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  1. #4491
    Legend Balance's Avatar
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    Quote Originally Posted by Snoopy View Post
    Previously I have speculated how large the capital return that PGW shareholders are due to receive.

    eps -1.69c


    SNOOPY
    I have forecast EPS at 1.86c - 10% higher than yours.

    I don't think PGW will get to see F20 however.

  2. #4492
    Speedy Az winner69's Avatar
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    Quote Originally Posted by Balance View Post
    I have forecast EPS at 1.86c - 10% higher than yours.

    I don't think PGW will get to see F20 however.
    If that happened Snoops would have heaps of spare time ...it would be like losing one of your best mates
    Last edited by winner69; 15-06-2019 at 05:54 PM.
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  3. #4493
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    Quote Originally Posted by Balance View Post
    I have forecast EPS at 1.86c - 10% higher than yours.

    I don't think PGW will get to see F20 however.
    Interesting,you could be RELly right.

  4. #4494
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    Quote Originally Posted by winner69 View Post
    Aren’t PGW still going to sell seeds through their outlets ..presuming buying them from the company they sold it to.

    Have you factored this in ...not that clear from your workings.
    From p10 of the KordaMentha Report:

    "The (Seed & Grain) business is the global leader in the $2 billion temperate forage seeds market, trading in New Zealand under both the 'PGG Wrightson' and 'Agricom' brands."

    I take this to mean that, as there are no 'Agricom' shops, what is being referenced here is two 'wholesale brands' that are being retailed by others.

    From p5
    "PGW and Seed and Grain (under DLF ownership) will enter into a long term distribution for PGW to continue to distribute seed and grain products through NZ retail stores."

    If distribution through retail stores is set to 'continue', then it must have been happening before the seed business was sold.

    From p15 of the Korda Mentha Independent Appraisal Report:

    "The retail business operates across a number of product categories including agricultural chemicals, seeds and grain, fertilizer, fencing, stockfood, animal health and general merchandising."

    So the PGG Wrightson branded retail business is already described as selling 'seeds and grain'. Furthermore on p39 of AR2018, we learn that 'Seed and Grain' has sold $63.652m of intrasegment sales. That means that we know that a certain proportion of 'Seed & Grain' sales are made internally between divisions. However there are no intrasegment sales from the Retail division. This would seem to rule out profits from seeds sold via the Retail division being fed back into the 'Seed and Grain' business unit for divisional reporting purposes.

    Putting together all of these quotes, my conclusion on the operation of 'Seed & Grain' is as follows. 'Seed & Grain' are wholesalers who sell their product at arms length to 'PGW Retail' as an 'in house' retail customer. (If the sales were not at arms length then the alternative seed brand 'Agricom' could not be sold by other NZ retailers as they would always be outcompeted by the competitor PGW retail chain: IOW 'Agricom' could not exist). The seed and grain revenue in the segmented result is in effect 'wholesale revenue'. The seed and grain mark up, earned by the 'PGW Retail' chain is incorporated into the retail chain revenue and is not individually itemised out within the retail division. Thus the PGW Retail EBITDA includes a contribution from retailing seed and grain. Because the seeds have been purchased at arms length from the wholesaler, the retail proportion of profit from selling seeds will continue into the future as now and is incorporated in the projected EDITDA figures for 'PGW Rural Rump.'

    SNOOPY
    Last edited by Snoopy; 15-06-2019 at 08:10 PM.
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  5. #4495
    Speedy Az winner69's Avatar
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    Quote Originally Posted by Snoopy View Post
    From p15 of the Korda Mentha Independent Appraisal Report:

    "The retail business operates across a number of product categories including agricultural chemicals, seeds and grain, fertilizer, fencing, stockfood, animal health and general merchandising."

    SNOOPY
    So I assume seed sales (ongoing) are already included in retail business

    Wonder if the margin changes?
    “ At the top of every bubble, everyone is convinced it's not yet a bubble.”

  6. #4496
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    Quote Originally Posted by winner69 View Post
    So I assume seed sales (ongoing) are already included in retail business

    Wonder if the margin changes?
    You replied before I had added this bit:

    ------

    'Seed & Grain' are wholesalers who sell their product at arms length to 'PGW Retail' as an 'in house' retail customer. (If the sales were not at arms length then the alternative seed brand 'Agricom' could not be sold by other NZ retailers as they would always be outcompeted by the competitor PGW retail chain: IOW 'Agricom' could not exist).

    -----

    If the wholesale seed sales were at arms length before the seed division sale, then the retail seed sale margins should not change as a result of the sale. Of course that does not rule out other market factors changing margins in the future.

    SNOOPY
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  7. #4497
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    Quote Originally Posted by Snow Leopard View Post
    Hi Snoopy

    If the great & good directors of PGW have in their infinite wisdom decided to keep an extra $57m in the company instead of giving it to us then that is an extra $57m to pay down debt with.

    But probably there have their eye open to launch out in some wonderful new money earning direction with that extra.
    You are quite correct Snow Leopard. I knew something was screwed up in my post 'Seeds of Destruction: Part 3.2 - NPAT of 'PGW Rural Rump' going forwards' which is why I left it as a 'work in progress'. However, the light in my dog kennel is dim. matching the condition of my tiny dog brain. So I am going to have to sleep on it tonight so that I can figure out what it all means.

    My main conundrum is that if we take the forecast PGGW Rural Rump balance sheet at face value (p49 of the KordaMentha report), then the total amount of debt left after a $292m capital return amounts to:

    ($9.2m) + ($17.5m) = ($26.7m)

    An extra $57m retained to pay down debt would wipe out all of this and more. So where does the extra:

    $57m - $26.7m = $30.3m, appear on the PGW Rural Rump balance sheet?

