PGW - PGG Wrightson

[Snoopy]

Interesting this altman z analysis. I see it puts telecom and fletcher building at a 35 & 36% chance of bankruptcy respectively and our dear old struggling PGW at 43-44% chance. With some good fortune in Australia and South America for the second half of this year and a few other things in the mix...perhaps a more accurate assessment may see PGW in the thirty's also?

Any business where sales are seasonal can probably be made to look worse than they really are, in terms of Altman Z, by picking a certain balance sheet point. In the end any percentage chance of bankruptcy is all smoke and mirrors. PGW will either go broke or it won't. There is no "in between" end point.

However, I don't like the blowout in trade receivables at PGW (in comparison with the EOFY in June). Nevertheless I do note receivables are slightly less than the same time a year ago (but did that figure include outstanding payments on finance loans?).

I don't like the special dividend to help bail out Agria. Margins are looking thinner than ever, and the best way to improve profits at PGW is still to pay down debt. Unfortunately we may see debt begin to rise again at PGW this year. Of course from an Agria perspective the dividend was probably absolutely necessary or Agria may not survive.

While the cash flow at half year has been OK, I would say the underlying cashflow at PGW is not in a good position. The big increase in accounts receivable combined with the decrease in inventory implies that PGW is selling stuff but their customers are not yet paying for it. Maybe this situation will correct itself at the end of year in June?

SNOOPY

[Queenstfarmer]

No arguments from me Snoopy...you do your homework and with accuracy. Can be a little unnerving to read "more of a chance of bankruptcy than 6 months ago" I guess I found it a little more comforting to read that Telecom and Fletcher building aren't really all that far away when it comes to probability.

[Snoopy]

PGW has dropped out of the NZX50, replaced by A2 Milk Corporation. I'm happy as an A2 holder, less so as a PGG Wrightson shareholder!

A bit premature Sparky. The index change doesn't happen until 18th March. The index managers still have a bit of time to sort their holdings out.

Of course if Agria goes into administration, the free float of PGW may suddenly double. That would rocket PGW back into the NZX50 again!

SNOOPY

[Snoopy]

However, I remain a happy holder, having done some more homework on PGG Wrightson in the last few days, including speaking with a senior officer of the company. There is some very impressive work being done in their Agritech division.

The company is paying back debt in a meaningful way, and I think it will perform on track for $20-22m of NPAT, barring a terrible drought for the next three months in Australia and NZ, and sheep prices dropping to below $70 for an extended period.

I feel more optimistic about rains coming in mid March-mid April, lamb prices not so much.

Wow, Sparky, here is what you wrote in post 2704 only a month ago!
"I therefore have expectations of $8.5-9.5m of NPAT, rather than the too bullish $10m-11m above. I do however, expect 2H2013 to uprate to around $20m+"

So is the NPAT $20m-$22m you refer to in the post above just for the second half? Or are you now admitting this dog deserves a bone after all?

Oh and BTW that terrible drought caveat you were referring to? It is all over the news in New Zealand already - the worst drought in 50 years in some places. Milk production in the first half of next financial year is already affected. Mid March and April rains will probably not be enough to fix things, as there won't be enough post rain warm weather to get significant grass growth before the winter.

SNOOPY

[Queenstfarmer]

I wonder how well PGW are actually doing out of all these stock sales going on? Of course all these farmers off loading will need to buy new stock when there paddocks have replenished?

[winner69]

PGW has dropped out of the NZX50, replaced by A2 Milk Corporation. I'm happy as an A2 holder, less so as a PGG Wrightson shareholder!
.

Its good for the NZX50 as well .... isn't the who process under the guise of 'quarterly index rebalancing' just a snaky way to cull the dogs out of the index (the stocks that aren't helping it go up) with something that looks more promising (which will help the index)

And instos feel honourbound to play the game .... isn't it all a bit stupid

[Snoopy]

There was a significant drop in the Agria share price overnight. Down 6.5% to 72c. Add in the post AGM share consolidation multiplication factor of 1.5 and we get share price of $1.08. Getting back down to that delisting risk zone of $1.

Pretty extraordinary things happening on the Agria share register. Four days after touching a near all time low of 72c, the share price is now $1.14! That is a rise of nearly 60% in just four days! Trading volumes are up hugely. Generally 10 to 20 thousand Agria shares trade per day. On Friday over 600,000 shares were traded. That is over 30 times the 'normal' amount.

The underlying investment in PGW doesn't justify such a move. But all those US loans are up for renegotiation. So maybe a favourable outcome has been reached? Alternatively Alan Lai is at last cash rich again thanks to the imminent dividend payout from PGW. So maybe he is putting some of his cash to work to shore up the share price of his company (Agria)? A recovered share price might prove useful when renegotiating those bank loans!

I was thinking something would be revealed when Agria files their half year accounts. But looking back on last years announcements, I can't see that Agria files half year accounts. Strange, or perhaps I just went blind?

I see the Agria reverse split (share consolidation) will not occur until after the AGM scheduled in April.

SNOOPY

[Snoopy]

I get the impression that Agria will muddle through its issues. It's price will recover in time as people realise they probably are around to stay.

I find many people get their 'impressions' from a rise in share price. Sometimes these impressions are justified and sometimes they are not. Fundamentally Agria is losing money on a NPAT basis and is cashflow negative. There is no way a company in that position can survive long term. There are no profits coming out of China, so Agria are really a leveraged bet on PGW which has a precarious existence because of the boom and bust nature of the farms it services. Agria has a record of disagreements at senior management level and has now been without a CEO for 5 months.

If I had to draw up a hypothetical tell tale case study using bullet points to select a company to avoid, then Agria would tick all the boxes.

Of course on the other side, hardly any company ticks all the right boxes and still has the value pricing that would attract the growth at a reasonable price investor. In real world investing you have to stack up the good points and bad points and distilling those check how a potential investment fits into your value equation. However, with Agria this exercise is easy, because the company has no redeeming features at all. Is there anything to suggest they will survive, other that the fact that if they went under their bankers would take a huge hit, so the US banks will somehow connive to keep them afloat?

SNOOPY

[percy]

The longer Agria can muddle through,the more likely-hood of them coming out smelling of roses,as Sir John and George Gould's stable management is improving PGW future prospects steadily,and our chances of a cheap placement are receding.
Bit of rain would paint a very pretty picture I am told.!? In the meantime I expect PGW irrigation are doing well.

[Snoopy]

That's a long way from your implying that I'm backing Agria's long term prospects. Conversely, I'm hoping for the reverse - an opportunity to buy Agria's PGW shares should they experience misfortune. I'm not convinced that's going to happen though, they will probably under perform and unimpress - e.g. muddle through.

Since Agria don't have a CEO Sparky, why not apply for the job? You probably know more about the underlying PGW business than anyone else on the staff there (and yes I am being serious in that suggestion)! You have the optimism to succeed, but can you follow the recipe required:

Ingredient 1/ Negative cashflow
Ingredient 2/ Making Losses

Please advise how to combine these two ingredients to get your probable result 'muddling through'.

SNOOPY