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  1. #4411
    percy
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    Added to our holding at 54 cents just 2 minutes before the downgrade.!!!!

  2. #4412
    always learning ... BlackPeter's Avatar
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    Quote Originally Posted by percy View Post
    Added to our holding at 54 cents just 2 minutes before the downgrade.!!!!
    Good example for a situation where TA could have been deceiving - I guess the trend (all over MA100) looked all looked nice and fluffy, didn't it? On the other hand - it just bounced on Friday at the MA200 ...

    Anyway - I hope it was just a small addition. Better focus on your HGH holding - we hope together this will do better (and I am sure, it will ...).
    ----
    "Prediction is very difficult, especially about the future" (Niels Bohr)

  3. #4413
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    Quote Originally Posted by BlackPeter View Post
    Good example for a situation where TA could have been deceiving - I guess the trend (all over MA100) looked all looked nice and fluffy, didn't it? On the other hand - it just bounced on Friday at the MA200 ...
    I am not sure why you might expect TA would be any use with PGW right now. PGW is in a special situation where it is waiting on decisions from the Commerce Commission in New Zealand and its equivalent in Australia (these two now confirmed) , and the OIO in New Zealand and various other smaller associate businesses. The 100 day moving average is just a long enough time period so that it would typically cover two or three board meetings. That is just enough for a proposal to be put to the PGW board (for example), researched over a month (or two months) before the next board meeting, a decision made and that decision announced to the market. There could be a short term underlying earnings change based on the farm earnings cycle that could cause the share price to react to current market conditions. But in this instance, any such changes are overwhelmingly dwarfed by the cash potentially coming into the company should the seed business sale go through.

    The sale of the seed business was announced on 6th August 2018. The commerce commission(s) OK(s) were announced on 19th February 2019, just over six months later. The OIO has not yet reported back. Certainly none of these organizations are on anything near a 100 day timetable, or for that matter, any predetermined timetable. So on the surface, it would seem to me quite foolish to make a buy/sell decision for PGW based on a 100 day moving average statistic.

    SNOOPY
    Last edited by Snoopy; 19-02-2019 at 10:47 PM.
    To be free or not to be free. That is the cash-flow question....

  4. #4414
    always learning ... BlackPeter's Avatar
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    Quote Originally Posted by Snoopy View Post
    I am not sure why you might expect TA would be any use with PGW right now.
    Did you hear me saying that or is that what you read out of my post? Interesting.

    Market price is always determined by a huge number of parameters and driven by all sorts of events. Some of them the market can predict with a meaningful likelyhood (and in that case TA is helpful) and others it can not. But we both know that, don't we?

    Recent price drop was due to a profit downgrade which would have been predictable for an insider or a market expert, but obviously not enough people closely following the trading conditions - i.e. TA was in this case deceiving ...

    That is what I meant.
    ----
    "Prediction is very difficult, especially about the future" (Niels Bohr)

  5. #4415
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    Quote Originally Posted by BlackPeter View Post
    Market price is always determined by a huge number of parameters and driven by all sorts of events. Some of them the market can predict with a meaningful likelyhood (and in that case TA is helpful) and others it can not. But we both know that, don't we?

    Recent price drop was due to a profit downgrade which would have been predictable for an insider or a market expert, but obviously not enough people closely following the trading conditions - i.e. TA was in this case deceiving ...

    That is what I meant.
    Recent price action (over the last couple of months) has seen the share price slip from around 55c to 47c, whereupon the news of the commerce commission tick saw the share price suddenly jump to 55c then creep up to 57c. Upon the trading update, the share price dropped as low as 50c intraday, before bouncing up again to 54c. The way I look at this, the share price, has fallen a net 1c (the 55c to 57c rise being a transient short term reaction) since the profit downgrade was announced, verses an 8c gain with the a significant takeover hurdle being passed.

    While the trading update may have indeed been anticipated by insiders and may have been reflected in the share price trend prior to announcement, any effect from that was absolutely dwarfed in the opposite direction by progress towards the seed division sale. The jump reaction on the commerce commission confirmation would suggest this decision as not leaky, and not able to be anticipated by following the 100 day MA price. That was the point I was trying to make.

    SNOOPY
    Last edited by Snoopy; 20-02-2019 at 09:00 AM.
    To be free or not to be free. That is the cash-flow question....

  6. #4416
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    If the deal goes though and you get paid say 38c a share - market is trying to value remainder of business.

