. Adjust that for the 2c fall in the NZD/USD exchange rate in the last few days and the 'fair trading range' goes from $1.62 to $1.87.

As the farms get closer to full production we can expect the market discount to 'true fair value' to lessen.

Put all that together and it is no surprise that the NZS share price closed at $1.80 today.

SNOOPY

discl: hold NZS

AMR
13-05-2008, 06:03 PM
Snoopy, why NZD? Don't they pay for expenses in Uruguayan currency?

Anyhow this is officially on my buy watchlist.

Snoopy
14-05-2008, 09:30 AM
Snoopy, why NZD? Don't they pay for expenses in Uruguayan currency?


AMR, this quote from the original 2006 prospectus p46:

"Foreign Exchange Risk- The Group operates in Uruguay, with activities predominantly conducted in US Dollars. Milk is nominally priced in pesos but the price is generally adjusted to reflect changes in the USD/peso exchange rate. Whilst New Zealand investors are subject to foreign exchange risk on their investment, the Company and the Group as a consequence of US dollars being its functional currency is not exposed to any significant foreign exchange risk."

SNOOPY

Snoopy
27-05-2008, 02:02 PM
The market put the share in a trading range of $1.30 to $1.50 shortly after listing. Adjust for differing exchange rates and milk prices and the same discounted cashflow analysis gives a trading range of $1.58 to $1.82. Adjust that for the 2c fall in the NZD/USD exchange rate in the last few days and the 'fair trading range' goes from $1.62 to $1.87.

As the farms get closer to full production we can expect the market discount to 'true fair value' to lessen.

Put all that together and it is no surprise that the NZS share price closed at $1.80 today.



More good news from NZ Farming Systems today

---------

FURTHER EXPANSION IN URUGUAY FARM HOLDINGS

NZ Farming Systems Uruguay (NZS) has purchased a further 4,400 hectares of farmland during the current half-year, taking the total area owned to 36,300 hectares

The additional land, in six separate acquisitions, adjoins existing NZS farms in the company's central and eastern hubs. The average price for the 4,400 hectares was US$3,700 per hectare, taking the average for all the land acquired to date to US$2,601 per hectare including improvements purchased.

The Chairman of NZS, Mr Keith Smith, said 'some of the price difference reflected the fact that land being acquired was more developed than the company's earlier acquisitions and its proximity to existing NZS land. Land prices are increasing in Uruguay, but the company's entry price remains low on a comparative basis and the economics of development remain very attractive.'

'The recent acquisitions are natural extensions to the existing holdings as they enable a range of operational improvements and efficiencies. In a number of cases they improve the shape of the current farms and allow better development location and dimensions - eg. for cowsheds and irrigation scheme design. As such they will enhance the overall value of the portfolio.'

---------

Share sales have gone through at $1.95 as I write this! The land holdings have just increased by 14%. If that 14% increase flows through to profit, and given the geographically strategic nature of those land holdings I think it might, that means the new 'fair value' trading range is now $1.80 to $2.07. And that includes reversing the allowance I made previously for the NZD:USD exchange rate drop.

I notice that ACC have quietly been reducing their NZS holding, down from 9% to some 7%. I think that is more a tribute to the outstanding performance of NZS shares, skewing their portfolio balance unexpectedly rather than any loss of confidence in NZS. NZS is now my biggest NZX investment by far, so I am similarly 'suffering' from the same thing. However, I don't think NZS is overvalued yet, relative to the cashflow promised. So I intend to ride this one some time longer.

SNOOPY

discl: hold NZS

Mick100
27-05-2008, 05:07 PM
I watched the latest video which was shot in 2007
very impressed with the land and pasture
obviously good soil
One of the chaps on the video commented that grass growth had been at 100kg dry matter per day per hectare during the spring - very impressive - I think that's as good as NZ's best farms.

Not so impressed with cow condition - pretty poor actually. Cows in poor condition will not produce to their potential and are difficult to get in calf
If i recall correctly they had a wet cold spring last yr - that may account for poor cow condition. Hopefully things have improved in this regard - they did comment in the announcment today that cow condition was good and that supplements are being used to maintain cow condition.

can't complain about the shareprice

PS.
Just noticed, the vid I watched is not the most recent - there's another one out tomorrow
.

Toulouse - Luzern
27-05-2008, 06:06 PM
NZFSUL has popped up on my radar.

Up 2.20% yesterday to 190 trade value $3,581,560 fro 1,896,002 shares in 13 trades = $275,505 per trade on an up day

Snoopy
27-05-2008, 06:13 PM
Not so impressed with cow condition - pretty poor actually. Cows in poor condition will not produce to their potential and are difficult to get in calf
If i recall correctly they had a wet cold spring last yr - that may account for poor cow condition. Hopefully things have improved in this regard - they did comment in the announcment today that cow condition was good and that supplements are being used to maintain cow condition.


Thanks to the success of PGW and NZS (and gulp a couple of other shares in my NZ portfolio that haven't done so well) I now seem to have nearly 1/3 of my NZX based wealth 'in the land'(!) Up until now my personal 'farming prowess' consisted of tending to strawberry and tomato plants in the garden, barely enough to get my fingernails dirty. But now I am well on the way to becoming a 'corporate farmer' it is time to take the condition of *my* animals more seriously.

Mick, IIRC you know your cows. When you say the cows in the video were in 'poor condition' would you care to expand on that? Do you just mean too much skin and bone showing? I am wondering if the condition might be a more a function of the breed of cow, rather than the weather or feeding program. In the previous NZS video, mention was made of a breeding program with artificial insemination from NZ bulls to try and improve the stock.

SNOOPY

Mick100
27-05-2008, 07:02 PM
Mick, IIRC you know your cows. When you say the cows in the video were in 'poor condition' would you care to expand on that? Do you just mean too much skin and bone showing? I am wondering if the condition might be a more a function of the breed of cow, rather than the weather or feeding program. In the previous NZS video, mention was made of a breeding program with artificial insemination from NZ bulls to try and improve the stock.

SNOOPY

Yes snoopy , cow condition refers to "skin and bones showing" - to be more presice, you look across the top of the cow's back to see how much fat cover their is along the back bone, hip bones and small ribs

I doubt whether genetics is the cause of the problem. Cows with poor genetics tend to maintain their condition better because they don't milk as hard -(I'm assuming that the genetics of uruguayan cows are not as good as NZ cows) I think a likely cause maybe that the farms are all new pasture which is growing very fast in spring and is very low in dry matter (around 10%) Sometimes when the pasture is very low in dry matter the cows can't eat enough to milk as well as maintain their condition. In these circumstances they should be fed supplements which are far higher in dry matter than grass.

I'm looking forward to seeing tomorrow's video to see if cow condition has improved
.
.

Snoopy
02-09-2008, 08:18 PM
NZFSUL has popped up on my radar.

Up 2.20% yesterday to 190 trade value $3,581,560 fro 1,896,002 shares in 13 trades = $275,505 per trade on an up day

A significant correction has occurred with NZS over the last few days, closing today at $1.56. I overheard a news item today on the radio that said that dairy prices (milk, cheese) have tanked. That would explain the share price decline. Although it must be said, NZS has always budgeted on dairy prices declining in the medium term.

If anyone could give me a web reference where I can keep tabs on dairy prices, that would be appreciated.

TIA

SNOOPY

Bob Marley
02-09-2008, 09:03 PM
Snop dog mon,
I also think that investors have sold down after the company announced that "it is likely to undertake a further capital raising within the next few months", in its recent annual result announcement mon.

Bob Marley
02-09-2008, 09:07 PM
Snop dog mon,
I use this website mon:
http://www.saleyards.co.nz/trends/dairy/dairy_trends.php

The Great Gold Guru
03-09-2008, 05:25 PM
WMP prices have collapsed over US1000/t in the last 5 weeks .... a mind-numbing drop only made a little less scary by the fall in the NZD !! Scary stuff for anyone who bought a dairy farm in the last few months.

micket
09-09-2008, 09:33 AM
I have had 6 uri guys working for us this season. Suposedly already pre-trained by pggwr .Well all I can say is I wont be investing.

Robomo
09-09-2008, 09:47 AM
I have had 6 uri guys working for us this season. Suposedly already pre-trained by pggwr .Well all I can say is I wont be investing.

Please tell us more.

The updates from Farming Systems Uruguay are uniformly full of the superior business and farming model of PPG. Is this not so?

Phaedrus
19-12-2008, 10:52 AM
"NZS was punished by investors yesterday after it surprised the market with a gloomy profit forecast".

What twaddle. The market has been selling NZS down hard - the stock has been in a downtrend for over 6 months. Yesterday's drop was merely a continuation of the pre-existing steep, clearly defined, accelerating downtrend.

Longterm "Buy and Hold"/"value" investors made good profits on this stock - then gave them all back to the market through inaction. By ignoring market sentiment they will have turned a 30% gain into a 60% loss.

http://h1.ripway.com/78963/NZS1219.gif

Norgate does, however, assure us that "the fundamentals are absolutely on track".

Doesn't that make you feel a lot better? Remember, too, that these are only paper losses, so they don't really count.

duncan macgregor
19-12-2008, 11:28 AM
What I am saying is if i buy a commercial building to rent out in NZ i can expect a return on capital between 6% to 8% in rent plus a capital gain when i sell. If I buy a farm in any country in this world take your pick [excuse the pun]I can only expect a 3pc return on capital if i run it myself plus a capital gain when i sell.
To place managers in and run it like a company is a fools investment.
Thats only my opinion having been around farms in quite a few different countries. The investors coming into this will be city people i cant see any practical farmers investing in this. macdunk Thats what i said at the start thats what i still think now. its only people investing in something that they have no understanding about. When you do that you should always have a finger on the sell now button. Norgate played the market on the rise now he finds he is caught out with to much debt at a time when debt is something to avoid. Macdunk

BRICKS
19-12-2008, 02:11 PM
BRICKS said some where before if you can't speak the language don't go there
as i travel a lot boy you will cope a CANNING.. and in this case NZS HAS..

Snoopy
28-12-2008, 09:17 AM
"NZS was punished by investors yesterday after it surprised the market with a gloomy profit forecast".

What twaddle. The market has been selling NZS down hard - the stock has been in a downtrend for over 6 months. Yesterday's drop was merely a continuation of the pre-existing steep, clearly defined, accelerating downtrend.


Yes the market has been selling down NZS hard for six months Phaedrus, but for different reasons.

The sell down started when management announced a probable capital raising because the business model was *far more successful* than they ever envisaged. The idea was to upscale the investment in Uruguay while prices for land were low relative to the returns they could expect. A call for more money from shareholders will always depress any share price in the short term. So the initial decline in the NZS share price was no surprise, just normal market behaviour.

The subsequent sharp correction in dairy prices may have changed the situation somewhat, as regards the sagacity of scaling up the business model. But the general market related share price declines that had flowed through to NZS by then had already put a halt to the NZS expansion plans, as any prospective cheap source of sharemarket capital dried up.

The more recent declines to 60c are probably more than might be expected just from the parallel dairy price decline. IMO this is because of the impact of the dairy price decline on the NZS company's immediate cashflow. From what was looking like a break even situation in FY2009, we sharehoilders are now looking at a significant loss. But this loss is because of all the dairy shed construction and associated land grooming that was always part of the business development plan. The fact that there is now insufficient cashflow to cover these expenses *for FY2009* is neither here nor there for the long term development of the NZS business. The farm development expenses were always planned for and budgeted for and will reduce dramatically once all of the on farm infrastructure is built.

The other factor in the share price decline which IMO is now exaggerated could be local dairy farmer shareholders selling out to gain access to some quick funds to shore up their own dairy farms in New Zealand. I know that Norgate pitched the original offer to existing farmers. In hindsight IMO, the original offer would have been better suited to city folk looking for rural diversification.



Norgate does, however, assure us that "the fundamentals are absolutely on track".

Doesn't that make you feel a lot better? Remember, too, that these are only paper losses, so they don't really count.


For those of us who have been in from the beginning, Norgate is right. NZS was set up to allow NZ farming expertise to be applied to a lower cost base country. The rational for setting up NZS is still absolutely sound. Ironically the lower farm commodity prices go the more relevant NZS becomes, as the much lower cost base will be critical to future profitability. Because NZS is in its formative stages we shareholders are not seeing that yet. But we shareholders are still on track to be well rewarded once NZS comes out of its development phase. At the moment any new business which is consuming more cash than it generates is tarred with the same dirty brush, no matter how temporary the cash consuming situation might be. So NZS is being punished by the market.

But NZS has minimal debt, and must be regarded as an extremely low risk investment even in the current environment. Also NZS is not dependent on a resurgence in dairy prices to be profitable. The NZS land is equally well suited to raising cattle to sell as beef, as was outlined in the original prospectus. The choice of owning a farm in New Zealand weighed up against owning shares in NZS is still an easy one to make.

SNOOPY

discl: hold NZS

Snoopy
28-12-2008, 10:01 AM
Norgate played the market on the rise now he finds he is caught out with to much debt at a time when debt is something to avoid. Macdunk



So what is your solution Macdunk? Norgate, via Rural Portfolio Investments, should sell out of NZS at rock bottom prices? How about selling his 10m NZS shares to PGW at a price of $1.50? Wouldn't that be a better deal? According to the NZS company annopuncement page on stocknessmonster, 30th September 2008 update, that is what he actually did. Yet you still regard Norgate as a poor dealmaker?

SNOOPY

winner69
28-12-2008, 10:33 AM
So what is your solution Macdunk? Norgate, via Rural Portfolio Investments, should sell out of NZS at rock bottom prices? How about selling his 10m NZS shares to PGW at a price of $1.50? Wouldn't that be a better deal? According to the NZS company annopuncement page on stocknessmonster, 30th September 2008 update, that is what he actually did. Yet you still regard Norgate as a poor dealmaker?

SNOOPY

Might be completely and utterly wrong (again) but I though all or most of all those multitude of transactions between Norgate/RPI/PGW/PGWF were all unwound when the PGW fund raising event didn't go ahead

There was a bit furore at the time when it came out that the cash Norgate/RPI would have had to front up in that PGW capital raising was effectively going to be PGW cash.

But making sense of SSH notices is pretty difficult anyway ..... which means RPI might have kept that $15m anyway .... all pretty obscure these dealings aren't they

duncan macgregor
28-12-2008, 05:43 PM
SNOOPY, It is to late for Norgate to sell out. NZS is a poor investment for the shareholders who understand the low return in farming. PGW should come out of it alright with a big increase in export sales at the expence of the mug city share holders who will get burned by holding NZS. Norgate expanded to quick taking on to much debt when times were good, now he has to pay the piper. I will tell you one more time farming has a return of about four or five pc on capital plus a capital gain. To borrow money expecting a high return paying a manager is a fools investment. Take a closer look at the NZ companies records going overseas thinking they know it all then think again. Macdunk

duncan macgregor
28-12-2008, 05:48 PM
What I am saying is if i buy a commercial building to rent out in NZ i can expect a return on capital between 6% to 8% in rent plus a capital gain when i sell. If I buy a farm in any country in this world take your pick [excuse the pun]I can only expect a 3pc return on capital if i run it myself plus a capital gain when i sell.
To place managers in and run it like a company is a fools investment.
Thats only my opinion having been around farms in quite a few different countries. The investors coming into this will be city people i cant see any practical farmers investing in this. macdunk Thats what i said last year its all coming to pass. Macdunk

Snoopy
29-12-2008, 09:51 AM
SNOOPY, It is too late for Norgate to sell out. NZS is a poor investment for the shareholders who understand the low return in farming. PGW should come out of it alright with a big increase in export sales at the expense of the mug city share holders who will get burned by holding NZS. Norgate expanded too quick taking on to much debt when times were good, now he has to pay the piper. I will tell you one more time farming has a return of about four or five pc on capital plus a capital gain. To borrow money expecting a high return paying a manager is a fools investment. Take a closer look at the NZ companies records going overseas thinking they know it all then think again.


