PGWRR as a takeover target
Quote:
Originally Posted by
Snoopy
So what does it all mean?
One method that KordaMentha used to evaluate the worth of the seeds division was 'Capitalisation of Earnings'. This consisted of using an appropriate multiple on the normalised EBITDA of the seeds division. This multiple was judged to be 10 to 10.5. This was 9% to 14% above the Australasian industry mean of 9.2 for FY2018, based on a basket of rurally based listed companies (including RuralCo and Elders, both very comparable to PGWRR). KordaMentha suggested that the premium EBITDA multiple was justified because:
1/ A takeover offer should include a control premium AND
2/ Seeds possessed high concentration of proprietary products, the result of an extensive and ongoing R&D program and higher than average profitability.
Clearly point 2 would not apply to the remaining divisions of PGW: 'Retail' and 'Agency' (PGWRR). So I am going to take the lower bound takeover multiple of an EBITDA of 9.5 to 10 to be appropriate for PGWRR.
This would equate to a takeover price of between:
$26.500m x 9.5 = $252m to $26.500m x 10.0 = $265m
Based on 754.048m shares being on issue, this equates to a share price of:
33 to 35 cps
That sounds a good premium to the implied value for PGWRR based on the implied value of 20.8c. 20.8c is consistent with a trading on the market today 52c pre capital return price.
But what if you compare that to the alternative strategy of not accepting such an offer and just waiting for the earnings yield to recover to the medium term average of 2.34c? Then 33-35cps would represent a gross earnings yield of 9.3% to 9.8%. There aren't many places alternative places in the market investors could get a gross yield like that.
I mention this while reminding shareholders that PGW board has destroyed a lot of shareholder value by selling off the seed division. The PGW share price sank after the Danish offer was received and it has never recovered. Recommending a further takeover offer down the track from their 'ELDers and betters' in the near term could see yet more shareholder wealth destroyed. Usually I go along with what the board recommends in a takeover situation. But given the record of the PGW board, I would suggest that PGW shareholders should be vigilant!
SNOOPY