    SNOOPY
    Last edited by Snoopy; 15-06-2019 at 08:42 PM.
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  8. #4498
    Speedy Az winner69's Avatar
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    Quote Originally Posted by Snoopy View Post
    You replied before I had added this bit:

    ------

    'Seed & Grain' are wholesalers who sell their product at arms length to 'PGW Retail' as an 'in house' retail customer. (If the sales were not at arms length then the alternative seed brand 'Agricom' could not be sold by other NZ retailers as they would always be outcompeted by the competitor PGW retail chain: IOW 'Agricom' could not exist).

    -----

    If the wholesale seed sales were at arms length before the seed division sale, then the retail seed sale margins should not change as a result of the sale. Of course that does not rule out other market factors changing margins in the future.

    SNOOPY
    Thanks

    Looks like Retail bought about $63m of stuff from seeds last year
    Last edited by winner69; 16-06-2019 at 10:46 AM.
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  9. #4499
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    Default Seeds of Destruction: Part 2.2 - A lack of interest

    Quote Originally Posted by Snoopy View Post
    The problem with estimating an interest rate equivalent for the PGW debt is that company debt quite seasonal, as the table below shows:

    FY2018 HY2018 FY2017
    Short Term Debt $30.806m $91.215m $26.719m
    Long Term Debt $149.205m $130.634m $110.925m
    Total $180.011m $221.849m $137.664m

    We can calculate a linear approximation average of the total debt as follows:

    ($180.011m + $221.849m + $137.664m)/3= $179.834m

    Over the year the 'interest funding expense' (AR2018 note 7) was $10.235m. (Note that I am leaving out the foreign exchange changes which I don't believe are representative of true funding costs.)

    So the indicative interest rate that PGW pays on the average outstanding balance is:

    $10.235m / $179.834m = 5.7%

    If as a result of the seeds transaction $100.5m is repaid, then interest will no longer have to be paid on that amount into the future. The total interest saved on an annual basis for 'PGW Rural Rump' will therefore be:

    0.057 x $100.5m = $5.73m

    How does this saving in interest payments translate to the profitability of 'PGW Rural Rump' going forwards?
    The seasonal variation in historical company debt continues, as the table below shows:

    HY2019 FY2018 HY2018 FY2017
    Short Term Debt $79.635m $30.806m $91.215m $26.719m
    Long Term Debt $130.000m $149.205m $130.634m $110.925m
    Total Debt {A} $209.635m $180.011m $221.849m $137.664m
    Half Year Increment +$29.624m +$84.185m

    It is insightful to compare the changes in debt with the variation in 'Net Working Capital' over the same period.

    Net Working Capital Calculation
    HY2019 FY2018 HY2018 FY2017
    Trade & Other Receivables $423.242m $267.627m $365.924m $230.022m
    Finance Receivables $0m $0.733m $0m $0m
    Go Livestock Receivables $30.958m $39.419m $28.683m $32.371m
    Inventories $281.627m $262.538m $242.677m $253.600m
    Biological Assets $8.079m $0.911m $1.957m $1.611m
    Accounts Payable and Accruals ($353.572m) ($267.296m) ($301.837m) ($253.600m)
    Income Tax Payable ($0m) ($6.751m) ($8.115m) ($4.115m)
    Net Working Capital {B} $390.334m $297.181m $329.289m $259.889m

    Total Debt/Net Working Capital

    HY2019 FY2018 HY2018 FY2017
    {A}/{B} 53.7% 60.6% 67.4% 53.0%

    The unanswered question is, will the extra $57m that it was suggested be paid out to shareholders as a capital return, now be ploughed back into the company, in addition to the $100.5m previously set aside for debt repayment to enable a genuine all season 'lack of interest' going forwards?

    SNOOPY
    Last edited by Snoopy; 18-06-2019 at 09:15 AM.
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  10. #4500
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    Default Seeds of Destruction: Part 4.1 - Fallout from 'The great capital shuffle'

    Quote Originally Posted by Snoopy View Post
    Immediately after the AGM the PGW share price was 57c. If we take this as Mr Market's 'reference figure', then this 57c will be split into a capital payout amount and the remainder which is Mr Market's worth of 'PGW Rural Rump'.

    There are 754.048m PGW shares on issue. So working through both scenarios, for each share held, PGW shareholders can expect a capital repayment of either:

    $292m / 754.048m = 38.7cps OR $274m / 754.048m = 36.3cps

    By simple subtraction from the 57c PGW market value, we can now calculate the market value of 'PGW Rural Rump' after the seeds have split.

    57c - 38.7c = 18.3c OR 57c - 36.3c = 20.7c

    This gives us the information we need to work out post split PE ratios and dividend yields for both scenarios.
    Closing PGW share price was 52c today. If we take this as Mr Market's 'reference figure', then this 52c will be split into a capital payout amount and the remainder which is Mr Market's worth of 'PGW Rural Rump'.

    There are 754.048m PGW shares on issue. So working through both scenarios, for each share held, PGW shareholders can expect a capital repayment of either:

    $235m / 754.048m = 31.2cps

    By simple subtraction from the 52c PGW market value, we can now calculate the market value of 'PGW Rural Rump' after the seeds have split.

    52c - 31.2c = 20.8c

    This gives us the information we need to work out the post split PE ratio.

    SNOOPY
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