Macdunk, NZS has been structured so that it is designed to operate with no debt. NZS did take on significant debt when their shares were only partly paid. This debt was repaid when shareholders fronted up with the rest of their subscription money.

NZS have recently established a debt facility with Uruguayan banks, which makes sense because they operate in Uruguay. But generally they are using earnings from their farming operations in Uruguay, which are a lot higher than 3%, to fund their expansion. No doubt they will go into operational debt to fund the timing difference between when they pay their farm input costs and when they cream off the profits, if you will excuse the pun. But as a general policy, as I understand it, the idea is to operate NZS as a debt free entity, with individual shareholders deciding how much debt they are comfortable with to borrow to fund buying the shares.

In my case I haven't borrowed anything, so from my perspective NZS is virtually a debt free company. In the case of Norgate, if I have unravelled his share transaction dealings correctly, he now holds his NZS stake via PGG Wrightson, which has significant debt in its own right. And Norgate's PGG Wrightson shareholding is owned by Norgate's Rural Portfolio Investments which is an almost entirely debt funded house of cards. At the moment Norgate is many times richer than I am. By the end of the year it might be a closer contest, and I say that not anticipating any great change in my own wealth! That means I agree with you that Norgate may be in trouble. But any problems he has, real or imagined, will not affect the operational performance of NZS.

Once again the real risk picture is the opposite of what you paint. It is PGW that is the more risky investment, simply because of the much higher debt levels that company carries. However, with a PE of 4 and interest rates on the way down, I do still regard PGW shares as a good bet, albeit a riskier one than NZS.

SNOOPY

discl: hold NZS, PGW

BRICKS
29-12-2008, 10:43 AM
NOW what about the share price of 60 cents is it a time to BUY or talk in silly
point talking DRIBBLE..

duncan macgregor
19-01-2009, 04:20 PM
SNOOPY, It is to late for Norgate to sell out. NZS is a poor investment for the shareholders who understand the low return in farming. PGW should come out of it alright with a big increase in export sales at the expence of the mug city share holders who will get burned by holding NZS. Norgate expanded to quick taking on to much debt when times were good, now he has to pay the piper. I will tell you one more time farming has a return of about four or five pc on capital plus a capital gain. To borrow money expecting a high return paying a manager is a fools investment. Take a closer look at the NZ companies records going overseas thinking they know it all then think again. Macdunk It looks like the pigeons are coming home to roost. Another NZ company getting their fingers burned in Australia. PGW now selling up in Aussie but keeping its seed business going. Will they abandon NZS now that dairy farming is in the doldrums?. Your Opinion Snoopy would be rather interesting. Macdunk

Dr_Who
19-01-2009, 04:25 PM
It looks like the pigeons are coming home to roost. Another NZ company getting their fingers burned in Australia. PGW now selling up in Aussie but keeping its seed business going. Will they abandon NZS now that dairy farming is in the doldrums?. Your Opinion Snoopy would be rather interesting. Macdunk

Nothing new, they are just joining all the other NZ companies who have tried going global... eg: WHS, TEL... etc

Snoopy
19-01-2009, 10:22 PM
It looks like the pigeons are coming home to roost. Another NZ company getting their fingers burned in Australia. PGW now selling up in Aussie but keeping its seed business going. Will they abandon NZS now that dairy farming is in the doldrums?. Your Opinion Snoopy would be rather interesting. Macdunk


PGW moved into Australian real estate and livestock (principally in the state of Victoria) at the demand of their New Zealand customers Duncan. If the NZ customers (read farmers) no longer have the cash and borrowing capacity to buy farms and livestock in Australia, then I guess it doesn't make sense to stay there. PGW are actually very responsive to the needs of their customers, principally NZ beef and sheep farmers.

39 staff from four locations in Australia will lose their jobs. But to put that into perspective PGW has 300 real estate sales staff over 61 offices and 290 livestock representatives within New Zealand. I think the big story here is not that PGW are pulling out of Australia. They aren't. The seeds division is still expanding in Australia: PGW bought Auswest Seeds and Keith Seeds in the last financial year. The shock is that the confidence from NZ farmers is so low that PGW need to take such drastic action.

As for PGW abandonning NZS, well I suppose PGW could sell their NZS shareholding to repay some debt. But that sale would be at a loss. After such a high profile NZS capital raising I don't think PGW will be selling unless they have to. I can't see them selling the stake while Norgate remains PGW chairman.

As far as NZS having to curtail their operations because of any trouble PGW might get into.... Well NZS is an independently listed company with its own board. The future of NZS is no longer joined at the hip with the fate of PGW. Remember NZS was not set up purely with dairy in mind. The original prospectus put almost equal weight on the ability of good South American land to raise livestock. Besides I am fairly sure that dairy is still profitable in Uruguay, despite what has been happening in N.Z to our farmers. The lower the milk price goes in dollar terms, the more economic sense NZS makes. I would say NZS is here to stay.

SNOOPY

Financially dependant
03-02-2009, 09:43 AM
Who needs irrigation if you have rain!

http://www.sharechat.co.nz/news/scnews/article.php/c9259696

I have had a good chat a couple of weeks ago with someone who has been to Uruguay as an adviser, he was very impressed with the managers that run the farms (some are qualified Vets) and believe that it will succeed very well. The main problem is the contractors that install irrigation etc are really slack and work on there own time-frame.

NZS is now on my watch list!

winner69
28-04-2009, 06:51 PM
This years loss going to be double what they said a few months ago ..... maybe ..... maybe macdunk was right with this one

bung5
01-07-2009, 12:35 PM
Looks like a very attractive shareprice with NTA/ sharepice double the current trading price.

macduffy
01-07-2009, 01:20 PM
Looks like a very attractive shareprice with NTA/ sharepice double the current trading price.

NTA's can be a bit of a trap!

For one thing they depend very much on valuations of assets. More to the point in NZS's case the NTA is about to be severely reduced by the issue of US$30m of bonds.

bung5
01-07-2009, 01:57 PM
Yes you make a valid point. Guess we will really know once/if NZS starts to turn a profit down the track.

duncan macgregor
30-07-2009, 05:57 AM
So what is your solution Macdunk? Norgate, via Rural Portfolio Investments, should sell out of NZS at rock bottom prices? How about selling his 10m NZS shares to PGW at a price of $1.50? Wouldn't that be a better deal? According to the NZS company annopuncement page on stocknessmonster, 30th September 2008 update, that is what he actually did. Yet you still regard Norgate as a poor dealmaker?

SNOOPY I think now that NZS is raising more money with the alternative of selling its land at rock bottom prices to stay afloat shows what a great deal maker norgate really is. I think Norgate as a deal maker is heading for the wall. Macdunk

Snoopy
30-07-2009, 02:12 PM
I think now that NZS is raising more money with the alternative of selling its land at rock bottom prices to stay afloat shows what a great deal maker norgate really is. I think Norgate as a deal maker is heading for the wall. Macdunk

Norgate has engineered a low interest rate for his new debt of 5%. That sounds good from an NZ perspective. But inflation is much higher in Uruguay (around 8% last year) so this is actually not a bad deal for NZS shareholders.

The sting in the tail for NZS shareholders is that from next year the interest rate paid rises from 5% to up to 15%, depending on what happens to the milk payouts. Norgate has engineered a complicated formula that links future milk returns to future debt interest payments. That will bite NZS ordinary shareholders as milk prices recover. But it is probably better a better option to continue the development of their holdings than selling land at 'rock bottom prices' as Macdunk puts it.

Meanwhile the PGW monster parent is getting ready to savage NZS - again. Details to follow.

SNOOPY

Snoopy
30-07-2009, 05:28 PM
Meanwhile the PGW monster parent is getting ready to savage NZS - again. Details to follow.


There I was, about to launch into the perils of the annual dilution of shareholder equity, thanks to the annual PGW management fee. But then I realised that last year this dilution never happened. And possibly this year it will be off the agenda too.

This was a big surprise to me. I will have to learn to read the fine print of those half yearly annual reports more carefully!

One thing I did read was the big print in the 16th November short form prospectus for NZS, where I was invited to top up my shareholding by buying shares at $1.50. Fortunately for me I didn't do it. But in that booklet there was a big section on issuing NZS shares to PGW in lieu of a cash performance fee. I naturally assumed it had all gone ahead.

Imagine then my surprise when I read in very small print in the NZS HY2008 December 2008 report under note 3 that:

"The performance fee for the year ended 30 June 2008 is included in current loans and borrowings. Interest is currently payable at a rate of 10% per annum. A loan agreement is currently under negotiation to formalise the performance fee payable as an unsecured loan, with the first review date being 30th June 2009."

This debt to PGW isn't pocket money. The $US10.267m translates to around $NZ16m without the 10% interest added. 10%! I wouldn't mind being on the receiving end of that.

The share price of NZS is well down at around 50c as I write this. The ongoing performance fee is probably history from now as it was based on cumulative share price appreciation. But the ongoing management fee is based on 1% of gross farming assets under management.

As far as PGW in concerned that means that NZS management should be directed to borrow as much as they can and buy as many assets as they can -at any price- to bring up those gross assets under management. Perhaps it is no surprise that this is exactly what NZS management are doing!

The HY2008 balance sheet shows total assets , less cash of:

$US253.781m - $US5.235m = $US248.456m or around $380m in NZ dollar terms

1% of that is $NZ3.8m. So despite NZS being down some 50% on their first listing price, come July 2009, NZS will carrying a bill of some $NZ20m+ interest on their balance sheet payable to PGW for the outstanding management they have provided them - so far!

Ordinarily this sort of thing would annoy me. But as a PGW shareholder I am technically benefitting from these shenanigans, even though the 'gain' is really only because the money is taken from my left NZS hand and put into my right PGW hand!

The fact that I am a shareholder of both NZS and PGW reinforces to me that this is just a money go round. PGW is not exactly flush with net assets. So when this cumulative performance/management fee is eventually paid to them (perhaps when NZS update their own borrowing arrangements) it will be welcome. Meanwhile this deal sits there as a nice example of how to generously siphon off assets from your associate.

SNOOPY

discl: hold NZS, PGW

Tee
30-07-2009, 07:13 PM
I first bought PGW shares without knowing who the owners were, and only found out on a Saturday morning. Needless to say, i did not sleep well for the whole weekend.

Snoopy
30-07-2009, 07:29 PM
I think now that NZS is raising more money with the alternative of selling its land at rock bottom prices to stay afloat shows what a great deal maker Norgate really is. I think Norgate as a deal maker is heading for the wall.


Time to review the probable NZS debt position to be expected after 30th June 2011. I don't expect production from the dairy farms to be fully on stream by then. But I do expect the NZS debt to be fully on stream!

From the FY2008 Full Year Report, total equity is listed at $223.6m. Following the 28th April earnings downgrade

-----

NZFSU Earnings Update: 28 April 2009

NZ Farming Systems Uruguay advised today, that due to flow-on impacts of the recent drought in Uruguay, it has revised its forecast 2008/09 earnings before interest and tax (EBIT) from $US 11m loss to approximately $US 20m loss.

-----

this equity will have been reduced to $203.6m. Now if we look at the 29th July announcement on raising capital to complete the farms:

-----


NZS successfully raises US$30m in Uruguayan bond issue: 29th July 2009

NZFSU raised approximately US$200 million in equity in 2006 and 2007 for the purchase and development of dairy farms in Uruguay. Prior to the bond issue, the company had minimal debt, with US$16 million of long-term funding obtained in late 2008 from Uruguayan banks and US$1.5 million of short-term funding obtained recently. NZFSU intends to raise further debt (rumoured to be another $US30m) for farm development in due course.


----

that adds up to a total of $US77.5m. Add that figure to the total liabilities on the FY2008 balance sheet of $US122.7m and you get total debt of $US200.2m.

So come June 2010 debt and equity will just about match, yet the company may not be profitable. Around $US200m in debt may mean debt servicing costs of up to $US20m per year.

Current land holdings in Uruguay are 36,300 hectares. Projected free cashflow per hectare in the November 2007 short prospectus after three years of development is forecast to be $1,250,000. Say 2/3 of the land holding is to be fully developed for dairying. That means we are looking at a gross cashflow from the farms of:

36.3 x 2/3 x $US1.25m= $US30.25m. That figure will improve to around $US40m when all the land comes into full production. Less debt servicing costs and the profits for the shareholder are $20m. With 244.2m shares on issue, we are looking at earnings of 8.2cps.

At a share price of 50c, NZS is on a FY2013 PE of 6.1. Attractive or not? Hmmm.

SNOOPY

discl: hold NZS

Snoopy
30-07-2009, 07:34 PM
I first bought PGW shares without knowing who the owners were, and only found out on a Saturday morning. Needless to say, i did not sleep well for the whole weekend.


If you bought PGW shares Tee, that means *you* are now one of the owners. Are you really that dodgy? Should I be worried?

SNOOPY

discl: also hold PGW

duncan macgregor
31-07-2009, 08:28 AM
What I am saying is if i buy a commercial building to rent out in NZ i can expect a return on capital between 6% to 8% in rent plus a capital gain when i sell. If I buy a farm in any country in this world take your pick [excuse the pun]I can only expect a 3pc return on capital if i run it myself plus a capital gain when i sell.
To place managers in and run it like a company is a fools investment.
Thats only my opinion having been around farms in quite a few different countries. The investors coming into this will be city people i cant see any practical farmers investing in this. macdunk Now that NZS are going to issue bonds paying higher interest than the expected return makes this an investment digging its self into an ever deepening hole. The only profit now is a capital gain at the end. The business profit will only happen when dairy prices surge above average prices. Wages plus 3pc on capital cost is a farmers lot with a capital gain at the end. Stick a manager in that expects higher than normal wages plus manual working time off for office work, only adds to the down side.
The only time to buy this share is if it remains viable, and shows profit in a high inflation period when land prices sky rocket. Macdunk

bung5
31-07-2009, 09:23 AM
Not sure on the exact numbers but I am pretty sure that NZS can produce milk at something like 8c a litre where as NZ farms are double that and even more so for other western countrys.
They are going to be alot more profitable than any farm in NZ can be.

bung5
31-07-2009, 09:29 AM
*projected that is

duncan macgregor
31-07-2009, 10:23 AM
Not sure on the exact numbers but I am pretty sure that NZS can produce milk at something like 8c a litre where as NZ farms are double that and even more so for other western countrys.
They are going to be alot more profitable than any farm in NZ can be.
Thats what makes a market my friend different opinions. i feel sure that milk can be produced in Ethiopia or some other down and out country cheaper than can be produced here as well.
I know i cant buy the timber in NZ to make garden furniture cheaper than I can buy the finished imported product. This is a business venture in farming, which is a peasant occupation in most countries, where subsistance livelyhoods are the order of the day. I feel sure you might buy goats or sheep in some countries at a fraction of the price you might pay for them here as well.
Farm gate prices are very low in all countries, compared to the on shelf price in the supermarkets. Three or four pc plus a capital gain anywhere in this world on average in farming against double that in most any other commercial enterprize. Why borrow money, when you can sell shares to the blue eyed brigade that dont have a clue about the business?. The trouble in NZ is, they think they know better than the business people in the overseas countries they start up business in, and come a gutser losing investors hard earned money. If they dont go under, then one day the SP will be a bargain, but until they turn the corner showing a profit its a high risk investment. Macdunk

Snoopy
31-07-2009, 02:25 PM
Not sure on the exact numbers but I am pretty sure that NZS can produce milk at something like 8c a litre where as NZ farms are double that and even more so for other western countries.
They are going to be alot more profitable than any farm in NZ can be.