  7. #4417
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    Quote Originally Posted by tim23 View Post
    If the deal goes though and you get paid say 38c a share - market is trying to value remainder of business.
    There appears to be a couple of things that will affect the ongoing trading of PGW and that would be the joint venture with DLF over research and development.also the seed distribution agreement with DLF,how will they contribute to the bottom line.Snoopy might have some ideas in this area,but for me I don't have a clue!

  8. #4418
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    Quote Originally Posted by steveb View Post
    There appears to be a couple of things that will affect the ongoing trading of PGW and that would be the joint venture with DLF over research and development.
    I didn't know there was a joint R&D venture between PGW and DLF! A quick google search yielded this:

    "DLF says there is limited overlap between the Wrightson seeds business and its own Canterbury-based offshoot. DLF Seeds NZ was set up in 2004 and now employs 12 people."

    Does the 'limited overlap' refer to a joint venture? Or does it just mean they are both in the turf seeds and cool season forage business? Perhaps someone can clarify that?

    Would not any joint venture between PGW Seeds and DLF become simply a wholly owned DLF venture under the PGW Seeds acquisition deal?

    also the seed distribution agreement with DLF,how will they contribute to the bottom line. Snoopy might have some ideas in this area,but for me I don't have a clue!
    Steve, the seeds purchased by 'PGW Retail' are purchased on an arms length basis from the seed division already. That means, in the short term at least, there should be no difference whatsoever in the profitability of 'PGW Retail' as a result of the seed division sale. Longer term, IMO, the 'One PGW' strategy will be weakened because there will be no particular reason why 'PGW Seeds' (or whatever it is renamed) will see 'PGW Retail' as a favoured or optimum channel through which to deliver its seed products.

    SNOOPY
    Last edited by Snoopy; 21-02-2019 at 06:24 PM.
    To be free or not to be free. That is the cash-flow question....

  9. #4419
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    Seems to be a pretty good result

    But l think I’ll leave it to snoops to work through the detail for me ....especially leaving the discontinued bit out

    http://nzx-prod-s7fsd7f98s.s3-websit...139/295804.pdf
    ”You can't cross the sea merely by standing and staring at the water.” -Rabindranath Tagore

  10. #4420
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    The company releases didn’t look as grim as this article headline

    WRIGHTSON PROFIT PLUNGES 99% WITH CONTINUING BUSINESS DOWN 24%

    http://www.sharechat.co.nz/article/9...s-down-24.html
    ”You can't cross the sea merely by standing and staring at the water.” -Rabindranath Tagore

  11. #4421
    percy
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    Big reduction in divie too.

  12. #4422
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    Quote Originally Posted by percy View Post
    Big reduction in divie too.
    But a whopper of a ‘divie’ coming up

    Maybe the size of the divie just announced is indicative of what future divies are going to be when seeds finally goes (and some clever clogs could try to value PGW on this basis)
    ”You can't cross the sea merely by standing and staring at the water.” -Rabindranath Tagore

  13. #4423
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    Default Dividend Capitalisation Method valuation: Part 1 (FY2019 Data)

    Quote Originally Posted by Snoopy View Post
    My valuation method to reflect the dividends actually paid from years 2012 to 2018 inclusive, representing the whole Alan Lai era.

    Year Dividends Paid 'per share' Total
    FY2012 0.0cps + 0.0cps 0.00cps
    FY2013 2.2cps + 1.0cps 3.20cps
    FY2014 2.0cps + 2.5cps + 1.0cps (s) 4.50cps
    FY2015 2.0cps + 2.0cps 4.00cps
    FY2016 1.75cps + 2.0cps 3.75cps
    FY2017 1.75cps + 2.0cps 3.75cps
    FY2018 1.75cps + 1.25cps 3.00cps
    Average FY2012 to FY2018 inclusive 3.17cps

    (f) indicates forecast result.
    (s) indicates 'special dividend'. I have decided not to include any special dividend in this dividend model as I consider the special dividend is unlikely to be repeated.
    My valuation method to reflect the dividends actually paid from years 2012 to 2019 inclusive, representing the whole Alan Lai era.

    Year Dividends Paid 'per share' Total
    FY2012 0.0cps + 0.0cps 0.00cps
    FY2013 2.2cps + 1.0cps 3.20cps
    FY2014 2.0cps + 2.5cps + 1.0cps (s) 4.50cps
    FY2015 2.0cps + 2.0cps 4.00cps
    FY2016 1.75cps + 2.0cps 3.75cps
    FY2017 1.75cps + 2.0cps 3.75cps
    FY2018 1.75cps + 1.25cps 3.00cps
    FY2019 1.25cps + 0.75cps 2.00cps
    Average FY2012 to FY2019 inclusive 3.03cps

    (f) indicates forecast result.
    (s) indicates 'special dividend'. I have decided not to include any special dividend in this dividend model as I consider the special dividend is unlikely to be repeated.

