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  1. #4421
    percy
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    Big reduction in divie too.

  2. #4422
    Speedy Az winner69's Avatar
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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)
    “ At the top of every bubble, everyone is convinced it's not yet a bubble.”

  3. #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 09:54 AM.
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  4. #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 10:23 AM.
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  5. #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 12:32 PM.
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  6. #4426
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    Quote Originally Posted by Snoopy View Post
    From AR2016, page 46, when acquiring 50% of the business (Agrocentro) 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.
    OK I take the statement I made in bold back. The detailed HY accounts in report form was released to the NZX after all. It is all in note 6 of the half year accounts.

    Agrocentro (first 50%) Agrocentro (second 50%) Agrocentro (100%)
    Book Value (50% of business) @ EOFY2018 $11.83m
    less Impairment in Equity Accounted Value ($6.00m)
    Consideration Paid 2nd 50% of Business @31-08-2018 $1.25m
    Total $5.83m $1.25m $7.08m

    We have quite a large come down in value here. Just 2.5 years ago, Agrocentro as a whole was valued at $23.66m. Today it is only worth $7.08m on the books. Ouch!

    But wait, there is more.

    PGW also recorded $13.74m of goodwill on the books as this takeover went through. $13.74m is the sum of what must have been 'off balance sheet debt' of $6.66m that must now be taken onto the books along with the equity value of 'Agrocentro' itself: $7.08m. I can only conclude from this that all of Agrocentro's assets are intangible! What a fix we PGW shareholders are in!

    But wait, the story isn't over.

    There is a white knight riding over the horizon in the form of our Danish friends 'DLF Seeds'. Apparently they are willing to pay us way over the odds for Agrocentro: $12.55m! Yay! But these Agrocentro assets are still on our books at $13.74m. So all we have to do is write off another:

    $13.74m - $12.55m = $1.19m

    and there will be no more 'Agro' from Agrocentro. What a relief!

    If you can't quite follow all of this then you are in good company. I can't quite make head or tail of how much money we PGW shareholders lost in the end either! But I guess if we got rid of Agrcentro as part of this massive seed division 'premium' we have been offered by DLF, it must be good?

    SNOOPY

    PS After thinking the bold bit through, I think the answer is: $6.00m + $1.19m = $7.19m, although this assumes those Danes took over the $6.66m debt too.

    PSS I see we took another South American seed division write down as well, this time in Argentina

    -----

    Other investments

    During the period, the Group recorded an impairment of $1.57 million (USD 1.06 million) against the carrying value of its investments in the South American entities Arauca Seeds Sociedad Anonima and Patagonia Seeds Sociedad Anonima. These investments are held within the Seed and Grain segment and are included within the assets classified as held for sale above.

    ---------

    Total seed division write downs in South America for the half year are now $8.76m! That more than accounts for the $8.6m loss the whole Seed Division experienced in the half year and confirms that the Seed Division is underlyingly profitable!
    Last edited by Snoopy; 29-03-2019 at 08:17 PM.
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  7. #4427
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    Hallo together,
    does anyone know how much NZ$ Agria will receive from the sellling of PGW seeds business?

    "These options included making a non-taxable distribution to shareholders of up to $292m. "
    https://www.nzherald.co.nz/business/...ectid=12170286



  8. #4428
    always learning ... BlackPeter's Avatar
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    Quote Originally Posted by Agrarinvestor View Post
    Hallo together,
    does anyone know how much NZ$ Agria will receive from the sellling of PGW seeds business?

    [FONT="]"These options included making a non-taxable distribution to shareholders of up to $292m. "
    [/FONT]
    https://www.nzherald.co.nz/business/...ectid=12170286


    Quite easy - Agria owns just over half of PGW, i.e. they would receive just over half of any distribution - i.e. up to $146m.

    Obviously - this is IF the sale is approved and IF the subsequent distribution is really that high.

    You are thinking about how you could get your share of Agrias potential windfall out of the Cayman Islands jurisdiction ?
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    "Prediction is very difficult, especially about the future" (Niels Bohr)

  9. #4429
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  10. #4430
    Reincarnated Panthera Snow Leopard's Avatar
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    Quote Originally Posted by Sideshow Bob View Post
    That 7.5cps divvy sounds great.
    How come they get 10x the rest of us ?
    om mani peme hum

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