I think it might be worthwhile going back to the original NZFSU prospectus,where they were talking about figures taken from the 2004/5 farming season to justify going to Uruguay. The profitability figures were listed as in the November 2006 Prospectus on page 25 as follows:

-------

Dairy Profitability per Hectare: NZ, Uruguay, Uruguay Targeted

kg milk solids/cow: 339, 327, 364
Cows/ha: 2.7, 0.8, 2.6
kg milk solidsd/ha: 895, 275, 943
Milk Price: $NZ4.44, $NZ4.00, $NZ4.00
Total Farm Expenses: $NZ2,441, $NZ886, $NZ1,418
Economic farm Surplus/ha: $NZ950, $NZ308, $NZ2,384

--------

I would love to get an update from someone working in the NZ dairy industry as to how realistic those NZ figures still are. The milk price looks about right at least. Uruguayan farm working expenses seems to have blown out a bit up to $NZ1,250 per hectare by the time the November 2007 prospectus came out. But even if the rest of the prices/costs aren't quite right the general message is this.

In 2004/2005 most Uruguayan dairy farms were what Macdunk would call 'peasant farms'. The objective of NZS was to use some irrigation and modern dairy sheds and breeding techniques from New Zealand to improve things. This was projected to increase costs per hectare by:

$1,418 - $886= $532 per hectare.

But the greater concentration of grazing possible as a result means that the increased surplus per hectare goes up even more significantly.

$2,384-$308= $2076 per hectare

Total land holdings owned by NZS now total 36,300 hectares. With projected annual funding costs of $US20m/$NZ30m that represents a drag on earnings of $NZ826/ha.
Take away that extra funding cost from the original Uruguayan projected earnings figure of $NZ2,384/ha. That leaves a comparative surplus of $NZ1,558m for Uruguay vs $NZ950 for New Zealand. That isn't quite the 'double the returns' that bung was talking about. But it is close.

A key figure though, which I haven't mentioned up to now is not the farm running costs. But the purchase price of the underlying land. A fully developed farm in Uruguay is targeted to be 'worth' $NZ10,749/ha verses the New Zealand valuation of $NZ36,084/ha.
That low developed Uruguayan valuation is dependent on being able to buy undeveloped land cheaply at around $NZ5,144/ha. One year later the average price of land acquisition was $US2,340ha /0.75 = $NZ3,120/ha. So purchases during CY2007 appear well within budget.

For an investor, the most important 'return' is the return on capital invested. For our New Zealand farmer the return on capital is:

$950/ha / $36,084/ha = 2.6%

Perhaps that is where Macdunk gets his 3% return from, plus inflation (assuming the underlying value of your farm will increase in value at the rate of inflation as well)?

For our 'leveraged investment' in Uruguay our projected return on capital is:

$1,558/ha / $NZ10,749/ha = 14.5%

That is quite a difference.

SNOOPY

duncan macgregor
31-07-2009, 02:50 PM
SNOOPY, To start from scratch developing land is a high cost business. Clearing, Building,fertilizing,paying people to do it all for you. Cows cost less to buy, but then cows cost less to sell, which equalizes out. Not many farms run at a decent profit with an absentee owner and a manager in any country. Irrigation sounds very nice to the city folks but irrigation comes at a huge on going cost. Irrigate from wells and stuff the land so i presume its drawn from rivers. To do all this in a far off land thinking you know best with some one elses money must be a fun experience. Half the share price has gone with the company showing a substancial loss as i fully expected it remains to be seen if the punters will even get back to square one. Most city absentee farmers do it as a tax dodge at least the ones that i know. Macdunk

Dr_Who
31-07-2009, 02:57 PM
There are alot of hidden cost doing business in developing countries. Alot of companies got their booties burnt going in China found out the hard way. This is no exception with south america.

bung5
01-08-2009, 11:15 AM
Thats what makes a market my friend different opinions. i feel sure that milk can be produced in Ethiopia or some other down and out country cheaper than can be produced here as well.
I know i cant buy the timber in NZ to make garden furniture cheaper than I can buy the finished imported product. This is a business venture in farming, which is a peasant occupation in most countries, where subsistance livelyhoods are the order of the day. I feel sure you might buy goats or sheep in some countries at a fraction of the price you might pay for them here as well.



I am pretty sure that you can not produce milk in ethiopia or some other country cheaper. To run a dairy farm in Africa would be extremly hard and not very profitable at all.
Uruguay has a good climate and land for diary farming. ( we all the know the big budget blow out when there was a drought and they had to provide hay etc)

The major difference between it and NZ is that the land is alot cheaper and the labour is alot cheaper in uruguay.

Snoopy
05-08-2009, 02:35 PM
The major difference between Uruguay and NZ is that the land is a lot cheaper and the labour is a lot cheaper in Uruguay.

From the PGW thread where on Tuesday 4th August I posted this:

------

I have just topped up my shares in New Zealand Farming Systems Uruguay though. At the moment they are not as indebted as PGW (although that may change as they complete their fencing, irrigation and milk shed construction program). Of course they are not producing *any* profit and probably won't for a few years yet. Nevertheless I believe the reasons for setting up NZS are more relevent then ever today. IMO the primary reason the market has marked down these shares so heavily is because any projects that are not immediate cash generators are simply no longer fashionable in the current investment climate.

Superficially things look bad for NZS. They are coming off a drought in Uruguay. Milk prices are much lower than a year or so ago. And the threat of PGW dumping their NZS shareholding to raise some cash - not to mention their association with 'yesterday's hero' Craig Norgate - are all weighing on the share price. But experience has taught me that when things look their bleakest and there is no news in the market that would possibly make a company seem a good buy prospect, then that is usually the best time to move. Nevertheless the market for NZS could easily turn down from here. If it does I will be increasing my holding.

-----

How was that for timing? No sooner had I topped up on NZS shares, milk prices at the monthly Fonterra Auction surge 25%. The NZS share price responds by immediately jumping 10%. As I write this, the share price has partially edged back down to 53c (for a 6% gain on the day). I guess that is people realising that no matter what the milk price does, NZS is almost certainly going to lose money for a couple of years yet. Still it does show that even in this market that has possibly risen too far too fast, there are still bargains to be had if you know where to look.

SNOOPY

Snoopy
19-08-2009, 06:27 PM
SNOOPY, To start from scratch developing land is a high cost business. Clearing, Building,fertilizing,paying people to do it all for you. Cows cost less to buy, but then cows cost less to sell, which equalizes out. Not many farms run at a decent profit with an absentee owner and a manager in any country. Irrigation sounds very nice to the city folks but irrigation comes at a huge on going cost. Irrigate from wells and stuff the land so i presume its drawn from rivers. To do all this in a far off land thinking you know best with some one elses money must be a fun experience.

I have just been running the ruler over the NZS books. Despite the most recent share price performance, this project (the transfer of NZ know how into a low land low labour cost country -Uruguay) is still on track. “What has gone wrong”, if you want to think of it that way, is that NZS decided to develop more land than the original prospectus stated (the original plan was to raise $NZ75m for land acquisition and development). The actual share capital raised up until 31st December 2008 was $US197m. The scaling up of the amount of farmland to be given the ‘New Zealand’ treatment was done when dairy prices were at an all time high (up to US45c per litre). At US45c/l it seemed that any development was just a licence to print white gold.

The milk price has since retreated to US25c per litre (An average price of $NZ4.00 per kilogram of milk solids and a milk solids content of 6.8% equates to a Uruguayan price of US 18c per litre). This though is not out of line with the original prospectus where future milk prices were predicted to decline to US23c per litre.

We can look at the prospectus of the recent NZS Uruguayan bond issue to get an updated picture of the projected cashflows. For 2009-2010, farm investment (that includes, fencing, roads, lodging for staff, dairy conversion costs, agricultural machinery, fertilizers, productive improvements and irrigation) is budgeted to be $US66.2m. For 2010-2011 and 2011-2012 farm investment costs will reduce to $US5.848m and $5.329m respectively. Note that farm investment costs do not include farm working expenses like salaries or interest paid on borrowings. In FY2008 the cash paid to suppliers and employees totaled $US22m.

Countering this is the projected income from milk which is assumed to be sold for US 0.23c per litre (equivalent to $NZ5.10 per kg of milk fat). This should bring positive cashflow of US$29.3m, $US45.3m and $US58.6m in the years 2009-2010, 2010-2011 and 2011-2012 respectively.

The big crunch then, will come in FY2009-FY2010 where the company will be looking at an operational cashflow deficit of -$US66.2m+$US29.3m-$US22m= -$US58.9m. You can see then why NZS intends to raise another $US30m of debt in Uruguayan bonds in FY2009-FY2010.

In my opinion the share price performance over the next year will reflect the size of this projected operational deficit. Shoring up the balance sheet are $US30m of property revaluations. Assuming that NZS can ride through this tight debt period, I am predicting a profit of some $US14m (based on a tax rate of 30%) in the year 2011-2012 ending 30th June 2012. That equates to earnings per share of:

$US14m/244.2m= 5.7cps.

That means at 50c, NZS is trading on a projected 2011-2012 PE of 8.7

Watch that milk price though!

SNOOPY

Discl: hold NZS

whatsup
19-08-2009, 08:45 PM
Snoops, go back to your figures "cows per Ha"
"N Z 2.7, Uruguay .8, Uruguay targetted 2.6", theres JUST NO WAY that that dairy farming operation will EVER get anywhere that level of grass growth hense production via cows per Ha, it just wont happen, have you seen the Uruguay photos, semi eaten out Otago marginal low level back country, its not the lush Waikato, what a laugh and a ball$ed up asumption.
Only one mans considered opinion!!

duncan macgregor
20-08-2009, 05:35 AM
Snoops, go back to your figures "cows per Ha"
"N Z 2.7, Uruguay .8, Uruguay targetted 2.6", theres JUST NO WAY that that dairy farming operation will EVER get anywhere that level of grass growth hense production via cows per Ha, it just wont happen, have you seen the Uruguay photos, semi eaten out Otago marginal low level back country, its not the lush Waikato, what a laugh and a ball$ed up asumption.
Only one mans considered opinion!! This is the townies version of digging for gold in the streets of london. Dont spoil the dream reality has nothing to do with it.. Macdunk

Snoopy
20-08-2009, 04:42 PM
Snoops, go back to your figures "cows per Ha"
"N Z 2.7, Uruguay .8, Uruguay targetted 2.6", theres JUST NO WAY that that dairy farming operation will EVER get anywhere that level of grass growth hense production via cows per Ha, it just wont happen, have you seen the Uruguay photos, semi eaten out Otago marginal low level back country, its not the lush Waikato, what a laugh and a ball$ed up asumption.
Only one mans considered opinion!!


I think you might find that the first farms NZS bought, the formerly PGW owned ones, are already at that 2.6 cows per hectare Whatsup. Of course it takes lots of

• Genetic selection of pastures with greater productivity and more energy;
• Intensive management of pastures;
• High levels of fertilization;
• Irrigation use in some areas;
• Water supply; and,
• Investment in infrastructure.

to achieve that goal. Construction is due to be finished in June 2012, but there is a lot more to be done in terms of biological optimisation after that. Anyway the reporting time is coming up so we shall see.

SNOOPY

duncan macgregor
21-08-2009, 10:37 AM
SNOOPY, Let me enlighten you on a few little points, that you are oblivious to.
Dairy cows to the hectare, must include replcements, which come first of all as calves which require milk from your total. Those calves will be roughly two years old before producing, and like it or not inclined to eat grass. In the off season, the cows must be dried off before calving for at least a couple of months. Regardless of where you are in this world, you will have to grow crops to feed your animals at certain times of the year. If you require irrigation, it shows that the rainfall is insufficiant all year round adding a huge overhead cost to the business. You come out with figures that dont have any bearing on the reality of the business which are worthles. Taking into account the NZ companies overseas record of successes this is an extreme high risk share for anyone, especially those with little or no understanding of the business. Macdunk

Snoopy
22-08-2009, 09:42 PM
If you require irrigation, it shows that the rainfall is insufficient all year round adding a huge overhead cost to the business.


There is plenty of rainfall in Uruguay Macdunk. But it doesn't always fall at the right time. That is why NZS are building dams. Once the capital cost is committed, to the running costs will be relatively cheap. Irrigation is 'needed' as a farming optimisation tool. It is not a requirement for farming in Uruguay. But if you can enhance your returns by irrigation, well, why not do it?

SNOOPY

duncan macgregor
23-08-2009, 02:39 PM
There is plenty of rainfall in Uruguay Macdunk. But it doesn't always fall at the right time. That is why NZS are building dams. Once the capital cost is committed, to the running costs will be relatively cheap. Irrigation is 'needed' as a farming optimisation tool. It is not a requirement for farming in Uruguay. But if you can enhance your returns by irrigation, well, why not do it?

SNOOPY SNOOPY, If you do the sums irrigation comes at a very similar cost to buying feed in at times of shortage. The irrigation plant set up capital cost plus the cost of operation and replacement, plus the labour cost. Dairy farming has a very low profit margin right round this world making it a life style operation more than a business out to make money on capital business. I would suggest you get out and about and talk to a few farmers about how hard they work for the money they make, before holding on to this share. If they borrow money, they wont be able to pay it back. If they sell more shares to the city people they will pay themselves good incomes at your expence. Macdunk

peat
27-08-2009, 06:19 AM
http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=10593426

:o

winner69
27-08-2009, 10:46 AM
http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=10593426

:o


Whoops ... funny as ... of all words to use 'fudge'

The truth finally comes out

COLIN
27-08-2009, 03:22 PM
Whoops ... funny as ... of all words to use 'fudge'

The truth finally comes out
Hilarious!
In the "olden days" (when I first qualified as an accountant) auditors certified accounts as being "True and Correct." Now they are certified only as "True and Fair" - perhaps it should be changed to "Fairly Fudged".

AMR
27-08-2009, 04:17 PM
OH FUDGE!

The share price dropped 13% :(

fungus pudding
27-08-2009, 04:43 PM
OH FUDGE!

The share price dropped 13% :(


I heard the Spicers' guy on the radio today talking about a similar event. Apparantely one of the banks in England sent out a letter to its top 2,000 customers - they all went out headed up 'Dear Rich Bastard'

Deev8
31-08-2009, 02:27 PM
I heard the Spicers' guy on the radio today talking about a similar event. Apparantely one of the banks in England sent out a letter to its top 2,000 customers - they all went out headed up 'Dear Rich Bastard'

Funny story - it would be even more funny if it was true.

