PGW - PGG Wrightson

[ScrappyO]

Quote from Gould in Stuff article: PGG Wrightson had reduced debt levels to "well under $100 million"

http://www.stuff.co.nz/business/farm...n-sheep-prices

[Snoopy]

Quote from Gould in Stuff article: PGG Wrightson had reduced debt levels to "well under $100 million"

"well under $100 million" to me means some figure between $90m and $100m. With most sales in the second half, I can see debt going out again to $100m. After all PGW will need to spend to restock their branches.

Whether the true figure is $90m or $100m, this debt is still high when the company is earning some $25m NPAT when farm conditions are at their most favorable.

The article in 'Stuff' today was a profit warning in all but name. Of course the company is under no obligation to issue any profit warnings because they have not made any earnings forecasts.

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From CEO George Gould:

"Cattle's been pretty steady but sheep values are down, they're around half of what they were a year ago (caused by) supply and demand. The schedule prices published by meat companies are down, market prices in the UK are down."

"They actually notched back a bit even more last week, so we're getting in some cases less than half"

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The above is George's profit warning for the Livestock division

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"About 80 per cent of our grain seed revenue and sales occur in the second half, January to June," Gould said.

"In New Zealand we're pretty confident about our position, we've got a pretty good robust business here. In Australia it's newer and the climate changes are more extreme. The worry we have, which we have every year, is just how will Australia pan out. It does look quite promising to the extent that there have been some early recent rains in some very dry areas."

For those not aware of Agritech's history, it has always done well in New Zealand. It was when they made the big push into Australia adding all sorts of bolt on loss making businesses to their existing Australian presence that profits in Agritech collapsed. The above is George's profit warning for Agritech in Australia.

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Of course the superbulls out there will ignore all of this and continue to proclaim that PGW is undervalued. I will be waiting for the share price to dip once the half year results are made public.

SNOOPY

[Balance]

"well under $100 million" to me means some figure between $90m and $100m. With most sales in the second half, I can see debt going out again to $100m. After all PGW will need to spend to restock their branches.

Whether the true figure is $90m or $100m, this debt is still high when the company is earning some $25m NPAT when farm conditions are at their most favorable.

The article in 'Stuff' today was a profit warning in all but name. Of course the company is under no obligation to issue any profit warnings because they have not made any earnings forecasts.

Hope you are out then, Snoopy.

[Snoopy]

3. The Very High Debt levels are not as bad as Snoopy suggests. PGW states in their November 2012 report $125.3m of debt ($141m debt less $16m cash). They will be able to free up more ability to service debt from the $25m in Crafar finance receivables paid back in December, plus some more receivables of around $4. This suggests debt is more like $100m. They also hold $9m of Heartland shares which could be used to pay back debt as well. Debt of $100m in a company with $577m of equity doesn't seem to bad to me. Current ratio of $525m/259m or 2, and a quick ratio of just under 1 (arguably slightly over 1 if you include "biological assets" like cattle that might able to be sold quickly at a reasonable price.

The Heartland shares were subscribed to at 75c by PGW IIRC. So I think management would be looked on dimly for selling them at less than that price.

I estimate the interest bill for FY2013 to be $9.5m, accounting for the repayment of those Crafer loans. FY2014 will be the first year that the repayment of the Crafer loan effect flows across the full year. I am estimating a net interest bill of $8m for FY2014.

I agree that superficially $577m of equity verses $100m of debt doesn't sound too bad. The problem I see is the wafer thin margins that PGW operates on make for a high business sensitivity risk. And the fact that if underlying profits fall to under $20m this year, that $100m debt would still take many years to repay.

SNOOPY

[Snoopy]

And if you truly think there is a profit warning coming, I expect you will be selling your shares, since you seem to think the shares are overpriced right now. Or do you lack the courage of your negative convictions?

Like I said before Sparky, it is impossible to issue a 'profit warning' if you haven't made a 'profit forecast'. PGW has made no profit forecast for FY2013. Gould is doing the right thing, keeping shareholders informed of current market conditions. It is up to individual shareholders to decide what effect those market conditions will have on profits.

I still see value in Agritech from a long term perspective. Even if that means pulling out of the Australian market by simply walking away from PGW's investment there. So I will continue holding PGW until that value is unlocked. I don't see any Agritech value being unlocked in FY2013, in fact it may well get worse. If PGW shares get cheaper in the meantime, then so much the better. I have already declared my intention to buy more, but only at the right price. If I am wrong, well I will still have the PGW shares that I own already.

SNOOPY

[Balance]

I have my doubts you will buy any more shares. You were a bear at 33c when I first bought in! See posts 2354, 2368, 2379, 2381, 2395, 2396, 2397 and no doubt many other posts since November until today!

Well articulated, STC.

Snoopy has got PGW since 33 cents dead wrong - just about every step of the way.

Still, nice to get the alternative view.

[Master98]

6m shares changed hand at 45c today, very encouraging volume.

[Master98]

Must have been Snoopy selling out, what with the selling signal in David B's post above about PGW only being able to pay off all their debt in two years from operating activities.

from NZ herald article, more investors interesting in agricultural sector.
http://www.nzherald.co.nz/business/n...ectid=10864594

[percy]

from NZ herald article, more investors interesting in agricultural sector.
http://www.nzherald.co.nz/business/n...ectid=10864594

Must admit I have recently brought more agricultural stocks.:
Rural Equities [REL] on the Unlisted Market.
Tru-Test traded via the company.
Hold PGW.
Hold HNZ who offer finance to the rural sector.

[Master98]

Must admit I have recently brought more agricultural stocks.:
Rural Equities [REL] on the Unlisted Market.
Tru-Test traded via the company.
Hold PGW.
Hold HNZ who offer finance to the rural sector.

"It's the backbone of the New Zealand economy"