PGW - PGG Wrightson

[Snoopy]

Wow - no other stock with that potential? :-)

Your 32c buy in was the same as my buy in back in October (which snuck up when I accumulated more later).

I think what many of you guys miss is that 'potential' doesn't just mean how much blue sky you can see, but also the prospect of your prime land turning into bog and leaving you stuck up to the top of your gumboots.

The way I see it the better the year is for farmers, the worse it will be for Fonterra unitholders and upcoming Synlait Processing shareholders. That is because milk price is reflected as an input cost for the aforementioned duo, and there is no certainty that that higher input cost can be recovered upstream. If all input cost inflation is recovered then the best case scenario for Fonterra Unitholders and Synlait Processing shareholders is that their positions will stand still. Synlait Processing isn't listed yet, but Fonterra Units trade on a PE much nearer to 20 than 10. PGW trades on a PE of around 10. So straight away these other two agricultural investments are likely to have a far larger growth expectation built into the shareprice than PGW. Are FSF and Synlait better companies than PGW? Probably yes. Are they twice as good? Almost certainly not. That more or less closes the investment case in favour of PGW right there.

Supporting the PGW share price going forward, is the ongoing pressure from "Uncle Alan" for steady dividends. This is probably not in the best interests of PGW longer term, as I believe PGW management would be better to pay down debt. High dividends will support the PGW share price in the short term though, and that takes away most of the 'boggy boot' risk for shareholders. When will PGW get better? I don't know. But in the short to medium term I don't see a more favorable entry price than today's. And you can sit there harvesting your dividends while you wait.

SNOOPY

discl: hold PGW

[lowrolling]

The way I see it the better the year is for farmers, the worse it will be for Fonterra unitholders and upcoming Synlait Processing shareholders. That is because milk price is reflected as an input cost for the aforementioned duo, and there is no certainty that that higher input cost can be recovered upstream. If all input cost inflation is recovered then the best case scenario for Fonterra Unitholders and Synlait Processing shareholders is that their positions will stand still. Synlait Processing isn't listed yet, but Fonterra Units trade on a PE much nearer to 20 than 10. PGW trades on a PE of around 10. So straight away these other two agricultural investments are likely to have a far larger growth expectation built into the shareprice than PGW. Are FSF and Synlait better companies than PGW? Probably yes. Are they twice as good? Almost certainly not. That more or less closes the investment case in favour of PGW right there.

If you look at the EV/EBITDA multiples the companies are a lot closer than your 10 - 20 range in PEs. Fonterra has a EV/EBITDA multiple of around 9x and PGW of around 7x.

[Snoopy]

If you look at the EV/EBITDA multiples the companies are a lot closer than your 10 - 20 range in PEs. Fonterra has a EV/EBITDA multiple of around 9x and PGW of around 7x.

I appreciate there is more to comparing shares than looking at a single statistic lowrolling.

I tend to use PE because:

1/ It is widely published (in the newspapers).
2/ the PE shows me the number of years I will need to wait before my investment money is earned back, hopefully in dividends (assuming a 100% payout ratio) on any lump sum investment that I make.

I wondered what your corresponding thinking was behind using EV/EBITDA?

SNOOPY

[lowrolling]

I appreciate there is more to comparing shares than looking at a single statistic lowrolling.

I tend to use PE because:

1/ It is widely published (in the newspapers).
2/ the PE shows me the number of years I will need to wait before my investment money is earned back, hopefully in dividends (assuming a 100% payout ratio) on any lump sum investment that I make.

I wondered what your corresponding thinking was behind using EV/EBITDA?

SNOOPY

I agree that you should not be looking at just one statistic, that is why I added a comparison of EV/EBITDA.

EV/EBITDA takes into account debt which is especially important for a valuation of PGW (or the NZ rural sector in general)

[Snoopy]

I suspect he will say that P/E is subject to earnings manipulation, but there might be other good reasons.

Yes you are quite right that the price earnings ration can be manipulated Sparky.

But the alternative mentioned is: Enterprise value / EBITDA. Isn't the 'E' (earnings) in the denominator equally likely to be manipulated?

SNOOPY

[Snoopy]

I agree that you should not be looking at just one statistic, that is why I added a comparison of EV/EBITDA.

EV/EBITDA takes into account debt which is especially important for a valuation of PGW (or the NZ rural sector in general)

OK, so EBITDA used in the denominator removes the 'I' (interest bill paid) from the equation - I see that compared to the alternative PE measure. However would not the EV in the numerator contain an interest rate effect? After all if a company is laden with debt, and at risk of a possible cash issue to act as a bailout, would this not depress the share price?

I am also interested as to why IYO taking into account debt is especially important for the rural sector companies. Is it because you see them as low margin companies, or that they are volatile in earnings, or a combination of both?

SNOOPY

[percy]

PGW still a dog

Some 690 mill invested in it (equity and debt) and still despite John and George's effort will make a return of 25 mill to 28 mill on that invested capital - not even anywhere near covering their cost of capital. Not much of a return eh. Wealth / value destruction of the first order.

With a market cap of 234 mil the market is saying that future wealth destruction is 344 mill - yes 344 mill shortfall to covering cost of capital

Somebody needs to put them out of their misery

Same old story.Nothing new to add?
Would have been nice to have had a good old Sunday "Rave" from you, foretelling the bright future you can see PGW enjoying once we are past the affects of the drought.The results of John's and George's great work going to reward, customers,staff and shareholders.But no, you have let yourself [and us] down again.
You have earned yourelf another ten hours of community service.!

[winner69]

Only 10 hours .... ok ..... got 350 trees (natives) to plant in a valley a group of us are restoring back to how it was generations ago

Does that count

[percy]

Only 10 hours .... ok ..... got 350 trees (natives) to plant in a valley a group of us are restoring back to how it was generations ago

Does that count

That should go a long way to focussing your attention.
May make you think, just how important it has been for Sir John and George to plant for the future.
And remember that today someone is standing in the shade,because years ago someone planted a tree.

[winner69]

And the grass is growing

Boom times down on the farm next season
http://www.stuff.co.nz/business/farm...s-expectations

PGW 45 cents by xmas