Being from Devon.. and having ridden the horse around and around in circles ( Hmm that might explain much ) driving the Cider press..
I can tell you Old Mout is like drinking Moet.. compared to real Scrumpy..
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I think it is probably best if you use this Graham score as a screen, as Graham intended. What this formula tells me is that Graham makes no distinction between different PE ratios and different price to book ratios across different industry groups. When using this formula you have to think about whether PGW justifies an 'average' PE ratio. I would argue that due to the cyclical nature of farming it does not. Also PGW has traded around the price to book ratio for a considerable period in its history. That is more than enough time for outsiders to buy into the company and make those lazy assets work hardrer. Craig Norgate couldn't do it, and neither so far has Alan Lai with his five year involvement. I would take this as evidence that working those lazy assets harder is more difficult than we observers think.
The problem I see with reverse engineering the formula, as Sparky has done, to derive a shareprice for a given PE and Price to book ratio, is that this approach embeds the assumption of a 'normal' PE and a 'normal' Price to Book ratio. I would argue that these normalised assumptions do not apply to PGW, so the Sparky formula will give potential investors a wrong (overoptimistic) answer on PGW share price value.
SNOOPY
As my alter ego Percy has already said, 20% to 50% is quite enough to get me excited in this climate of full valuation just about everywhere you look. But the thing that appeals to me about PGW having offended so many new investors to the company already is that it is hard to imagine a scenario where the PGW share price will go significantly lower as there is no lower sharemarket shelf than the one labelled 'utter contempt'. Investor protection on the downside is just as important as looking at the potential upside!
SNOOPY
I have always found that when I have an interest bill I have to pay it as well Winner. My preferred method of analyzing companies is net profit after both interest and tax has been paid, on a divisional basis. Having updated my spreadsheet for the FY2013 results, here is the picture it gives me.
That column on the right represents divisional earnings in millions of dollars, but I haven't figured out how to get the 'm' behind the number yet. To me there are three clear messages in this divisional profit sketch.
1/ Agriservices in total had a great year, much better than I expected.
2/ The light blue Agritech continues in what seems to be an unending slump.
3/ The South American growth engine has stalled, which is very disappointing.
SNOOPY
One thing I forgot to mention was that the biggest driver of 'growth' was actually the lower interest bill. Net interest payable dropped from $13.835m to $6.102m. Unfortunately with Alan Lai siphoning off as much cash as he can to keep cornerstone shareholder Agria afloat, this biggest driver of 'growth' has now stalled as well.
SNOOPY
Which column has got seeds in it Snoopy
Must have boosted whatever one it is in
I know that correlation does not necessarily imply causation, but I thought this more detailed examination of Agritech over several years does tell a story. The graph shows that while overall revenue is on a weak growth path, revenue from Agritech Australia is on a much stronger growth path. Unfortunately this strength seems to have come from buying a significant number of barely profitable or unprofitable bolt on acquisitions in Australia. The result has seen a sharp fall off in profits overall from the days when PGWs biggest income stream in Australia was NZ developed turf mix. Now the whole Agritech division is a mess and a far cry from the Monsanto of the southern hemisphere that Alan Lai envisaged when he seized control.
SNOOPY
P.S. On 1 August 2012 the Group entered into an incorporated joint venture in New Zealand, 4Seasons Feeds Limited. This joint venture company operates in the sale and distribution of
molasses liquid feed. The transaction involved the Group divesting certain assets including intangibles from Agri-feeds into the joint venture company 4Seasons Feeds Limited to create a supply chain to import, transport and distribute molasses through the former Agrifeeds channel.
Under the terms of the agreement Agri-feeds manages the operations of the joint venture company in return for a management fee. A loss on sale of assets of $2.9 million
was incurred with $2.8 million of this loss pertaining to a loss on the sale of goodwill. This JV entity is an associate and is accounted for using the equity method.
This has affected the revenues of Agritech, by transferring those earnings to earnings via an associate, 50% owned 4Seasons Feeds Limited. However I am not clear if the Agrifeeds division of Agritech no longer exists, or that declared on the books is just a remaining rump of the old whole business.
I've been mulling this one over, especially since I'm kicking myself for bailing too soon on FPA last year. (I was in for a full takeover, but once the share price recovered and levelled off I figured it wasn't happening - wrong!)
If I were strategizing a foreign takeover of a local company, my #1 rule would be this: Make sure the locals have skin in the game.
With the Ngai Tahu partnership and 50% non-controlling shares outstanding (an unfathomable percentage of which are assumed to be locally-owned), I'd say Agria have this spot-on already. Any more could trigger a firestorm of xenophobia in the local media and in their client base (Crafar farms anyone??).
So on that basis, I've recently thrown in the towel on what I hoped was another value/takeover play.
But in hindsight, what was different for FPA? Well, the #1 rule above would still apply, unless you could determine that the company wasn't the subject of nationalistic pride anyway. New Zealand is after all, in its own view, a '100% pure' agriculture producer, and someone else can take care of smokestacks and churning out widgets thanks.