Originally Posted by
Snoopy
PGW is particularly difficult to get to grips with. Each time you blink the company goes off in a new direction. That makes defining the core business difficult, let alone sifting out the 'one off' profits that are obviously not repeatable from year to year.
Ironically the failure of the Silver Fern Farms merger and the cooling off of the credit markets that were fuelling the PGW expansion means that PGW may be entering a period of forced stability. Greatly improved segment disclosure for FY2008 (backdated to FY2007 for comparison purposes) means that I have made some progress at least in sorting out the underlying earnings. I am still refining my model. But according to my calculations and subsequent forecasts made by PGW concerning future years, the underlying profitability trend of PGW looks something like this:
FY2010: $33m to $39m (management forecast)
FY2009: $30m to $32m
FY2008: $34m
FY2007: $31m
Specifically I have not included in my FY2007 and FY2008 operating results the proceeds of any property sales. Nor have I included the $17.8m bonus payment received by PGW in FY2008 for the listing outperformance by New Zealand Farming Systems Uruguay. I have however considered the ongoing managment fees payable on the NZS farms as a legitimate ongoing earnings stream for PGW that are likely to continue. Other profitability changes relating to:
i/'marking to market' of interest rate hedges under International Financial Reporting Standards, and
ii/adjustment of defined benefit superannuation scheme surpluses, and
iii/costs associated with the settlement of the partnership agreement with Silver Fern Farms Limited
have all been omitted.
That means from an 'operating perspective' PGW is currently trading on a projected PE of 7.2 to 8.5 (based on 305.8m shares on issue and a share price of 92c). This is not a demanding PE range. Given the outlook for growth beyond FY2010, I think it is hard to argue much downside from here from a purely fundamentalist earnings perspective. Of course from a capital adequacy prespective, potential shareholders might have a different view of where the share price might be headed.
SNOOPY
discl: hold PGW