Perhaps that explains why they are no longer directors.
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'3 days late' and the capital repayment announcement is out:
http://nzx-prod-s7fsd7f98s.s3-websit...127/303000.pdf
No word on the corporate review though. Perhaps the high powered executives have considered that ex CEO Ian Glasson falling on his sword was all that is required? If I was in one of those high powered corporate positions, I think that is what I would decide!
31c paid to each shareholder for every share they own followed by a 10:1 share consolidation is the plan. With the share price up 5.7% today to 56c (yay), that is equivalent to a post consolidation share price of: (56c-31c) x10 = $2.50. A nice round respectable number that potential new shareholders will just love?
SNOOPY
Three new directors,one of whom is the new Chairman.
New CEO......
All the right changes that were needed.
What are the tax implications?
The company has received a Product Ruling (BR PRD 18/05) from Inland Revenue confirming that the proposed return of capital to be implemented pursuant to the Scheme will not be treated as a dividend for New Zealand tax purposes. Inland Revenue’s confirmation applies on the basis that the conditions on which the Product Ruling was issued are satisfied. PGW considers that the Scheme meets these conditions. Shareholders should seek independent tax advice on the tax implications of the Scheme.
The above it taken from their Explanatory Notes 4/7/19: If all going to plan, am I reading this correctly, the 31 cents we receive for each share will be tax free?
A big day with the announcement of when and how that capital repayment of $235m will be returned to shareholders, But what has not been revealed until now is the indicative debt level of the PGWRR company that is left.
From an end of May 2019 post capital repayment balance sheet perspective, the total bank debt on the books is:
$3.920m + $31.742m = $35.662m.
This is within the 'core debt' envelope of $25m to $50m forecast for FY2020 (p9 of the proposal). But this is only part of the debt of the company that is forecast to balloon out by way of an additional $70m for 'typical seasonal working capital'. This reality is somewhat different to the 'debt free' situation that I imagined PGW would be in all year round in 'Part 3.2'.
A greater amount of debt outstanding means our indicative interest bill going forwards needs to be reworked.
Using past debt balances and interest payments declared over FY2018, the indicative interest rate bill 'before' was $10.235m based on an average debt balance of $179.834m, this implies an indicative interest rate of:
$10.235m / $179.834m = 5.7% (use in Step 2)
That means we can calculate the indicative annual interest payments after debt repayment as per the steps below:
Step 1/ Calculate the incremental peak seasonal debt multiplication factor:
PGW has various seasonal funding requirements that are met by taking on extra debt. The seasonal funding requirements are outlined in p9 of the 'Special Meeting' explanatory documents for the date of Tuesday 23rd July 2019. Peak working capital (and hence peak debt) is forecast to be between October and January, in line with selling spring seasonal goods to farmers.
Over FY2020, the minimum net working capital required is estimated to be $35.662m on July 1st 2019 peaking at $105.662m around November 2019.
$105.662m / $35.662m = 2.9629 (an increment of 196%). Yet averaged over a financial year and using a linear model, the average increase in incremental debt is only half this:
196% / 2 = 98% => Annual debt incremental factor = 1.98
Step 2/ Calculate Annual Debt Interest Payment
Using the liabilities in the balance sheet as presented on p10 of the Special General Meeting notice:
0.057x [$31.742m+$3.920m-$1.160m] x 1.98
= $3.894m
Rural Services ($39.5m EOFY cash balance after debt repayment) EBITDA $29.875m less DA $6.918m less I $3.894m equals EBT $19.063m x 0.72 equals NPAT {A} $13.725m No. shares on issue {B} 754.048m eps {A}/{B} 1,82c
SNOOPY
Scenario $157.5m debt repayment and new FY2020 Investment eps {A} 1.82c PGW Rural Rump: Market Valuation {B} 54c - 31c = 23c PE ratio {B}/{A} 12.6 Gross Dividend Yield {A}/{B x 0.72} 11.0%
Notes
1/ In the gross yield calculation I am assuming that all earnings are paid out as dividends. With 'Agria' better capitalized following the capital repayment and with some potential investment to be made on 'PGW Rural Rump' going forwards, this might not happen.
2/ The PE ratio is now looking looking high for this type of business, despite the fact I have considered a business cycle average value of earnings.
3/ The potential dividend yield looks O.K.. The lesser than expected capital repayment has not made PGWRR debt free after all. This is no doubt because PGWRR has elected to keep spending to invest in the business. But, conservatively, I haven't modelled the effect of any of this increased earnings coming through.
In this low interest rate environment I would be prepared to buy with a gross dividend return of 8.5%. This implies a post capital return share price of:
23c x 11.0/8.5 = 29.8c
Post 'capital repayment' and a couple of years down the track into more favourable farming times, I am therefore guessing a capital appreciation of around (29.8c -23c =) 6.8cps, plus dividends of 2cps per year, are on the table, with the share now trading at 54c. Given we shareholders are currently in a dip in the earnings curve, and that means a rather higher PE than I have calculated above, patience may be required. I see no immediate bargain available for new shareholders buying in at 54c.
SNOOPY
I would have thought a sudden influx of millions of Danish dollars would be the ideal time to properly fund the outstanding pension liability. However the proforma post capital repayment balance sheet just published, dated 19th May 2019, shows a net pension liability of $10.761m, up from $10.574m at the last balance date of 30-06-2018. This means the golden opportunity to 'square up' the pension scheme has been lost.
Such a small increase in 'net pension liability' ordinarily might not raise eyebrows. Except that:
1/ Equity markets that fund this liability have had a pretty good year.
2/ Around $3m of deficit funding was planned over FY2019 and this has made no net difference to the problem. AND
3/ The PGW company earnings that will fund the capital deficit will be greatly reduced in the future, now that PGW is only half the business it was, before the seed sale.
PGW has a history of trying to solve this problem.
Pension Scheme Funding Not Declared in Profit & Loss
FY2017 FY2018 FY2019 $7.551m $2.842m $2.94m (est)
The fact that the pension funding issue has not gone away brings to mind the question:
"Will a $3m donation towards the deficit have to be funded indefinitely by PGW?"
$3m on a NPAT of $16.5m is 18% of net profit. That would mean the underlying PGW net profit today, and in the future, could be around 20% below any headline figure we shareholders read about!
SNOOPY
The trend in 'GoBeef' and 'GoLamb' 'in house funding of purchases and sales' within the Livestock division is interesting.
Current Assets 'Go'
30 June 2016 30 June 2017 30 June 2018 19 May 2019 $12.178m $32.371m $39.419m $48.806m
Slowly the reasons for not returning more capital to share holders, like $3m in shoring up the pension liabilities and an incremental $10m here, are coming out...
SNOOPY