Try searching for the phrase 'Dear Rich Bastard' on Google. You might expect to find the story in almost every British newspaper, but instead most of the references are Urban Legend type websites. Of course the bank in question could have persuaded all 2,000 offended customers to keep quiet about the incident - Not very likely is it?

Dr_Who
31-08-2009, 02:43 PM
I heard the Spicers' guy on the radio today talking about a similar event. Apparantely one of the banks in England sent out a letter to its top 2,000 customers - they all went out headed up 'Dear Rich Bastard'

Freudian slip.

fungus pudding
31-08-2009, 03:42 PM
Funny story - it would be even more funny if it was true.

Try searching for the phrase 'Dear Rich Bastard' on Google. You might expect to find the story in almost every British newspaper, but instead most of the references are Urban Legend type websites. Of course the bank in question could have persuaded all 2,000 offended customers to keep quiet about the incident - Not very likely is it?


That's it! I'll never get financial advice from Spicers again. :mad:

Deev8
01-09-2009, 12:09 PM
That's it! I'll never get financial advice from Spicers again. :mad:

Perhaps Spicers make a habit of rehashing material they've read somewhere without making any effort to research or verify it themselves - who knows.

bung5
01-09-2009, 02:19 PM
42c a share is a steal.

whatsup
01-09-2009, 03:38 PM
Bing...,, 4 who?

winner69
01-09-2009, 03:51 PM
Hunter Hall bailed and took a bath ... 2nd bath they have taken with NZ IPOs after Feltex ... probably won't be back for more

Wonder who bought their interest ... maybe Snoopy and bung saved the day

Morpheus
01-09-2009, 03:59 PM
Hey Winner - have you got a link to that story?

winner69
01-09-2009, 05:35 PM
SSH notices today ... looks like Olam International of Singapore bought the 14% interest in NZS

Going from memory Hunter Hall paid about $30m for the interest .... ouch .... about $15m down the gurgler

winner69
01-09-2009, 06:10 PM
Hunter Hall often take the moral high ground ... might have got pissed off having an investment in a company that 'fudges' it accounts

See the 'fudging' episode has been referred to the Securities Commission for investigation.

(Footnote - sad that other more serious things that those who have raped and pillaged the elderly of NZ dont seem to get referred to the Securities Commission)

winner69
01-09-2009, 06:15 PM
Soembody who wants to buy the meat .....


Olam Acquires Hunter Hall Stake in NZ Farming Systems Uruguay
Share | Email | Print | A A A

By Gavin Evans

Sept. 1 (Bloomberg) -- Olam International Ltd., a Singapore-based commodity supplier, bought a 14 percent stake in NZ Farming Systems Uruguay Ltd. to expand its investment in low- cost dairy production.

Olam paid about $10 million to buy the stake from Sydney- based Hunter Hall Investment Management Ltd., previously the second-largest investor in NZ Farming. The Christchurch-based, company, which is converting beef farms in Uruguay to dairy production, last week reported a $45.9 million loss on falling farm prices and development costs.

Today’s purchase will help strengthen Olam’s position in dairying and help improve its margins, Vivek Verma, managing director for dairy products, said in a statement.

“Success in adopting kiwi practices in Uruguay would result in a powerful combination of low capital and operating costs with high productivity,” Verma said.

Olam last year paid about $69 million for a 25 percent stake in New Zealand milk processor Dairy Trust Ltd.

NZ Farming fell 1 cent to 41 New Zealand cents, the price Hunter Hall sold its shares at. The stock has fallen 32 percent this year.

To contact the reporter on this story: Gavin Evans in Wellington at gavinevans@bloomberg.net

Last Updated: September 1, 2009 01:59 EDT

http://www.bloomberg.com/apps/news?pid=20601081&sid=a7f86J7MAdPI

manxman
01-09-2009, 06:19 PM
(Footnote - sad that other more serious things that those who have raped and pillaged the elderly of NZ dont seem to get referred to the Securities Commission)

Once had a discussion with a probation officer (not mine) about corporal punishment. He was totally against flogging for violent criminals - useless, counterproductive etc etc, but for those that stole the widow's mite - he was thinking deeply. Maybe deterrent sentences have a place for white collar crime.

Pumice
02-09-2009, 07:50 AM
Olam buys stake in NZ Farming

Singapore-based global dairy trader Olam International is buying 14.3 per cent of NZ Farming Systems Uruguay, according to a substantial shareholder notice.

Olam bought about 35 million shares on market for 41 cents a share from Australian-based Hunter Hall Investment Management, with about $2 billion of funds under management.

Snoopy
27-09-2009, 02:41 PM
We can look at the prospectus of the recent NZS Uruguayan bond issue to get an updated picture of the projected cashflows.


I was reading the English translation of the bond prospectus to get more of a handle on the rather clever bond returns that are linked to the international price of milk and farm input costs. The deal is that if farm returns are low the interest on the bonds payable is only 5%. But as milk returns improve so does the bond return all the way up to a maximum of 15%.

The problem is the Appendices or Annexs, which contain the specifics of how all this works have been left out of the English translation. The original bond prospectus is in Spanish, but I cannot find it on the NZS website. Has anyone been able to track down exactly how these interest payments works?

Ther must be some milk price where the bond payments start to increase. Likewise at the other end there will be a maximum milk price over which all the increased profits go to shareholders and none to bondholders. But can I find this information? No.

So here is a challenge for someone more internet savvy than me. Can you find the Spanish NZS Bond Prospectus on the net?

SNOOPY

discl: hold NZS

milkman
27-09-2009, 08:22 PM
Presentation https://web.bevsa.com.uy/BEVSAIntranet2008/publicaciones/NZFSUPre.ppt
Terms and Conditions https://web.bevsa.com.uy/BEVSAIntranet2008/publicaciones/Comunicado%20282.pdf
Prospectus 300MB!!!https://web.bevsa.com.uy/BEVSAIntranet2008/publicaciones/NZFSUP.pdf

Snoopy
28-09-2009, 08:16 PM
Presentation https://web.bevsa.com.uy/BEVSAIntranet2008/publicaciones/NZFSUPre.ppt
Terms and Conditions https://web.bevsa.com.uy/BEVSAIntranet2008/publicaciones/Comunicado%20282.pdf
Prospectus 300MB!!!https://web.bevsa.com.uy/BEVSAIntranet2008/publicaciones/NZFSUP.pdf


Milkman, Junior Member, you are the kiddy! Or should that be Milky Bar Kid. Nice detective work and nice first post.

Like you I balked at downloading the full bond prospectus at 300MB (what were they thinking?). However the first link to the powerpoint presentation delivers the information I am after.

What with all the problems with finance companies in New Zealand in recent times, it is interesting to see how bond issues are dealt with in other countries. And in particular this NZS bond issue in Uruguay.

Interest payments are made to bondholders twice a year. The mechanism to do this is that NZS must transfer one sixth of the total 'six monthly payment' amount, every month into a reserve account. So bondholders will find out within a month if their investment ever gets into trouble. NZS have signed up to transfer 7% of their milk receipts annually to (more than?) cover interest and (eventually) capital repayment costs into what looks like a 'ring fenced' account arrangement.

Then as a further guarantee to bondholders, NZS are required to transfer the title of land to a separate 'Guaranty Trust' that holds land equal in value to 143% of the loan. That land would then be sold to more or less guarantee the capital owed to bondholders should the NZS parent company default on their regular payments. The 143% comes about because a land sale at only 70% of registered value must be enough to repay bond holders in full, if the need for a land sell off did arise.

With a guarantee like this it is no wonder the NZS bonds have been given an A- rating by Fitch. Oh and did I mention the interest rate? -15% per year! It is a really sweet deal for the bondholders, although not perhaps such a good deal for the ordinary shareholders. Perhaps that is why NZS have chosen to bury most of this information in the small print of a translated document, and otherwise not mention it to shareholders?

SNOOPY

discl: hold NZS

Snoopy
28-09-2009, 08:59 PM
With a guarantee like this it is no wonder the NZS bonds have been given an A- rating by Fitch. Oh and did I mention the interest rate? - 15% per year! It is a really sweet deal for the bondholders, although not perhaps such a good deal for the ordinary shareholders.


Just as point of explanation I should point out that these bonds have been sold to shareholders on the basis that they will only pay 5% per year to bondholders in the first year, with payments rising to up to a maximum of 15% per year on a kind of 'indexed' arrangement as the profitability of the farms improves. However, there is no information at all on the NZS site as to how the indexation arrangement works. You may think it mischevious of me to quote only that upper 15% figure. But have a look at that powerpoint presentation in Spanish yourself (I used the Yahoo babelfish tool to help supplemnet my 'bush Spanish' for translation purposes) and see if you think I am exaggerating the issue.

The indexation factor 'A' is calculated from a ratio 'B'/'C'. 'B' represents the benefits centering around company sales of milk, and 'C' is the farm input costs. 'B' is based around a reference year of 2007/2008 where gross milk sales by NZS were $US5.33m. In subsequent year 'n' where gross milk sales are $US 'D' m, the factor 'B' in year 'n' is calculated as follows.

B(n) = D(n) / D(07/08)

However, NZS have recognised that the company's ability to pay is not only determined by the price the get for their milk. It is also determined by farm input costs. This is where the cost factor 'C' comes in. Unlike the price the dairy farmer gets, which is the milk price, the price the dairy farmer pays depends on a multiple of inputs. NZS have identified these as:

a/ The dollar price of Urea ( 18% )
b/ The price of other fertilizers in general ( 16% )
c/ The price of 'gas oil' ( 8% ). I could not determine if this meant the price of petrol (gasolina in Spanish) or diesel (which seemed to be diesel in Spanish) or if it was some other representative measure that is readily quoted in Uruguay.
d/ The cost of private sector average wages ( 40% ).
e/ The cost of inflation (18% ).

Don't read those percentage figures in brackets incorrectly. I am not saying that inflation in Uruguay is 18%. I , or rather NZS, is saying that inflation makes up 18% of the annual increase in farm costs. The total (100%) increase in farm costs each year is made up of the five factors above in proportion ( 18%+16%+8%+40%+18%=100% ). I would be very interested in comments from on the gound farmers as to how accurate those NZS estimates are. Once again all commodity costs are benchmarked to the 2007-2008 financial year (ended June 30th 2008).

That is probably more information than most of you wanted to know, but can anyone else see a rat in the detail here? The answer is why I think the bond interest payments will quickly approach the maximum rate of 15% which is not exactly cheap funding.

SNOOPY

Snoopy
28-09-2009, 09:25 PM
That is probably more information than most of you wanted to know, but can anyone else see a rat in the detail here? The answer is why I think the bond interest payments will quickly approach the maximum rate of 15% which is not exactly cheap funding.


I knew you wouldn't want to be kept in suspense so to answer my own question.

Both the 'benefits' and most of the 'costs' have been indexed to year 2007/2008. Provided everything is indexed to the same year it *should* not matter that much. Or does it? During 2007/2008 the farms were very much in a stage of early development. The price received for the milk may have been high 'per litre', but it was low in gross terms because there just wasn't a lot of milk being processed. However, the on farm costs would not be low because the newly acquired land was being vigorously worked on to bring it up to standard.

That means in 2007/2008 there were high input costs relative to production output. Now if we use 2007/2008 as the base year for our formula, can you see what will happen? The output (total dollars received for milk) will rise much faster than the labour costs due to the benefit of previous years labouring flowing through to the current production year. I think that means the payout to bondholders will rise not 'with the productivity of the farm', as management would have us believe, but '*ahead* of the productivity of the farm'! Again this is very good for bondholders but perhaps not so good for shareholders.

So what is the 'sharetrader' verdict? Have NZS management got it right with their somewhat complicated formula that is meant to match the 'ability to pay' with 'interest payments'? Or has Snoopy the beagle's digging found a hole in management's plan that will see NZS paying out a lot more interest in the future than they had bargained for?

SNOOPY

bung5
29-09-2009, 09:11 AM
Interesting read snoopy. I have been trying to make may way through the spanish reading ....aahh

Do you know if the trust that is holidng the land accounted for in its current NTA or is that left out for accounting?

Snoopy
29-09-2009, 05:33 PM
Interesting read snoopy. I have been trying to make may way through the spanish reading ....aahh


The translation of the bond prospectus in English that is available on the NZS website means following what is going on isn't too difficult. If only NZS had translated those attached appendices that hold all the key data, I wouldn't have anything to complain about.



Do you know if the trust that is holdng the land accounted for in its current NTA or is that left out for accounting?


The current accounting year was signed off on 30th June 2009. The NZS bonds we are talking about were issued in July 2009. So I don't know how these 'transfers of title' will be treated in the accounts. It will be a nice surprise for us when the half year accounts are published in March :-).

SNOOPY

Snoopy
30-09-2009, 08:43 PM
With a guarantee like this it is no wonder the NZS bonds have been given an A- rating by Fitch. Oh and did I mention the interest rate? -15% per year! It is a really sweet deal for the bondholders, although not perhaps such a good deal for the ordinary shareholders. Perhaps that is why NZS have chosen to bury most of this information in the small print of a translated document, and otherwise not mention it to shareholders?


Well it looks like my downramping worked. The NZS share price has been weak over the last few days and I have managed to pick up a few more shares.

I am annoyed about the company looking to take on $US60m worth of bonds and saddling shareholders with a $US9m interest bill every year. But according to my rather crude financial modelling I think we are looking at ongoing profits of $US30m (after tax) by year 2015-2016, even allowing for those bonds. It will take five-six years before all of the planned milking sheds are built and the acquired land is fully developed in 'the New Zealand Way', which is why I am looking so far ahead.

There will be incremental profit improvements from there too as the genetics of the herd improves and that bond debt starts to be repaid. If no bonds had been issued my forecast 2015-2016 after tax profit would be 20% higher!

$US30m, or $NZ40m after tax profit equates to 16.4c per share. With NZS shares closing at 44c today that places the company on a 2015-2016 PE of 2.7. Now I know June 2016 is a long way out. And I know farming can have its ups and downs. And I know there will be next to know dividend income to sustain me in the meantime. But for a medium term investment I do think that NZS at 45c (where I bought my latest tranche of shares) is compelling. Yeah, yeah I know I should have waited for the uptrend to start. But as far as I am concerned buying at 40c or 45c or 50c when there is this much potential in a share doesn't matter. And true to my word of not trying to 'time the market', I'll be looking to boost my holding in NZS again next year, and the year after.

The recent news on NZS has been bad. But one reason I think the share price fall has been overdone is that NZS has been tarred by association with PGW and PGC and Craig Norgate. Although NZS has funding issues I don't believe these are anywhere near as chronic as those aforementioned two. Nevertheless with Norgates bad blood being spattered around the place and depressing prices in the 'Norgate sector', I reckon now is probably one of the better times to take advantage of the situation and buy NZS.