    SNOOPY
    Last edited by Snoopy; 23-03-2019 at 10:54 AM.
    To be free or not to be free. That is the cash-flow question....

  14. #4424
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    Default Dividend Capitalisation Method valuation: Part 2 (FY2019 Calculation)

    Quote Originally Posted by Snoopy View Post
    Plugging in a representative yield, one that represents the ups and downs of the farming cycle of PGG Wrightson in its current form, we can now arrive at our 'Capitalised Dividend Model' valuation

    (Representative Dividend per Share) / (Acceptable Yield) = Share Price (an algebraic manipulation of: Dividend per Share / Share Price = Yield )

    3.17c / 0.72 x 0.095 = 46.3c

    Note that I am using 9.5% as my acceptable gross yield. Some might argue that is high. But I think it is fair given that much of PGW's profit comes from low margin commodities subject to weather event demand. Some years ago PGW paid no dividend at all for several years in a row. This kind of risk is reflected in my selection of a 9.5% acceptable yield, about half as much again more than a tier one utility company.

    This 46.3c valuation is measured at the average point in the business cycle. One might argue that we are now riding high in the business cycle and that this 46.3c valuation is consequently too low given today's circumstances (sp closed Friday at 57c). I wouldn't argue with that. If I use my +20% rule of thumb, one might expect a share price of 56c at the top of the business cycle. Given agriculture is currently in quite a sweet spot in New Zealand I would say Mr Market has it about right. Likewise 37c would be the bottom. I wouldn't be selling or buying more PGW shares based on these numbers.

    Naturally all of this earnings based valuation doesn't reflect any takeover premium that might come to the table as a result of the offer for PGW Seeds, should that offer go through. This is still of interest for those who object to the proposed sale of the seeds business. Such shareholders may be able to invoke minority buy out rights. A buy out price should reflect the company valuation, pre any offer, and this could be below the recent market price for the shares!

    SNOOPY

    discl: hold PGW
    Plugging in a representative yield, one that represents the ups and downs of the farming cycle of PGG Wrightson in its current form, we can now arrive at our 'Capitalised Dividend Model' valuation

    (Representative Dividend per Share) / (Acceptable Yield) = Share Price (an algebraic manipulation of: Dividend per Share / Share Price = Yield )

    3.03c / 0.72 x 0.095 = 44.3c

    Note that I am using 9.5% as my acceptable gross yield. Some might argue that is high. But I think it is fair given that much of PGW's profit comes from low margin commodities subject to weather event demand. Some years ago PGW paid no dividend at all for several years in a row. This kind of risk is reflected in my selection of a 9.5% acceptable yield, about half as much again more than a tier one utility company.

    This 44.3c valuation is measured at the average point in the business cycle. If I use my +20% rule of thumb, one might expect a share price of 53c at the top of the business cycle. Likewise 35c would be the bottom.

    One might argue this valuation is historical and has been overtaken by the Danish offer to buy out the seed business. This dividend / 'sustainable earnings' based valuation doesn't reflect any takeover premium that might come to the table as a result. However, I don't believe yet that the 'seed business sale' is a done deal. In fact, I believe that management have been a little arrogant saying they don't see any impediment to the buyout and expect it to be rubber stamped. It is up the the overseas investment office to see any impediment - not them. The PGW share price weakened off on Friday to leave a 4c buy sell spread at the close (48c buy 52c sell). It looks like someone wanted out. I have been waiting in the wings for just such an opportunity and as a result I topped up my shareholding at 49c.

    Even if we take into account the 2c fully imputed dividend over the year, it is clear the plan to sell the seeds business is not liked by the market and significant destruction of shareholder wealth has occurred as a result. I am picking the share price will go up from here if the seed business takeover offer is canned, but it will also go up if the seed business takeover is successful. It is a short term focus on a more difficult operational year and uncertainty as to whether the deal will go through that is keeping the PGW share price below 50c right now.

    SNOOPY

    discl: hold PGW
    Last edited by Snoopy; 23-03-2019 at 11:23 AM.
    To be free or not to be free. That is the cash-flow question....

