PGW - PGG Wrightson

[nelehdine]

I've been watching for a few weeks , almost bgt in at 194 but decided to wait, just been partially filled on my buy order at 172. Real case of catching a falling knife but can't see any real problem in the medium term in buying at these levels. Will add the same again if we drop into the 160's. Decent bid at 170 , hopefully it will stick around and provide some support.

[kittydashwood]

Same

[duncan macgregor]

I have had some of these since PGG days in my long term portfolio. In my trading portfolio I got out at about $2-20 and back in at under $2 on average. Talk about catching a falling knife, I am as guilty as hell. I will buy some more very shortly once it turns the corner. Bad winter, Townie investors,wait until they see lambs skipping about in the sunshine on the tele. The fundamentals say that this is a screaming buy. MACDUNK

[Mick100]

Macdunk, could grab a trailor load of ewes with lambs and run them down Queen st at lunchtime.

The lawnmowers are out where I live so I assume the grass is growing.

PGW is looking a bit sick on the chart
Could be a double top - not good
,

[Snoopy]

quote:Originally posted by duncan macgregor

Bad winter, Townie investors,wait until they see lambs skipping about in the sunshine on the tele. The fundamentals say that this is a screaming buy. MACDUNK

You may consider lambs skipping in the field sufficient fundamental analysis yourself Macdunk. IMO the main problem with your 'fundamental analysis' is that you have skipped the numerical bit (which some might consider 'all of it').

Here is the latest profit guidance put out by PGW management:

"The expectation now is for an NPAT of approximately $27 million after the deduction of $10 million for amortisation. This result includes a net $7.5 million of one-off items."

That points to an ongoing profitability of $27m+$7.5m(0.66)= $32m per year. The number of PGW shares on issue are 281,313,018. That means we are looking at earnings per share of:

$32m/281.3m= 11.4cps.

Based on a share price of $1.80, I calculate an ongoing P/E ratio of 16. Fair value, but hardly a 'screaming buy' in a cyclical industry like farming, I would have thought! Quoting further from the PGW management outlook:

"Prospects for the coming year will be affected by the impact of the lower exchange rate on farm gate returns, the volume of farm output and trading activity. Indications, at this stage, are that the influence of these factors is expected to be more positive in the coming year when compared to the year just ended. While recognising the impact adverse climatic conditions can have in general terms the outlook for the coming year is encouraging with evidence of confidence returning to the farming sector."

I don't agree with much of that myself. I predict a higher exchange rate, relative to the $US, and an associated slump in farm values once reality hits home. Then we will see a slump in farmer confidence due to the 'negative wealth effect'. The cold weather should mean a delayed start for farm production as well, which will further depress the immediate outlook. To offset that, there are probably some merger benefits still to flow through. And my prediction is that farmers will stop spending on those luxury items first, before they stop spending on their farms.

Despite my overall negative outlook for farming in general, and PGW in particular, I've topped up on a few shares today. I always buy in gloom, when the outlook is bad, as you well know Macdunk. The final dividend is coming up and will probably be another 4cps, matching the interim dividend. Based on a share price of $1.80, I calculate the annual pretax dividend yield at 6.6%, or less than you would get with the same money in the bank.

I wonder how many old WRI shareholders out there still think they will be getting a 10.5cps final dividend as per last year? Boy are those shareholders in for a nasty surprise! Maybe some of those 'income investors' have figured it out and are selling now, creating the current share price weakness?

At any rate because PGW is now what I would class as 'relatively expensive' for an NZ share, it looks like I will have to move PGW from my 'income' to my 'growth' portfolio. Is growth likely? The ambitious Craig Norgate (hasn't he been quiet lately? Too quiet I think, you can guarantee he isn't twiddling his thumbs at his desk!) is at the helm. IMO we 'growth investors' can expect to see some more action from this company over the next year or so! It might even hit $2 again if everything goes well.

SNOOPY

discl: hold PGW

[Mick100]

quote:Originally posted by Snoopy




"Prospects for the coming year will be affected by the impact of the lower exchange rate on farm gate returns, the volume of farm output and trading activity. Indications, at this stage, are that the influence of these factors is expected to be more positive in the coming year when compared to the year just ended. While recognising the impact adverse climatic conditions can have in general terms the outlook for the coming year is encouraging with evidence of confidence returning to the farming sector."

I don't agree with much of that myself. I predict a higher exchange rate, relative to the $US, and an associated slump in farm values once reality hits home.

I tend to agree with you about the exchange rate with the USD Snoopy
I think the USD may fall as fast of faster than the NZD meaning the NZD could appreciate against the USD. I'll add that I expect the USD to fall against all other major currencies over the next yr or so.
The effect of this depreciating USD should be higher commodity prices in US dollars which means that NZ farmer should still be better off.

I don't see land values going down in the medium term although they could stop increasing in value for a few yrs.

So far, Ag commodities have not taken part in the commodities bull market. The base metals and energy always lead a new commodities bull market while ag commodities usually have their turn in the second half of the bull market. I'm quietly confident that ag commodities will have their day in the sun over the next few yrs.
PGW is a long term hold for me. Short term fluctuations in shareprice are for short term traders to take advantage of. I'll keep both eyes on the big picture.
.

[kittydashwood]

mick look at the us-nzd is that an inverted head and shoulders?

[Mick100]

I'd like to see a chart of the nzd against an index - US ,canadian. euro, yen, pound.
.

[winner69]

quote:Originally posted by kittydashwood


Is this your 1.75 W69?

There is another Fib support thingie at 151 as well

What surprises me is that 30% has been lost so fast ,,,, like 6 weeks .... thats some fall

Obviously nots all well down on the farm

[Snoopy]

quote:Originally posted by Mick100


I tend to agree with you about the exchange rate with the USD Snoopy
I think the USD may fall as fast of faster than the NZD meaning the NZD could appreciate against the USD. I'll add that I expect the USD to fall against all other major currencies over the next yr or so.
The effect of this depreciating USD should be higher commodity prices in US dollars which means that NZ farmer should still be better off.

I hope you are right Mick. Did you see the figures quoted on page 1 of the 'Dairy Equity Anyone?' thread though? I'm referring to the milk solid payout per kilogram over the last 5 years. I'll quote the figures from 2002 to 2006 inclusive:

$5.33, $3.63, $4.85, $4.59, $4.10

Not a very encouraging trend there....

quote:
I don't see land values going down in the medium term although they could stop increasing in value for a few yrs.

From the same Rod Oram article, dairy farm profitability is $1,000 per hectare. Cost of land is $20,000 per hectare. I make that a return of 5%, *before* you start paying tax.

Now I know that dairy farming isn't the only game in 'farmland'. However, I do notice that farms still seem to be being converted from 'something else' to dairy. Unless you as a farmer can boost your earnings to more than a 5% return on your land, surely land prices must fall? And if Rod Oram is right about milk solid production costs being about half of what it costs here in Chile and Argentina, what hope is there of boosting dairy earnings long term?

If you believe Big Bear's figures (operating costs of a dairy farm at $4.10, which more or less matches the payout) then even Rod Oram's 5% return figure is wildly optimistic!

quote:
So far, Ag commodities have not taken part in the commodities bull market. The base metals and energy always lead a new commodities bull market while ag commodities usually have their turn in the second half of the bull market.

Ag commodities 'usually' have their turn in the second half of the bull market? Again I hope you are right Mick. But how many commodity bull markets have you studied? I'm trying to figure out if you have an exit strategy!

SNOOPY