SNOOPY

discl: Foundation holder of NZS and buying more.

duncan macgregor
01-10-2009, 07:40 AM
What I am saying is if i buy a commercial building to rent out in NZ i can expect a return on capital between 6% to 8% in rent plus a capital gain when i sell. If I buy a farm in any country in this world take your pick [excuse the pun]I can only expect a 3pc return on capital if i run it myself plus a capital gain when i sell.
To place managers in and run it like a company is a fools investment.
Thats only my opinion having been around farms in quite a few different countries. The investors coming into this will be city people i cant see any practical farmers investing in this. macdunk Thats what I said a couple of years ago nothing has changed. When doing the sums stick to the reality of the situation. I think they are digging a bigger deeper hole to bury your money. Macdunk

Snoopy
03-10-2009, 05:41 PM
I see there may be a bit of stirring going on at the upcoming NZS AGM. An independent director nomination representing shareholders ST & CJ Bell Limited, who hold 450,000 shares (0.18% of the company) in the name of Paul Grogan has been received.

Grogan describes himself as an Auckland based private equity investor, specialising in risk assessment and reward with farming, forestry and primary industry interests and experience. He has a graduate degree and diploma from Massey University.

The board are not happy because they want a chance to select their own appointee in some kind of closed door process that will leave a crack open for Mr Grogan to line up with the other candidates (before being shot down). Actually I put those brackets in, but I think we can more or less assume that will be the outcome.

"The board also notes that other potential candidates did not put their names forward for election given that they were aware of the intended succession planning process."

Well more fool them. The process of lining up as a potential director was published well in advance. If those others decided they would not put their name in the hat they have no-one to blame but themselves.

Looking at the way the board got carried away with expanding their initial business plan, I would say that risk assessment of the consequences of what would happen under different milk price scenarios was exactly what was lacking. Perhaps with someone like Grogan on the board the expansion plans would not have been quite so bold?

It looks to me like Grogan would be an eminently suitable addition to the board as someone with initiative who is prepared to challenge the establishment within the rules. Furthermore he represents shareholders with 'skin in the game' rather than Norgate/McConnan who are basically using other peoples borrowed money and the less restrained attitude to deals and development that seems to go along with that.

I will definitely be voting for Grogan as a director as well as the official nominees John Parker and Graham Wong who are also businessmen that I have respect for. IMO, there is room for all three on the new board

SNOOPY

bung5
05-10-2009, 11:34 AM
I see there is speculation that Olam International may make a full takeover bid . This could see the price jump..

duncan macgregor
07-10-2009, 09:03 AM
the question still remains is it a good investment with higher returns over the years than a bank deposit?. Very little debt run as a family business in a much smaller way the answer would be yes. Eventually the capital gain plus the on going life style with a good living to be made would make it worth while. To be run as a company paying managers plus all the other snouts dipping into the trough the return on money invested would be in the red.
The largest dairy farm set up in NZ has just gone into receivership must tell you something about profitability in this sector. Its pointless trying to work out numbers in a business with wildly fluctuating numbers such as this. My numbers are 3% return before the snouts dip into the trough based on farming reality. To be caught paying huge set up costs breaking in land setting up sheds then having the expence of irrigation on top of that is not my idea of a worth while return. the more i think about it the less i like it my return on capital might be less than the three pc i quoted.
The other aspect of all this is the green house gas lobby who seem destined to make this sector a high risk area to invest in. Macdunk

bung5
07-10-2009, 12:12 PM
the question still remains is it a good investment with higher returns over the years than a bank deposit?. Very little debt run as a family business in a much smaller way the answer would be yes. Eventually the capital gain plus the on going life style with a good living to be made would make it worth while. To be run as a company paying managers plus all the other snouts dipping into the trough the return on money invested would be in the red.
The largest dairy farm set up in NZ has just gone into receivership must tell you something about profitability in this sector. Its pointless trying to work out numbers in a business with wildly fluctuating numbers such as this. My numbers are 3% return before the snouts dip into the trough based on farming reality. To be caught paying huge set up costs breaking in land setting up sheds then having the expence of irrigation on top of that is not my idea of a worth while return. the more i think about it the less i like it my return on capital might be less than the three pc i quoted.
The other aspect of all this is the green house gas lobby who seem destined to make this sector a high risk area to invest in. Macdunk



and are you numbers calculated on current milk prices ...

Snoopy
07-10-2009, 06:25 PM
the question still remains is it a good investment with higher returns over the years than a bank deposit?. Very little debt run as a family business in a much smaller way the answer would be yes. Eventually the capital gain plus the on going life style with a good living to be made would make it worth while. To be run as a company paying managers plus all the other snouts dipping into the trough the return on money invested would be in the red.
The largest dairy farm set up in NZ has just gone into receivership must tell you something about profitability in this sector.


Yes, there is a good lesson to be learned about dairy farm profitability here. If you are going to run a dairy firm, do it with less debt and lower costs. NZS ticks both of those boxes. And make sure you hold shares in PGW as well as they are the principal 'prized paid snout' you speak of.



Its pointless trying to work out numbers in a business with wildly fluctuating numbers such as this.


Just like it is pointless to invest in minerals because the prices are so volatile?



My numbers are 3% return before the snouts dip into the trough based on farming reality. To be caught paying huge set up costs breaking in land setting up sheds then having the expense of irrigation on top of that is not my idea of a worth while return. the more i think about it the less i like it my return on capital might be less than the three pc i quoted.


Your numbers Macdunk, are based around the 3% that you 'know' will be your final return then looking at all ways to raise the production costs to make it so. You need to think of NZS more like your mining shares....

Look at the international price of milk at the Fronterra auction. As it starts to go up then buy your 'milk mining' shares (NZS). (NZS went up another 2% today despite the rising exchange rate). Then sit back and enjoy the ride. However it is easier than buying your mining shares for two reasons.

a/ People still need to eat no matter what 'the markets' do. So there is no chance of your investment dropping to zero unless people stop eating so you don't really need to worry about buying 'at the bottom' or 'in the trading range.' Just make sure you buy when the NZS price is low and you will be OK.
b/ Likewise people will always need to eat so you will not be biting your nails worrying about when to sell. Short term the NZS price will go up and down. Long term the price will go up and up.

So you will have your first long term investment!



The other aspect of all this is the green house gas lobby who seem destined to make this sector a high risk area to invest in.


PGW with their grasses, which they are selling to the NZS farms in Uruguay, are at the leading edge of minimising bovine burping.

SNOOPY

duncan macgregor
09-10-2009, 09:49 AM
Snoopy, What you fail to understand is the basic reality of the industry. The largest collective dairy farm player in NZ has just gone bankrupt. the russian collective farm system that grouped all the small farms into a large more efficient farms was a disaster.
You are still thinking its a numbers game which is a huge mistake.
Farming returns world wide measured against capital outlay and risk are very low in comparison to other industries. Farming is in most countries is a peasant occupation with very low rewards. You seem to think that we know best we will show you how to do it will change all that.
So what you can buy land and have people working on it at reduced rates you still have to pay the snouts dipping into the trough.
Farming is a life style occupation giving a working farmer a decent income and a capital return at the end in most western countries. Macdunk

AMR
09-10-2009, 04:43 PM
Now duncan....those are just stereotypes :)

srotherh
09-10-2009, 06:51 PM
Snoopy, What you fail to understand is the basic reality of the industry. The largest collective dairy farm player in NZ has just gone bankrupt. the russian collective farm system that grouped all the small farms into a large more efficient farms was a disaster.
You are still thinking its a numbers game which is a huge mistake.
Farming returns world wide measured against capital outlay and risk are very low in comparison to other industries. Farming is in most countries is a peasant occupation with very low rewards. You seem to think that we know best we will show you how to do it will change all that.
So what you can buy land and have people working on it at reduced rates you still have to pay the snouts dipping into the trough.
Farming is a life style occupation giving a working farmer a decent income and a capital return at the end in most western countries. Macdunk

Dunk
From my perspective you are on the money here
As a youngster I was brought up on a dairy Farm so it was part of my early culture/upbringing?
Spent my teenage and early married years working for myself in business
Always yearned to own a farm but every time I looked it made no financial sense
Maybe I like my return on investment too much rather than getting the gumboots dirty for a lifestyle that is often an illusion.

AMR
09-10-2009, 07:31 PM
Dunk
From my perspective you are on the money here
As a youngster I was brought up on a dairy Farm so it was part of my early culture/upbringing?
Spent my teenage and early married years working for myself in business
Always yearned to own a farm but every time I looked it made no financial sense
Maybe I like my return on investment too much rather than getting the gumboots dirty for a lifestyle that is often an illusion.

Was it the capital gain?

Snoopy
10-10-2009, 10:34 AM
Always yearned to own a farm but every time I looked it made no financial sense


May I ask srotherh, what were the years you were looking and considering a possible farming future? I am trying to put your experiences in the context of what has happened to farming returns and farm prices over the last few decades.

SNOOPY

kiora
10-10-2009, 11:58 AM
Was it the capital gain?

Farm capital gain info available at nationalbank.co.nz/rural reports.Capital gain IMHO driven in recent years, just like housing market,by bank liquidity rather than real returns.Farm valuations are now dropping with banks having to make some hard calls.Look out when...../if interest rates go up again !:mad:

Snoopy
12-10-2009, 12:25 PM
Farm capital gain info available at nationalbank.co.nz/rural reports. Capital gain IMHO driven in recent years, just like housing market, by bank liquidity rather than real returns. Farm valuations are now dropping with banks having to make some hard calls. Look out when...../if interest rates go up again!


I think you have to go back a long way to find when New Zealand farms were cheap, relative to the income they produce. Farm prices may have appeared to be driven by banks having the funds to lend. But ultimately, IMO, the value of the farm can only be driven by the work of the farmer.

150 years ago, burning down the native bush to turn what appeared to be an unproductive wild bush ecosystem into green grassland was the starting point. Then it was a matter of judicious application of fertilizer to build up the quality of the soil. Then experimenting with different kinds of pasture. And in parallel with this, the idea of buying out the neighbours farm to make your own farm a larger and so more productive unit has gained favour.

Along with the evolution of the land itself came the evolution of what to stock on it. Wool used to be the golden export crop. Then along came refrigeration and farmers found it was worthwhile sending sheep meat as well back to the 'mother country'. Since then there have been so many 'new & hot' things to farm I have lost count: deer, angora goats, ostriches, alpacas etc. etc. Some of these 'new stock' ideas have developed into profitable niches, while others have faded.

Now imagine what the value of farms would be today if the farmers of 150 years ago had 'stuck to their knitting' (sic) and decided to focus only on the wool crop from their partially broken in lifestyle size land holdings. I don't think there is any doubt that over the long term the value of farms has been driven upwards by what farmers themselves have managed to do with their farms.

There is a farming funding issue. For bankers, it can be hard to see the small picture effect of how good some of these innovations were at the time the latest 'new thing' was getting started. However, 'land value' is something much easier for a banker to understand. So farmers have tended to borrow against the security of the value of their land to expand, rather than try to argue the risk/return merits of building a new milking shed. That way the bankers don't need to understand the finer technical points of farming and the farmer gets the funds to do the job. The farmer's increased productivity will tend to drive the value of farming land higher, while the banker is continually reassured by the resulting ever increasing land valuation over time.

Over time the 'trading currency' of farming in New Zealand has become the underlying land value itself. But farming land does not increase in value 'as of right' every year. It has increased in value because of the technical and managerial competancy of our farmers over many years. Because land trading is an easy process, and dare I say it, capital gains tax advantageous, farmers have paid more for land than it is ostensibly worth to the casual outside observer. Farmer's then apply their know how to the land. Within a few short years the land becomes worth what they paid for it - and more (as farming is a process of continual improvement). But all Joe Citysuit can see from the outside is that farming land looks constantly overvalued.

I am not sure when NZ farmland first became 'overvalued'. Possibly in the late 1950s, early 1960s? But I am clear that this overvaluation will only become a problem if NZ farmers stop innovating. Or more accurately stop innovating at a rate that is implied by the increase in land values. For those land values are in effect a bet on farmers increasing their productivity in advance.

In Uruguay, we have what some have termed 'peasant farming' on unimproved land, perhaps an equivalent state to where New Zealand farmers were 60-100 years ago. Farming land has traditionally not carried any technological or management premium. That's because there has been not much technology nor active management applied. But that doesn't mean that 'New Zealand farming systems' can't be applied in Uruguay. Indeed it is the aim of NZS to do exactly this. And because we shareholders are getting in on the ground floor, we shareholders can expect a much greater return long term return than the 3% per year touted on this thread as the 'return for all farming'. That's how I see things anyway.

SNOOPY

discl: hold NZS

bung5
13-10-2009, 08:44 AM
Just wondering for those of you who do hold NZS: How many of you voted for the outsider director that the board was against?

Snoopy
15-10-2009, 11:10 AM
Just wondering for those of you who do hold NZS: How many of you voted for the outsider director that the board was against?


It looks like it was just you and I who voted for the rogue director bung ;-)

Without the support of the board in a situation like this, I can't ever recall a rogue director being elected. But we shall see. If he is no good, then there is nothing to stop another shareholders resolution being put next year to get rid of him. As a fall back position, I would like to see a representative of new shareholder Olam investments on the board. In any circumstance I would like to see NZS and PGW disengage more at least at board level. However competant Keith Smith is, I don't think it is a good look having one person being the Chairman of both companies when respective PGW and NZS shareholders are looking for 'arms length' decisions from both boards

I'd be interested to hear any reports from shareholders who attended the AGM. I have read both Keith Smith's and Michael Thomas's addresses on the net. I didn't like this comment:

"If milk prices around 20-21c per litre were to prevail, we would expect to require around $20 million to fund operations over the next two years in addition to the development spend, with this money to come from banking arrangements or asset sales."

Earlier on Keith Smith re-iterated that regarding the development spend:

"We estimate that a further $50 to $60 million will be needed on top of the first bond issue of $30 million to complete development of the existing 35,000 hectares. About half of this money is expected to come from a further bond issue of around $30 million, expected to be in the second half of the current 2009/10 year, with the remainder from outright sale or sale and leaseback of certain farms, or other funding arrangements."

$US30m has already been borrowed subsequent to balance date. If $US80m still needs to be borrowed, that means future annual on going funding costs of $US16.5m per year (based on NZS's 15% bond rate). $US16.5m at $NZ1- =$US0.75 amounts to an annual charge against NZS's 'profit' (in quote marks because NZS has yet to achieve a profit) of around NZ9c per share, based on the 244.2m shares already on issue.

If NZS is not profitable for three years, that means the underlying bet asset value will reduce from balance date's 94c (based on$NZ1- =$US0.75) down to NZ67cps.

Nevertheless with the share currently trading at 45c, there is room for a substantial return to shareholders over the next three years as even this 'bad case' scenario would see a compounding return to shareholders of around 11% per year. But in the short term, with the vagueries of farming that inherently exist, I can't see the share price moving much as result of the 2009 AGM revelations.

It was very gratifying to hear though, that here are no plans to dilute existing shareholders interests further with the issuing of huge numbers of new shares, apart from PGW management fees to be issued as shares in the future. That measure will help preservce NZS cash. But if the gap between net asset value per share and the share price closes, this will also have the effect of increasing the PGW managment fee back up to 1.5% of assets from the officially documented 1% of assets. So that is a win for PGW shareholders as well.