  15. #4425
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    Quote Originally Posted by steveb View Post
    But if the seed division is losing money at NPAT level as suggested in the last update, I can't see the SP bouncing back up,if the seed sale is called off.It will be interesting to see the half year results in a couple of weeks.
    Quote Originally Posted by winner69 View Post
    Seems to be a pretty good result

    But l think I’ll leave it to snoops to work through the detail for me ....especially leaving the discontinued bit out

    http://nzx-prod-s7fsd7f98s.s3-websit...139/295804.pdf
    I wouldn't be leaving the seed division out of this just yet, Yes, that after tax loss for seeds of $8.6m for the half year was a shock. But it seems to be related to the Seed and Grain division acquiring the other half of the joint venture in Uruguay called 'Agrocentro' (otherwise known as 'Aggrocentro'?). PGW's initial 50% stake in 'Agrocentro' was acquired in 31st August 2015 (i.e. during FY2016).

    'Agrocentro Uruguay started in early 2007 in the east of Uruguay. It has four business units - retail and distribution of agricultural products, farming, logistics and consulting services - and 120 staff, including 28 agronomists and veterinarians and eight retail branches.'

    At the time of acquiring their initial stake, PGW's CEO Mark Dewdney referred to it as a similar but smaller business to PGW. One thing Agrocentro is not, to my knowledge, is a developer of new seeds and cultivars. Agrocentro's Lascano treatment plant offers the conditioning and cleaning of forage seeds and crops and also has a fully equipped laboratory to analyze grains and seeds. But there is no mention on the website (http://www.agrocentro.com.uy) of an in house seed breeding program. So it seems odd that this business unit is being hived off to the Danes of DLF Seeds, who are pure seed and cultivar developers.

    From AR2016, page 46, when acquiring 50% of the business the comment was:

    "The acquisition required an up front payment and an earn out component of between nil and USD $11.5m (using the exchange rate on acquisition day USD0.6465 = NZD1, this works out at $NZ17.79m) over the next three years, based on the financial performance of the business. The initial investment recorded for the investee is $NZ16.37m, which includes management's estimate of the fair value of the earn out."

    I note the earn out payment looks to be potentially a very large part of the total price to be paid for 'Agrocentro', the value already inked in the PGW books (potentially 100%).

    In AR2017 p21 we learn that: "South America achieved their FY2017 budget expectations."

    By AR2018 p21 we learn that: "The key challenges for FY2018 were related to weather issues and the continuation of the very difficult financial situation facing our farming customers due to the low profitability and adverse climatic events of previous years."

    It does sound like the 'earn out component' could end up being a lot lower than originally thought!

    PGW has not yet disclosed how much they paid to acquire the 50% of 'Agrocentro' they did not already own during HY2019. Partly that is because it is not material. But after one 'budgeted for tough year' at 'Agrocentro' in FY2017, and no significant improvement in FY2018, it could well have been less than they paid for the first 50% stake. If that happened, that means that first 50% would have been written down in the books to match the second 50% acquisition price. I think that the $8.6m loss for Seeds in the first half very likely includes a significant equity loss in the form of a write down on that initial 'Agrocento' stake. The underlying seeds business should have remained profitable during this period. PGW Seeds is also weighted in earnings terms towards the southern hemisphere autumn. And that means a substantially higher second half operating profit for PGW Seeds.

    Meanwhile, half year operating EBITDA for 'Retail and Water' was actually better than last year's $23.6m, if you include the after tax effect of the $1.8m providing for a faulty batch of defective spray that they stocked:

    $23.0m + 0.72($1.8m) = $24.2m

    This despite the ongoing issues with the 'water' sub-division.

    Corporate costs (as part of Seed and Grain & Other = 'New Other' ?) are up from -$4.8m to -$6.8m with a side note that this is explained by an 'Increase due to strategic review costs' and timing of inter-company eliminations." I take that to mean that underlying corporate costs will probably reduce again by at least $2m once the 'takeover effect' has died down?

    The HY2018 report, p16, shows EBITDA for 'New Other' to be:

    $10.813m (seeds) - $4.895m (Other) = +$5.918m (New Other)

    This doesn't line up with the comparative past period EBITDA figure of -$4.8m, referenced on slide 4 in the HY2019 slide show. Why not?

    Nevertheless, all this means the underlying first half result is a lot better than the headline figure IMO.

    SNOOPY
    Last edited by Snoopy; 24-03-2019 at 01:32 PM.
    To be free or not to be free. That is the cash-flow question....

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