PGW - PGG Wrightson

[Balance]

As my ex-boss kept reminding us when we were evaluating investment banking proposals - don’t lose focus on the big picture!

What’s the big picture here?

BAIC, China, Agria - they will determine what happens next with PGW.

Chess pieces being put in place imo.

Wake up one morning and it is entirely possible that a deal has been done with Agria & a full takeover offer is launched.

In Agria's position, I will be asking for $3.15 at least - if Beijing is prepared to pay $2.75 for 7%, they will expect to pay $3.15 at least for Agria's 44% which delivers control.

Meanwhile, anything under $2.75 is good buying for Beijing as they have showed with the latest SPH.

[Snoopy]

It's a brand new company so I'm assuming they are just structuring how they have their holdings.
The interesting part is that they are continuing to purchase PGW shares, with an additional 609,898 being purchased since the last notice.

How do you know "BCA New Continent Agri Hldg. Limited" is a brand new company? Granted I stuck the name into Google and nothing much came up. I searched the NZ Companies Registry and once again 'nothing'.

Breaking the name down down "New Continent" (Foods Company Limited) is a Chinese fish processing company.

Beijing Capital Agribusiness Co. Ltd (BCA) is a poultry breeding, food processing, biopharmaceutical production company.

Is this new company a way to bring two interests together, even if both are ultimately controlled by the Chinese government? I can't see much synergy between fish and chicken processing companies in China and supplying rural goods to NZ farmers.in New Zealand. So time to speculate.

My best guess is that the "BCA New Continent Agri Hldg. Limited" interest is related to PGW's 'Go Livestock' scheme which involves PGW funding lamb and beef purchases for farmers, while ensuring PGW retains the title over them while they are finished on farm. By controlling PGW, the Chinese government have title to beef and lamb livestock. So maybe they are looking to divert those animals into their own processing facilities? After all if PGW can mandate what sale yards those animals go through, it isn't much more of a step to dictate where those animals end up being processed as well?

SNOOPY

[Norwest]

How do you know "BCA New Continent Agri Hldg. Limited" is a brand new company?

Hi Snoopy, you can view the full details at the Hong Kong companies registry. It was registered on 16th June this year, after BAIC took a holding in PGW.

[Snoopy]

Thanks for the data analysis Snoopy, it is really useful to people who are looking at these complex financial statements that seem to keep accountants employed, while making it difficult for the majority of the readers (assuming people bother reading the results of their investments).
Your Senior Debt Coverage Ratio is a little confusing to me as you have included my worrisome $17 million of cash of hand as a deduction. I appear to be the only person thinking this large cash balance is a problem and some people have even suggested it is normal. Looking at the previous 4 years of financial statements, PGW has never had such a large cash balance at either 30 June or 31 December so I keep assuming this is a result of poor cash management. Some commentators on here have said that is normal and are not as concerned as myself. If this is normal should it be taken as a deduction of your total senior debt?

The way I look at it, if the problem is 'debt' then the solution is 'cash'. I can't see why a bank would not offset the amount of debt on the books against cash, when evaluating that company's financial position. I agree it is odd to have that much cash ($17m) on hand. But other years haven't had Covid-19. So there may be good reason for holding that money for quick dispatch. Remember a balance sheet is only a snapshot on one particular day. That $17m might no longer be there.

SNOOPY

[Snoopy]

I spoke to a friend in the Commercial Real Estate business who said that PGW were looking to sublease part of their new head office. They have not been able to find a subtenant and have instead moved staff from other offices into this site. Therefore I suspect that the accountants at PGW would have taken an impairment on the part of the new head office they were looking to subtenant in the 2019 financial statements. Not having fulfilled this plan and having staff move in would reverse the impairment provision It would be useful to the readers of financial statements if each site they impaired was shown in full. I would also prefer the accounting team were focusing on cash management $17 million cash at balance date rather than finding ways to manipulate profits through fancy impairment provisioning.

I am sowing a new section of lawn this spring, so it was time for my annual visit to PGW on Blenheim Road in Christchurch to get some grass seed and low release fertilizer supplies. I found the assistant I dealt with very knowledgeable and helpful. But I noticed only half of the building was occupied and an 'available to lease' sign was out for the vacant half.

"Ah yes" said the shop assistant. "PGW management couldn't lease out the bottom floor of their new airport park headquarters, so all the office staff from 'here' have gone out 'there' to occupy it. I probed a bit further to see if there was any fall out from not having management on hand.

"We are still near enough to be summoned to HQ should they need us. " the assistant said. "But we don't really miss them here." "In my opinion there was too much yakking going on. They didn't really have enough to do." (all one person's opinion of course)

It looks like the lease impairment has shifted to Blenheim Road, at least for now!

SNOOPY

[sb9]

Current trading depth seems as though sell side is very thin and drying up quickly...

[Balance]

Current trading depth seems as though sell side is very thin and drying up quickly...

Only short termers selling a few stocks here and there out.

The big game here is that Beijing is effectively imo underwriting the stock at $2.75 and takeover price will be at least $3.00.

Then there’s the yield which is becoming ever more attractive with the precipitous drop in interest rates.

[sb9]

Only short termers selling a few stocks here and there out.

The big game here is that Beijing is effectively imo underwriting the stock at $2.75 and takeover price will be at least $3.00.

Then there’s the yield which is becoming ever more attractive with the precipitous drop in interest rates.

Wonder if there are any fireworks or unexpected turn of events from Beijing at ASM tomorrow morning.

[Balance]

Wonder if there are any fireworks or unexpected turn of events from Beijing at ASM tomorrow morning.

Profit upgrade & confirmation of dividend! 💃🏻🕺

https://www.nzx.com/announcements/361708

Trading & dividend update before AGM - EBIDTA projected to increase 30% and at least 8 cps dividend to be paid.

Can’t see Beijing being successful With a takeover if they come up with an offer of $3 per share now.

Enjoy!

[Balance]

I would be fairly confident in predicting that as well as no final dividend for FY2020, there will be no interim dividend for FY2021 either. In my November 2019 review I said

"This is not a bond substitute."

No dividend for at least a year is a manifestation of that comment.

SNOOPY

discl: Shareholder, because I do believe the rural supplies sector will bounce back, eventually

Time to revisit your assumptions, Snoopy.

Big picture to me is still the same however - what price will Beijing pay to takeover PGW.

Think it is going to have to be closer to $3.50 now than $3.00.