SNOOPY

discl: hold NZS

Doyle
15-10-2009, 01:30 PM
On the whole, the information put out today seemed slightly on the negative side. I paricularly didn't like the comment regarding finding it more difficult than anticipated to adapt New Zealand techiniques to their operations. Guess we will just have to take them at their word that 940kg/hectare is acheivable. Does seem to be on the contradictory side though. On the positive side its quite conceiavble that the average milk price will be close to 30c/litre before balance day. Certainly a little over 30cUS is the implied price of fonterras latest auction. So if that can be maintained should flow through to Cranopoles farmgate prices reasonably quickly.

Looks cheap to me in the 40's

Discl:Hold NZS and steadily buying more.

bung5
15-10-2009, 02:28 PM
"If milk prices around 20-21c per litre were to prevail, we would expect to require around $20 million to fund operations over the next two years in addition to the development spend, with this money to come from banking arrangements or asset sales."


Well hopefully the milk prices stay around the current levels or 30c and NZS could break even alot sooner. Any increase is welcomed of course :)

Doyle
04-11-2009, 08:45 AM
Milk Prices up an average of 13.7% today. Whole Milk Powder now averaging $3437 a tonne. Not bad considering market sentiments on the economy were heading the other direction. I imagine must flow through to cranopoles farmgate price retty soon.

If this keeps up for much longer break even won't be far away.

Nevl
04-11-2009, 10:02 AM
yeah looking good for Farming Systems if they can actually get some production on their land. As long as Europe stops being stupid(ok impossible I know) there actually could be a future here. Would be interested in seeing the latest production figure and looking forward to the next accounts season. Not expecting to see a break out for a while yet though.

GR8DAY
04-11-2009, 12:11 PM
.....thought there would be more interest given this latest Milk Price announcement. I guess most people wont get to hear about it till 2nite.......gotta be gud for Farming Systems surely?

Doyle
04-11-2009, 12:20 PM
Unfortunately, its turned into a bit of a pariah, due to some questionable management. Also big questions over wether it can hit its production target. Milk price has risen 87 % since july and its share price has shown virtually no movement since then. In fact its tracked downward slightly. So I think its fair to say that it would literally take a divedend to convince the market of the merits of NZS.

If management can hit its targets then this stock is a no brainer. SP seems to reflect a complete lack of faith in management.

duncan macgregor
10-11-2009, 12:57 PM
The unfortunate low level of farm gate returns on money invested, will always make this a poor company to invest in long term. Farming has always been a three pc return on money, after wages, plus a capital gain, which keeps pace with other property gains in the property market. I know a lot of farmers big, and small, who farm only for the security of the life style. They all tell me that three pc after they pay themselves a wage is about dead right in the long term. They all say that if they borrowed 100% of the farm value from the bank the farm would not be viable.
The russian collective farm idea was the city slickers method of sharing machinery, and increasing lower cost production, which actually did the opposite.
We now have a capitalist equivilent of this, where we know best, our methods are better than yours with a dumb group of investors investing in something that they have no understanding off.
Farming world wide is a high capital low return on money invested that cant support to many snouts dipping into the trough. I would think that even WDT might end up showing a profit before NZS. Macdunk

Doyle
10-11-2009, 02:42 PM
The unfortunate low level of farm gate returns on money invested, will always make this a poor company to invest in long term. Farming has always been a three pc return on money, after wages, plus a capital gain, which keeps pace with other property gains in the property market. I know a lot of farmers big, and small, who farm only for the security of the life style. They all tell me that three pc after they pay themselves a wage is about dead right in the long term. They all say that if they borrowed 100% of the farm value from the bank the farm would not be viable.
The russian collective farm idea was the city slickers method of sharing machinery, and increasing lower cost production, which actually did the opposite.
We now have a capitalist equivilent of this, where we know best, our methods are better than yours with a dumb group of investors investing in something that they have no understanding off.
Farming world wide is a high capital low return on money invested that cant support to many snouts dipping into the trough. I would think that even WDT might end up showing a profit before NZS. Macdunk

Well I guess time will tell, however a few points to note about what your assertions. Firstly I wholly agree with regard to the 3% returns.

-However based on NTA of US69cents per share current NTA sits at 93cents per share. 3% return on assets gives a 6% return on the share price.
- Secondly it is the old we know better than you argument, you obviously fundamentally believe we don't, where as I fundementally believe we do. Case in point being north Island dairy farmers moving to the south island and converting drystock properties. Using irregation and expertise were able to create superior farms in a very different climate for around 60% of the capital outlay.
- NZS is having a hard time of it at the moment, but has been bailed out by strong dairy prices. If it can hit its production targets then the company will be extremely successful. It looks like it may not hit those targets now however I believe will still acheive far more production per hectare than the average uragyian farmer. At 45 cents a share It won't need to produce 940kgs a hectare to be a good investment.

duncan macgregor
10-11-2009, 03:09 PM
Well I guess time will tell, however a few points to note about what your assertions. Firstly I wholly agree with regard to the 3% returns.

-However based on NTA of US69cents per share current NTA sits at 93cents per share. 3% return on assets gives a 6% return on the share price.
- NZS is having a hard time of it at the moment, but has been bailed out by strong dairy prices. If it can hit its production targets then the company will be extremely successful. It looks like it may not hit those targets now however I believe will still acheive far more production per hectare than the average uragyian farmer. At 45 cents a share It won't need to produce 940kgs a hectare to be a good investment. DOYLE You forget one little factor in your reply and that is snouts in the trough. Some of those people want hundreds of thousands of dollars in salaries and perks without even pulling a tit. With 3% return on money invested plus a capital gain at the end you would be much wiser to invest it in NZ in a car park building for at least twice that return. Who cares what production they can acheive per hectare the point being your return in capital invested. I would think long term a property trust such as KIP for example is a much safer investment rather than paying for pie in the sky investments such as this.
Your double the profit margin is smply because the shares are now half value. Give them time to drop further, a 6% return still wont beat the bank interest. Macdunk

Doyle
03-12-2009, 09:38 AM
Announcement out today,

Nothing too exciting, production increased significantly and on track with guidance. Milk price up to US24cents/ltr which was a little disapointing I thought it would be more than this. Still good news given estimates were based on a milk price of 20cents a litre. On the whole nothing exciting but the fact management is on track for their guidence in fact slightly ahead of it given the milk price, is exciting. If the whole milk price holds $3000 US/tonne should comfortably hit break even next year at a farmgate price of around 28-30 cents a litre.

flyingfox
04-12-2009, 02:47 PM
DOYLE You forget one little factor in your reply and that is snouts in the trough. Some of those people want hundreds of thousands of dollars in salaries and perks without even pulling a tit. With 3% return on money invested plus a capital gain at the end you would be much wiser to invest it in NZ in a car park building for at least twice that return. Who cares what production they can acheive per hectare the point being your return in capital invested. I would think long term a property trust such as KIP for example is a much safer investment rather than paying for pie in the sky investments such as this.
Your double the profit margin is smply because the shares are now half value. Give them time to drop further, a 6% return still wont beat the bank interest. Macdunk

properties are overvalued too much, but commondity is on the way of recovery, i dont think those property trusts are better investment than agri sector, i only invest in a sector at its bottom not top.
anyway commercial will be better than residential, and it is quite safe

Doyle
17-12-2009, 09:03 AM
27 cents a litre, new price for november. Finally farmgate price starting to reflect Whole Milk Powder price. Loss of no more than 10 million for this year predicted.

If milk prices can sustain around $3000/tonne I can see break even coming next financial year.

Doyle
05-01-2010, 12:31 PM
Up on strong volume today, back to post announcement high of 50cents. I'm guessing there will be a milk powder auction tommorow, should be interesting to watch what happens over the course of this week.

Silverlight
29-01-2010, 10:42 AM
NZS: Market Update 29 01 2010

https://www.i-search.nzx.com/blobs/NZXNZS/2010/325881/NZXNZS-113434.pdf

Silverlight
16-02-2010, 01:26 PM
Results announcement - Six months ended 31 December 2009

Half-year earnings reflect growth and improved operating conditions

Key points

- 42 percent increase in Revenue, to $US10.9 million

- 50 percent reduction in Operating Loss, to $US2.5 million

- Milk prices recovering, to US 29c per litre at the farmgate in December 2009

- 70 percent increase in milk production, to 42.1 million litres

- 15 percent reduction in farm operating costs despite increased production

- Five new milking sheds on target for autumn commissioning

Results for the December 2009 half-year reflected continued growth in the farming operations, improved operating conditions and the success of measures taken to reduce expenditure.

The Chairman, John Parker, said: “The company has established good momentum after the difficulties experienced in the previous year. Milk prices have improved, and tight cost control has resulted in a much improved performance.

Given the extent of the land banking undertaken we are understandably still a long way from steady state production on most of our existing farms, and still have many farms to develop. Our longest established farms indicate that our steady state goal of an average of 940 kilograms of milk solids per hectare is realistic, although was originally somewhat ambitious in terms of the time it would take to reach those goals.

Last year’s drought, poor prices and a lack of funds have been, or are being addressed to the satisfaction of directors. While it is impossible to fully drought-proof a pastoral farming operation, we are moving as rapidly as we can to have significant portions of all farms irrigated. The ramp-up in irrigation has been hampered by the availability of sufficient electricity reticulation and sufficient capital, but both issues are in the process of resolution.”


https://www.i-search.nzx.com/blobs/NZXNZS/2010/326494/NZXNZS-114218.pdf

Doyle
16-02-2010, 01:42 PM
Interesting, to see the market reaction, very little new information in my view. Things seem to be going as expected which is nice for a change. Monefra is on track for 94 kg/hectare, this season. WHich gives a good indication of what is possible

Bobcat.
16-02-2010, 02:05 PM
It could be that the mention of CAPEX constraints being about to be resolved has scared some shareholders into believing that a rights issue is imminent. Regardless of how they might need to raise more capital, this company looks to be on the up and up, and I expect that medium term so will its share price.

I'll keep holding the few I've got, buying more (perhaps next week?) on an upward price trend.

percy
16-02-2010, 06:21 PM
It could be that the mention of CAPEX constraints being about to be resolved has scared some shareholders into believing that a rights issue is imminent. Regardless of how they might need to raise more capital, this company looks to be on the up and up, and I expect that medium term so will its share price.

I'll keep holding the few I've got, buying more (perhaps next week?) on an upward price trend.

Y es looks as though things are now on track and under control.
I too will slowly add to my holding.Not sure if I have got my holdings right as I have a lot of PGC and only a few of PGW and NZS.

mouse
21-02-2010, 06:54 PM
Y es looks as though things are now on track and under control.
I too will slowly add to my holding.Not sure if I have got my holdings right as I have a lot of PGC and only a few of PGW and NZS.

But PGC holds almost 20% of PGGWrightson. And PGGWrightson owns lots of NZS. So you should be heavy on PGC and lighter on other two. I put cash into NZS and then, having heard negative arguments on the West Coast, "We are telling farmers in Uruguay how to farm", I sold the lot.
I think PPG Wrightson is a first rate investment though. Better than my Pike River!:) :) :)

percy
21-02-2010, 08:00 PM
But PGC holds almost 20% of PGGWrightson. And PGGWrightson owns lots of NZS. So you should be heavy on PGC and lighter on other two. I put cash into NZS and then, having heard negative arguments on the West Coast, "We are telling farmers in Uruguay how to farm", I sold the lot.
I think PPG Wrightson is a first rate investment though. Better than my Pike River!:) :) :)

Thanks for your reply mouse.
I agree with what you have said.My brother is a farm valuer in tasmania.he told me nz dairying is well ahead of the world so maybe they are right to tell everone how to dairyfarm.I was surprised how quickly farmers in canterbury converted forests to dairy farm so Uruguay with cheap land and wages made sense to me.Yes I should really only hold PGC but just cannot help myself.I just think of applying nz values to the Uruguay farms and what those values will be in a few years.

percy
21-02-2010, 08:04 PM
Mouse you will note I said nothing about Pike river.I wonder if it is time to test the power of prayer!!!!

bung5
03-03-2010, 01:29 PM
Got to scoop up as much of these while it is so cheap. Don't really understand the low sp . esp with NTA value of 94c a share, even if the books value things a bit over the top.....

Snoopy
03-03-2010, 08:36 PM
Got to scoop up as much of these while it is so cheap. Don't really understand the low sp . esp with NTA value of 94c a share, even if the books value things a bit over the top.....


To reprise from my post of 15th October 2009

------

Earlier on Keith Smith re-iterated that regarding the development spend:

"We estimate that a further $50 to $60 million will be needed on top of the first bond issue of $30 million to complete development of the existing 35,000 hectares. About half of this money is expected to come from a further bond issue of around $30 million, expected to be in the second half of the current 2009/10 year, with the remainder from outright sale or sale and leaseback of certain farms, or other funding arrangements."

$US30m has already been borrowed subsequent to balance date. If $US80m still needs to be borrowed, that means future annual on going funding costs of $US16.5m per year (based on NZS's 15% bond rate). $US16.5m at $NZ1- =$US0.75 amounts to an annual charge against NZS's 'profit' (in quote marks because NZS has yet to achieve a profit) of around NZ9c per share, based on the 244.2m shares already on issue.

If NZS is not profitable for three years, that means the underlying net asset value will reduce from balance date's 94c (based on$NZ1- =$US0.75) down to NZ67cps.

Nevertheless with the share currently trading at 45c, there is room for a substantial return to shareholders over the next three years as even this 'bad case' scenario would see a compounding return to shareholders of around 11% per year.

---------

Since I posted this dairy farm prices have continued to go down in New Zealand, and to a lesser extent Uruguay. It is possible that New Zealand Dairy farm prices will go down to match Uruguayan values, rather than the other way round.

The exchange rate weakening since October last means that the developed NTA has reduced to around 64c in three years time. So much for the quoted figure of 97c...

SNOOPY

discl: hold NZS

percy
04-03-2010, 06:39 AM
Snoopy
what an interesting post.certainly put me off my wheetbix.Had not thought of NZ dairy farms going down in value to match Uruguayan.Good point.

Balance
04-03-2010, 07:29 AM
Snoopy
what an interesting post.certainly put me off my wheetbix.Had not thought of NZ dairy farms going down in value to match Uruguayan.Good point.

Wouldn't happen.

That's a bit like saying that a wheat farm in Australia will have the same value as one in North America.

Silverlight
24-03-2010, 02:41 PM
Just noting some analysis form ALF thread about NZS.

ACC own 6.95%(16.6m shares) of NZS.

They bought 22m shares in the IPO at $1.50 (33m), and sold this down the their current holding on two stages at greater than IPO price.

There holding was reported in ACC's 2008 Annual report as worth 29.3m, today holding is worth 6.6m.

Nevl
24-03-2010, 08:02 PM
Snoopy
what an interesting post.certainly put me off my wheetbix.Had not thought of NZ dairy farms going down in value to match Uruguayan.Good point.


Would be cheaper for the Chinese to Buy NZFS rather than all the Crafar farms and they would get a lot more production. Seems a strange move by China to buy here when Sth America seems so cheap to Kiwi's!! But good for our farmers. Might buy some NZFS as a takeover play. Seems the Chinese are willing to pay top $

bung5
25-03-2010, 07:50 PM
Would be cheaper for the Chinese to Buy NZFS rather than all the Crafar farms and they would get a lot more production. Seems a strange move by China to buy here when Sth America seems so cheap to Kiwi's!! But good for our farmers. Might buy some NZFS as a takeover play. Seems the Chinese are willing to pay top $

surley they could just buy NZS and liquidate it and make profit :P

Anna Naum
25-03-2010, 08:07 PM
Would be cheaper for the Chinese to Buy NZFS rather than all the Crafar farms and they would get a lot more production. Seems a strange move by China to buy here when Sth America seems so cheap to Kiwi's!! But good for our farmers. Might buy some NZFS as a takeover play. Seems the Chinese are willing to pay top $

The label 'made in NZ' is still worth something

Dr_Who
25-03-2010, 08:09 PM
The label 'made in NZ' is still worth something

You are on to it Anna. Thats why we should never ever allow cow cubicle farming in NZ.

Silverlight
26-03-2010, 08:58 AM
The new marketing slant is not to call it Cow Cubicle farming, its Cow Housing :D

They are increasing the living standards for cows, or so goes the party line from the Cage promoters

Dr_Who
26-03-2010, 09:19 AM
The new marketing slant is not to call it Cow Cubicle farming, its Cow Housing :D

They are increasing the living standards for cows, or so goes the party line from the Cage promoters

Are they also change the name of Paremoremo to Hilton? :D

Snoopy
03-04-2010, 10:14 PM
Got to scoop up as much of these while it is so cheap. Don't really understand the low sp . esp with NTA value of 94c a share, even if the books value things a bit over the top.....


A semi-annual update on net asset values as listed in the HY2010 report, as at 31st December 2009.

Total Equity = $US$161.951m (From page 8)
No. of shares on issue = 244.236m
Exchange Rate $US0.71 =$NZ1-

NTA= [$161.951/0.71]/244.236 = $NZ0.94

Those predicted high interest rate costs haven't really kicked in yet. Interest expense over the last six months were $US3.877m or NZ2.2cps. However 36% of that figure relates to foreign exchange losses, and frankly I am not sure why there should be any! Can anyone help here?

Another hole in the asset base has been created by the write down in livestock, precipitated by the fall in cow value down from $US1300- per head as at December 2008 down to $US700- in June 2009, a valuation that has been maintained as at December 2009. Yet the price paid for milk by Conaprole in Uruguay increased from US24c/l to US29c/l over the June 2009 to December 2009 period while the market price per cow has remained constant. Any thoughts as to why?

Perhaps the $US18m ( equivalent to NZ10c per share) written off in the value of the herd over the past year will eventually be recovered?

SNOOPY

discl: hold NZS

duncan macgregor
04-04-2010, 06:13 AM
What I am saying is if i buy a commercial building to rent out in NZ i can expect a return on capital between 6% to 8% in rent plus a capital gain when i sell. If I buy a farm in any country in this world take your pick [excuse the pun]I can only expect a 3pc return on capital if i run it myself plus a capital gain when i sell.
To place managers in and run it like a company is a fools investment.
Thats only my opinion having been around farms in quite a few different countries. The investors coming into this will be city people i cant see any practical farmers investing in this. macdunk That is what i said three years ago practical farmers would know this will never be a good investment. There is not enough return to pay people to swill at the trough in dairy farming. Macdunk

macduffy
04-04-2010, 07:13 AM
However 36% of that figure relates to foreign exchange losses, and frankly I am not sure why there should be any! Can anyone help here?


I don't think the forex loss/cost of USD1.4m is out of proportion to the size of the operation considering that while the company reports in USD, it's operational costs will be largely in Uruguyan Pesos.

I don't hold.

percy
04-04-2010, 08:32 AM
[

Perhaps the $US18m ( equivalent to NZ10c per share) written off in the value of the herd over the past year will eventually be recovered?

SNOOPY

discl: hold NZS[/QUOTE]
I note in the report;Calves born in 2010 will again be cross-breds,as the company builds the future milking herd based on New Zealand genetics.
Now I did read somewhere the bred of the herd was wrong.So this may be why it has been written down.It will take a while to bred the correct herd.
I do feel the company's original objectives are still on track.The whole idea is a sound one.They donot have a lot of room with capital so will have to be careful.The problems have been faced up to and company says irrigation has been hampered by the unavailabity of sufficient electricity reticulation and capital,both issues are in the process of resolution.

Snoopy
04-04-2010, 10:30 AM
Practical farmers would know this will never be a good investment. There is not enough return to pay people to swill at the trough in dairy farming. Macdunk


Macdunk, you are one stubborn rural critter. But I don't believe you are stupid, so I ask you to take your Easter Egg into the corner, find a comfortable chair and chew on this, my last attempt to make you get how investing in NZS can be worthwhile.

Let's start assuming that your 3% return on farmland is right.

Lets say you own a $1m farmlet, and stick a few cows on it and hire a few milk maids to manage it. Through working night and day with the best farming techniques after wages and costs you manage to eek out a $30,000 return through the upmarket MacDunk branded cheese called "Cheesed Off". Yet $30,000 on a $1m investment is only a 3% return, your ballpark figure.

Now lets say you get sick of the land chained lifestyle and are desperate to spend your last few years on this earth, eeking out a living as a subsistence fisherman. After ignorant interest from city folk who know nothing about farming, you decide to sell your farmlet to your favourite old sheepdog, your best mate and mutt 'Snoopy'. Being a mere dog, Snoopy isn't loaded with cash and you settle on a price of $300,000. A bit of a come down, but enough money for you to buy some kauri logs, some flax to lash them together with, and still have enough left over for woodworking class where you will learn the ability to whittle up some fish spears and an oar.

Your cows of course, don't care about what you are up to and carry on producing the milk. The supermarkets that you have been selling to don't care either. As long as they are kept being fed the supplies of your 'Cheesed off', they will avoid becoming so. Snoopy on the other hand is now enjoying what was your $30,000 income on an outlay of only $300,000, for a gross return of 10%. Nothing has changed in the business from the way you were running it. The only thing that has changed is that Snoopy is receiving a much better return, solely because he paid much less than what you did for the land.

What I am pointing out here is that how much the milk maids are siphoning off at the trough on the way to squeezing out your cheese profits is irrelevant, or more correcting can be compensated for as long as Snoopy pays a low enough price for the underlying land.

The proposition then is not that a 3% return is unacceptable and therefore no sane business person should ever be a farmer. The question instead becomes how can one acquire land cheaply enough to make that 'nominal 3% return' acceptable?

Let's say you have an opportunity to buy shares in a farm at $1 each that are offering you a 3% return. If you can buy those same shares for only 38c, then your return becomes 3c/38c= 7.9%. Still not enough return for you? How about buying in at 30c for a 10% return? Still not enough for the risk? What about buying the shares at 15c for a 20% return? At some point the share will become cheap enough for you to say, OK I will take the risk. Of course that point might be different for different investors. But to sit in the corner of your subsistence fishing hut munching your Easter Egg while curmudgeondly refusing to install a window because whatever happens to the view out there, however attractive it becomes it isn't worth looking at, is surely not the way to go.....

SNOOPY

Snoopy
04-04-2010, 10:14 PM
I note in the report;Calves born in 2010 will again be cross-breds,as the company builds the future milking herd based on New Zealand genetics.
Now I did read somewhere the bred of the herd was wrong.So this may be why it has been written down.It will take a while to breed the correct herd.


I think most of the herd is Holstein in Uruguay, and NZS are cross breeding with the Jersey. The idea is to get a smaller animal is size that nevertheless produces a similar amount of milk with higher milk solid content. I would be interested to know what the difference in value of a Holstein cow and a Jersey cow is here in New Zealand.

Meanwhile I have been following the milk production forecasting schedule for NZS.

On 15th October 2009 at the AGM address then Chaiman Keith Smith announced:

"The Company expects its milk production to nearly double this financial year"

Since 'last year (FY2009)" produced 44.6 Ml of milk, that implies up to 90ML for FY2010, a figure that is broadly consistent, although higher, than new Chairman John Parker's figure of 80-85Ml (p3 HY2010 report).

The problem is that as at 30th June 2009, three months earlier, at the time of the Uruguayan bond issue prospectus, NZS were predicting production of 127Ml of milk for FY2010. This is a huge deterioration in just over 3 months. To my mind the whole NZS development program looks to have been set back by a year following just a couple of months of drought! Would any NZ farming interests like to comment as to whether this is a reasonable forecasting response to the deteriorating pasture. Or are we looking at an example of NZS mismanagement here?

SNOOPY

Enumerate
04-04-2010, 10:42 PM
This is a huge deterioration in just over 3 months. To my mind the whole NZS development program looks to have been set back by a year following just a couple of months of drought!


But this is not the whole picture?!?

1) The production forecast was based on development of the land bank. Clearly the rate of development has slowed with the financial constraints of the GFC and hence a factor reduction in the production forecast. They have sold development land to pay the PGW fees which must impact development and hence production - they have also been playing "catchup" in terms of debts built up during the drought which reduces land development capital which reduces production.

2) The Uruguayan bonds have a variable payout based on a number of factors - the dominant one being production. I wonder if the high forecast was in the context of positing the "top of line" returns on the bonds?

BTW - love your work - prior post to this last one.

duncan macgregor
05-04-2010, 07:22 AM
SNOOPY, I am contently munching my easter egg trying to work out why after paying a $1-40 for a share and all the way down, you can rub your hands in glee that, that makes the sums stack up. Loss of capital my friend is to be avoided. If you had listened to old macdunk you wouldnt find yourself in this mess trying to create a positive out of a dropping SP. Macdunk

percy
05-04-2010, 07:36 AM
[Q. They have sold development land to pay the PGW fees which must impact development and hence production - they have also been playing "catchup" in terms of debts built up during the drought which reduces land development capital which reduces production.

the nzs announcement 29/3/2010 states' sell less-developed and less suitable portions of its farmland' they have retained the developed portion.

Snoopy
05-04-2010, 09:12 AM
But this is not the whole picture?!?
1) The production forecast was based on development of the land bank. Clearly the rate of development has slowed with the financial constraints of the GFC and hence a factor reduction in the production forecast. They have sold development land to pay the PGW fees which must impact development and hence production - they have also been playing "catchup" in terms of debts built up during the drought which reduces land development capital which reduces production.


I am not sure the GFC affected the development of the project as much as you think. The original prospectus had a land bank only around half the size of what NZS has now. The company was originally set up to be debt free (which when you take out the bridging finance between the issue of first capital, it was) in the establishment years. As a result, NZS has never struggled to raise funds.

I don't think it is fair to say NZS has 'sold land to pay out PGW fees'. The payment of this fee on 31st March had been well signalled. Taking an overall funding perspective, it would be just as accurate to say that the PGW fees were paid out of capital raised in the Uruguayan bond issue which until September NZS only pays interest on at a rate of 5%. The interest rate being paid to PGW on their unpaid fees was 8%! But even if you accept the headline, to my mind getting rid of this PGW liability by selling undeveloped land that had no hope of earning an equivalent income to cover the loan was very sound business strategy.

The collapse in NZS share price roughly paralleled the collapse in milk price. But the original NZS prospectus never assumed peak milk prices of US40c/l. That was all post float hype. Milk prices now are in line with the original prospectus assumptions. The selling off of some land will still leave the company much larger than originally planned. And it makes far more sense to sell off land at full price to raise cash if the alternative is to issue new shares at a price way below net asset backing, when those 'net assets' are largely land. To do that would crytallize the market discount of land already held on the books, which certainly wouldn't make sense.



2) The Uruguayan bonds have a variable payout based on a number of factors - the dominant one being production. I wonder if the high forecast was in the context of positing the "top of line" returns on the bonds?


You could be right about pumping up those bond returns Enumerate. I re-read the Uruguayan bond prospectus again, in particular the risk section. I think that the company has 'covered themselves' about not paying out interest at their peak advertised rates. The potential problem is that NZS are planning to go back to get another $US30m of bond funding. The first tranche was oversubscribed. But, given what has happened, will NZS have to offer a sweetened deal for this second tranche? Such a sweetening of course, would come at the expense of shareholders.

SNOOPY

Snoopy
05-04-2010, 09:25 AM
SNOOPY, I am contently munching my easter egg trying to work out why after paying a $1-40 for a share and all the way down,


Macdunk you are overdosing on chocolate. I never paid $1.40 for any of my NZS shares, nor anything like that price.



you can rub your hands in glee that, that makes the sums stack up. Loss of capital my friend is to be avoided. If you had listened to old macdunk you wouldnt find yourself in this mess trying to create a positive out of a dropping SP. Macdunk


The share price may drop again Macdunk if NZS drops out of the NZX50. Those index managers will be forced to sell out. You of course would see that as another negative for the company. While I will be ready with my hoard of cash ready to buy.

SNOOPY

duncan macgregor
05-04-2010, 10:53 AM
Yes, trading down to $1.45. So far the trades look like bigger players passing the parcel between themselves. Not much evidence of small shareholder involvement yet.

Now all I neeed is Macdunk to pop up and say that I should have sold out at $1.50 on the opening bell and that I have now 'lost money' for my prediction to be complete.

SNOOPY

discl: hold what was NZFSU, now NZS, and intend being on the share register for some time.The easter bunny has nothing on you Snoopy.

Snoopy
05-04-2010, 04:39 PM
Snoopy wrote
"Yes, trading down to $1.45. So far the trades look like bigger players passing the parcel between themselves. Not much evidence of small shareholder involvement yet."

"Now all I neeed is Macdunk to pop up and say that I should have sold out at $1.50 on the opening bell and that I have now 'lost money' for my prediction to be complete."

SNOOPY

"discl: hold what was NZFSU, now NZS, and intend being on the share register for some time."

The easter bunny has nothing on you Snoopy.


Macdunk, I bought my first shares in the float. The most I have ever paid for an NZS share is $1. The initial *market* price does not necessarily reflect what the initial shareholders paid.

BTW I forgot to congratulate you in your last post for - at last- getting it.

"If you had listened to old macdunk you wouldnt find yourself in this mess trying to create a positive out of a dropping SP."

Any opportunity to buy a share at a low price is better than buying that same share at a higher price. So yes for an investor, the lower price you pay for an investment, the better. Buy low and sell high! Finally you see the light.

SNOOPY

Snoopy
06-04-2010, 12:51 PM
I re-read the Uruguayan bond prospectus again, in particular the risk section. I think that the company has 'covered themselves' about not paying out interest at their peak advertised rates. The potential problem is that NZS are planning to go back to get another $US30m of bond funding. The first tranche was oversubscribed. But, given what has happened, will NZS have to offer a sweetened deal for this second tranche? Such a sweetening of course, would come at the expense of shareholders.


I have got a bit fixated about these bonds, but I think for good reason. When a business is mature,interest is a cost of doing business. But when a business is in its initial developmenmt phase and no profits are being generated, then the interest has to be paid from shareholder funds. IOW it is a direct loss to the shareholder investor. And, as a shareholder, I want to know how much I will be losing!

The interest payable on the first tranche of Uruguayan bonds is capped at a low 5% until September 2010. Uruagayan inflation is around 5%, so the bond investors are in effect just standing still. The big payoff starts this September when the interest payable is scaled up by the dollar amount received for the just finished financial year divided by the milk receipts from the 'base year' (1st July 2007 to 30th June 2008), with an adjustment for input costs. Restating this by symbol:

A(n)= B(n)/C(n)

where A(n) is the multiplication coefficient of the base 5% interest rate, B(n) represents the dollar value of milk sold in relation to the FY2008 (1st July 2007 to 30th June 2008) base year, and C(n) is a cost appreciation factor in relation to input costs. I estimate this to be 1.06 for the period starting 1st September 2010. To further define B(n):

B(n)= D(t) / D(07-08)

Where D(07-08) is $US5,330,699.38, being the gross milk sales revenue on the base year 2007-2008 and D(t) is the amount of gross milk sales revenue of the just past year (as at 30th September 2010, when the formula is first used, this will be FY2010).

O.K., the first $US30m loan is incurring interest at a rate of 5% or:

$US30m x 0.05/4= $0.375m per quarter

Expected milk production for FY2010, expected to be around 80-85Ml and at an average price of US23c/l that will give gross revenues of:

(80 to 85)x 0.23c= $US18.4m to $US19.5m

So we can now calculate A(n):

A(n)= [$US19.5/$US5.331m] / [1.06] = 3.46

The base interest rate is 5% so the revised interest rate will be:

5% x 3.46= 17.3%

However, the interest rate is capped at a maximum of 15%. So I expect the quarterly interest payments to triple after 30th September to:

$US0.375m x 3= $US1.125m.

That means we shareholders will be facing an annual interest bill of:

$US0.375m + $US1.125m + $US1.125m + $US1.125m= $US3.75m

With 244.2m NZS shares on issue and based on an exchange rate of $NZ1= $US0.7
, this represents a loss of capital of:

($US3.75/0.7)/244.2m= 2.2NZcps

That loss will rise to 2.63NZcps in subsequent years and that cash drain will double again when the second $30m loan is taken out.

A loss of around 5.2c per share every year in bond interest payments will certainly be noticed by NZS shareholders.

SNOOPY

bung5
06-04-2010, 03:33 PM
Hmmm that is a drain on the NTA not the share price....

well indirectly it could be but im sure they wouldn't have the bonds if the share price was over NTA / shares

percy
06-04-2010, 04:44 PM
surely the bond money will be used to increase the capital value of the farms.if capital value does not exceed the cost, then why bother?

bung5
06-04-2010, 05:44 PM
surely the bond money will be used to increase the capital value of the farms.if capital value does not exceed the cost, then why bother?

I thought it was to build milking sheds etc that they actually need to produce milk .... without that there are farms making no money

percy
06-04-2010, 06:25 PM
I thought it was to build milking sheds etc that they actually need to produce milk .... without that there are farms making no money

I would think I would pay more for a farm with milking sheds on it than I would for a farm without them.
ie a farm converted to dairying would be more value than bare land.So surely ever $1 spent should add $1 plus whatever to farm value.
I thought that was the whole point of the company.So instead of the NTA decreasing it should be increasing.If not why bother?

Snoopy
06-04-2010, 07:28 PM
Hmmm that is a drain on the NTA not the share price....

well indirectly it could be but im sure they wouldn't have the bonds if the share price was over NTA / shares


Quite right Bung5, to pull me up on the drain of bond interest money not affecting the share price directly.

I guess I was thinking along the lines of NZS being a 'property' company. And property companies are often valued at a discount to NTA. Granted some farms in Uruguay are not the same as a collection of office buildings. But land nevertheless always has alternative uses. So when valuing NZS, I think it is important to ask how much would someone else pay for the land if they wanted to say breed Ostriches or grow rice

The answer to that question depends on the market price of land, where all possible buyers are free to bid. At the moment those that are prepared to pay the most are dairy farmers. But we cannot be sure it will always be that way. That means I don't think we can ever write NTA out of the equation when valuing NZS. There will always be a relationship between 'earning potential' and 'underlying asset value'. But it isn't alwaays straightforward. That's why I posed the question earlier in this thread about the price of milk and the price of cows. In the long term I guess the price of cows and milk should move together. But in the short term, as I pointed out, it hasn't.

I am sure that management didn't create the bond issue to lose value. But due to the delayed effect of the value of the completed milk sheds verses the requirement to pay interest immediately on the bonds , in the short term I would say the NZS bonds are value destructive.

SNOOPY

percy
06-04-2010, 08:15 PM
Surely it would be more destructive without the bonds.
I hate paying for the petrol for my van,but without it I would not be able to earn a living.
In Blenheim we have seen poor sheep farms and forest blocks converted to vineyards.
In canterbury we have seen poor sheep farms and forest blocks converted to Dairy farms.
All NZS are doing is converting grazing land into Dairy farms.
like me they have to put petrol in the motor.

Snoopy
06-04-2010, 09:05 PM
Surely it would be more destructive without the bonds.
I hate paying for the petrol for my van,but without it I would not be able to earn a living.
In Blenheim we have seen poor sheep farms and forest blocks converted to vineyards.
In canterbury we have seen poor sheep farms and forest blocks converted to Dairy farms.
All NZS are doing is converting grazing land into Dairy farms.
like me they have to put petrol in the motor.


Ultimately you are right Percy.

If spending as little as possible was the only consideration, NZS would be buying a swag of plastic buckets, sets of S size milking gloves and hiring schoolchildren. By 'going the whole hog' and building 'New Zealand Way' milking sheds this should maximise the earnings potential of the cow and land resource.

But as far as the balance sheet goes, $50,000 worth of tin shed and $50,000 worth of cash in the bank are the same thing. The value increase in building milking sheds will come, but only if NZS succeed in lifting the farm income stream. And the proof of that, and hence the value that should be in parallel reflected in the share price, is still on the horizon.

At the moment we are in a 'time value of money' discount standoff. Guess the future income of NZS, then discount back to allow for operational completion being a couple of years away. Then factor in those climatic risks, risks of not being able to close a favourable funding deal with the second bond issue and the 94c of NTA value is only worth 38c on the market today. There is no quick 'windfall gain' in building milking sheds and dams.

SNOOPY

percy
07-04-2010, 07:18 AM
[QUOTE=Snoopy;299587]

. By 'going the whole hog' and building 'New Zealand Way' milking sheds this should maximise the earnings potential of the cow and land resource.

Right.So what will the farms be producing and what will the farms be worth in 5 years time? 10 years time? 20 years time? 50 years time?
I do not know,but I would guess world class Dairy farms producing a world class food product ,making excellent returns would be an asset I would be pleased to own.

Snoopy
07-04-2010, 10:49 AM
The first $US30m loan is incurring interest at a rate of 5% or:

$US30m x 0.05/4= $US0.375m per quarter

I expect the quarterly interest payments to triple after 30th September 2010 to:

$US0.375m x 3= $US1.125m.

That cash drain will double again when the second $30m loan is taken out.


OK, time to make a full year NPAT2010 (Year ended 30th June) forecast:

Milk Sales $19.7m
Cattle Sales $ 2.1m
---------
Total Sales $21.8m

On farm Expenses $20.0m
PGW fee $ 2.2m
Depreciation &
Amortization $ 3.2m
Other Operating
Expenses $ 2.5m
Bank Interest $ 1.6m
Bond Interest $ 1.2m
-----------
Total Expenses $30.7m

Net Operating Loss $8.9m

With 244.2m NZS shares on issue and based on an exchange rate of $NZ1= $US0.7 that equates to a decrease in net asset value of:

[$US8.9m/0.7]/244.2m = -5.2cps

Note: this operating prediction does not include the one off effect of land sales and livestock revaluations.

SNOOPY

percy
07-04-2010, 11:10 AM
Excellent work Snoopy.Would you mind doing 2014 prediction and I would be most interested in2019 because I think it may follow a wet 2018.

Snoopy
07-04-2010, 11:54 AM
The first $US30m loan is incurring interest at a rate of 5% or:

$US30m x 0.05/4= $US0.375m per quarter

I expect the quarterly interest payments to triple after 30th September 2010 to:

$US0.375m x 3= $US1.125m.

That cash drain will double again when the second $30m loan is taken out.


Another prediction, this time the full year NPAT2011 (Year ended 30th June) forecast:

Milk Sales $29.3m
Cattle Sales $ 3.1m
---------
Total Sales $32.4m

On farm Expenses $23.0m
PGW fee $ 2.2m
Depreciation &
Amortization $ 4.8m
Other Operating
Expenses $ 2.5m
Bank Interest $ 1.6m
Bond Interest $ 4.9m
-----------
Total Expenses $39.0m

Net Operating Loss $6.6m

With 244.2m NZS shares on issue and based on an exchange rate of $NZ1= $US0.7 that equates to a decrease in net asset value of:

[$US6.6m/0.7]/244.2m = -NZ3.9cps

Note: this operating prediction does not include the one off effect of land sales and livestock revaluations.

Assumptions:
1/the average milk price paid will remain at 23c/l. If the average price were to rise to 25c/l for FY2011 then the expected loss would nearly halve to NZ2.4cps.
2/ Milk production is approximately one year behind the timeline put out for the first Uruguayan bond issue. I am assuming total milk production hits 127.2 Ml in FY2011

However the result turns out, my analysis shows we are unlikely to see a net profit from NZS until the 2011-2012 year at the earliest.

SNOOPY

Snoopy
07-04-2010, 12:00 PM
Excellent work Snoopy.Would you mind doing 2014 prediction and I would be most interested in2019 because I think it may follow a wet 2018.


The end of FY2010 is only 2.5 months away Percy (30th June 2010) . I am making projections based on already published NZS half year results and management projections. I don't think I will be that far out.

SNOOPY

percy
07-04-2010, 12:29 PM
Snoopy you are doing an excellent job.
Last thursday i was driving towards the coast from Rakaia .used to be grazing sheep farm,now dairying.In one paddock must have been close to 1000 cows.Huge business. all I could think of is my shareholding in NZS.NZS have the land,they know how to convert a farm to Dairying.OK hold ups with power,t too much land,drought etc,but we will end up with a prize asset.
I think of RYM,their share price did nothing for was it 3years ?.Our day in the sunshine will come,and when it does the sunshine will go on and on for years..

Snoopy
07-04-2010, 12:45 PM
However the result turns out, my analysis shows we are unlikely to see a net profit from NZS until the 2011-2012 year at the earliest.


Apologies in advance for deflating the expectations of NZS shareholders. But I share your pain because I am a shareholder too!

With meaningful profits years away, I think it is more realistic to value NZS by net asset backing.

If we take the start of FY2010 (1st July 2009) as a base, then NTA was:

[$US168.795/0.7]/244.23m = NZ98.7c

I am going to ignore exchange rate adjustments because IME over time these tend to average out.
We already have a declared 'operational loss' of $US2.486m for the half year. So that leaves 'only' $US6.4m more losses to come by June 30th. By the end of FY2010, 'my' adjusted NTA comes out as:

NZ98.7c- NZ5.2c = NZ93.5c

By the end of FY2011, the NTA is set to reduce further

NZ93.5c-NZ3.9c = NZ89.6c

I am not prepared yet to estimate the company result for FY2012. But if we use the 'Macdunk Farm Income Factor' of 3% of assets I get 2.7cps.

That isn't very attractive, so those assets will have to be sold at a discount to 'make things pay'. If we decide an 8% return would be acceptable then we can pay no more than:

(3/8)*90c= 34c per share.

IMO that 'Macdunk return estimate' is too pessimistic and the real return is likely to be at leat double that. So my best guess is that come 2012, the market value of NZS shares will be around 70c. As a double check this valuation represents a 20% discount to NTA. For production land, that sounds about right.

Not great news for those that bought in the float, but a healthy premium to today's market price nevertheless.

SNOOPY

Dr_Who
07-04-2010, 03:17 PM
Hey Snoopy, whats your background?

Snoopy
07-04-2010, 04:10 PM
Snoopy, whats your background?


You mean after my service as a World War One Flying Ace?

I am not a farmer although I do have cousins who farm. They do sheep mainly. But by holding NZS I am able to let out my repressed 'inner farmer' instinct. Nevertheless I did work in a rural servicing industry for a while (irrigation mainly) many years ago.

I reckon I have a fair handle on the numbers. But I publish them here so you guys can keep me in check!

I have to admit I have never been to Uruguay, although I have gazed off the coast of Argentina looking at it. I did half eye up those shareholder tours to Uruguay, but the timing never suited. I didn't see mention of a shareholder tour this year - a casualty of the credit crunch? The next one might have to be a down-market version. I heard Craig Norgate had taken up bike riding. Do you think we could persuade him to stick the old tent in the pannier bag so we could all do a bike tour of the farm sites together? Any other shareholders keen? I know a little bit of Spanish. But I might have to do a course on eating beef and rice before travelling to acclimatise. I think that is all they eat in Uruguay!

However, it is only after joining this forum that I have found my real purpose on earth. I think I was put here to annoy Macdunk.

SNOOPY

bung5
08-04-2010, 08:08 AM
Yeah I will be doing the shareholder tour end of this year/ early next year if there is one. Was in Uruguay a few months ago... they didn't have a tour at the time but drove past some of the areas the farms were in.

GR8DAY
20-04-2010, 10:10 AM
Can somone explain to me the tie up with PGWrihtsons.....if there is one?.....and how do we find out about these Uruguay tours, if and when the next one is? Anyone think these shares are a "screeming" bargain at the moment or just fairly priced sub 40c?

bung5
20-04-2010, 10:28 AM
Can somone explain to me the tie up with PGWrihtsons.....if there is one?.....and how do we find out about these Uruguay tours, if and when the next one is? Anyone think these shares are a "screeming" bargain at the moment or just fairly priced sub 40c?

PGG Wrightson own some of NZS and also provide managment for NZS for which they pay a fee . You can see the details of this on half year report.
Cheap comapred to NTA but that comes with the risk of them not being able to raise capital to finish of the farm devolopment and volatility in milk prices. In 2- 3 years time if everything goes well they will be providing a very nice return on investment. But there are a lot of variables in the coming years.

bung5
20-04-2010, 10:30 AM
Can somone explain to me the tie up with PGWrihtsons.....if there is one?.....and how do we find out about these Uruguay tours, if and when the next one is? Anyone think these shares are a "screeming" bargain at the moment or just fairly priced sub 40c?

An investors’ trip to Uruguay is being planned for 26 – 29 September 2010

GR8DAY
20-04-2010, 10:35 AM
cheers Bung.....will keep a gud eye on them. Im looking to invest in something longer term and hoping to buy towards bottom of market.......A reasonable bet do you think at current prices?

bung5
20-04-2010, 10:48 AM
cheers Bung.....will keep a gud eye on them. Im looking to invest in something longer term and hoping to buy towards bottom of market.......A reasonable bet do you think at current prices?


I took large positions at 49c and recently at 40c . Short term volatility in the SP not a concern with me ....strong NTA and looking at 5 year min investment.

GR8DAY
20-04-2010, 12:00 PM
when do you expect a return on investment to shareholders ie dividends??

bung5
20-04-2010, 12:01 PM
when do you expect a return on investment to shareholders ie dividends??

could be around 2 - 3 years

Snoopy
20-04-2010, 01:31 PM
when do you expect a return on investment to shareholders ie dividends??


I am going to stick my neck out and say ten years. When you are paying interest at 15%, the best return to shareholders would be early repayment of those borrowings.

SNOOPY

bung5
20-04-2010, 02:00 PM
I am going to stick my neck out and say ten years. When you are paying interest at 15%, the best return to shareholders would be early repayment of those borrowings.

SNOOPY

You are right in that regard. But I think that it is more than likley of a capital raising when/if the share price returns over the NTA to repay that debt.