PGW - PGG Wrightson

[Snoopy]

1/ Underlying Agria short term debt: $NZ22.472m
2/ Underlying Agria long term debt: $NZ35.767m

The total income needed to service this extra debt at say 5% interest is:

0.05($22.472m + $35.767m) =$2.912m

The chinese standalone ventures contribute no profit for Agria the last time I looked. So all of this extra interest must be paid from any dividends received from Agrias 50% holding in PGW. Dividend paid by PGW over the last twelve months consist of a 1c dividend (September 2013) and a 2c dividend (April 2014)

Now from the annual PGW report, Agria holds 379,068,619 PGW shares.

A 3c annual dividend on those shares will provide:

0.03 x 379,068,619 = $NZ11.37m

So I take back what I said in the previous post. Agria should have enough free cashflow going forwards to cover their extra debt burden after all, assuming they are roughly cashflow neutral on the standalone Chinese operations.

But whether they were able to renegotiate their underlying Agria only debts at an interest rate of 5% (interest rates are very low in the US) , or whether New Hope has called in their dividend guarantee demanding cash from Agria and wrecking their cashflow is is all unknown and undisclosed. There is just not enough information released in the public domain to know what the true cash position of Agria is going forwards.

There are roughly 110.8m Agria shares on issue. So a PGW NPAT of say $35m less extra interest costs due to Agria of $3m gives $32m, of which the Agria 50% share is $NZ16m

$NZ16m/110.8m = NZ14.4c eps for Agria shareholders.

14.4 x 0.86 / 130 = 9.5% yield

I need to make a slight correction to my above 'earnings yield' calculation. If full year profit for PGW is $NZ35m (say), then half of that will be equity accounted for Agria shareholders $17.5m. Against that you have to offset all of the underlying Agria debt servicing costs, to get the underlying Agria NPAT attributable to shareholders.

$NZ17.5m - $NZ2.912m (converted from USD) = $NZ14.6m

$NZ14.6m/ 110.8m = NZ13.2c eps for Agria shareholders.

13.2 x 0.86 / 130 = 8.7% earnings yield, or a PE of 11.5

But what are the equivalent figures if you invest in PGW directly at 42c?

$35m / 760.8m = NZ4.6cps

4.6c / 42c = 11.0% earnings yield, or a PE of 9.1

I used $35m as a guess for PGW profits for FY2014. But you can use any figure and the relative results will be the same. Investing in PGW at 42c is the cheapest way to get exposure to PGW. Plus as an NZ investor you get the benefit of imputation credits on dividends. The alternative exposure to Agria may never pay a dividend. As a New Zealander, I would argue investing in Agria cannot be justified with an Agria price of $US1.30, as it loses on all comparative metrics. The relative benefits of investing in PGW are less if you are an overseas investor, but PGW still wins. Sell Agria Agrainvestor, and put your money into PGW. That would be my advice.

SNOOPY

[Snoopy]

I used $35m as a guess for PGW profits for FY2014. But you can use any figure and the relative results will be the same. Investing in PGW at 42c is the cheapest way to get exposure to PGW. Plus as an NZ investor you get the benefit of imputation crdits on dividends. The alternative exposure to Agria may never pay a dividend. As a New Zealander, I would argue investing in Agria cannot be justified with an Agria price of $US1.30, as it loses on all comparative metrics (*). The relative benefits of investing in PGW are less if you are an overseas investor, but PGW still wins. Sell Agria Agrainvestor, and put your money into PGW. That would be my advice.

There is one qualification here, where Agria may on paper be better. Because Agria is a leveraged investment in PGW, if the share price of PGW goes up, then in relative terms the underlying value of Agria will go up more. However, the only way this gain can be turned into cash is for Agria to sell some PGW shares. This won't happen. If Agria were to sell down, they would lose their ability to equity account PGW earnings. And if that happened they would also have to write down the remaining value of their PGW stake to market. Agria bought their controlling shares in PGW for NZ60c. Even despite the New Zealand dollar strengthening from 76c to 86c over the time since the stake was acquired, Agria are still underwater on their original investment. This is something they will not want to remind their bankers about!

SNOOPY

[Beagle]

With a potential dividend yeild of 9.4% fully imputed, assuming 4cps (4/42.5) = gross dividend yeild of 14% for someone on the top 33%tax rate, a N.Z. investor in PGW is potentially being very well rewarded for their patience

[waikare]

4:10pm, 19 Jun 2014 | FORECAST

PGG Wrightson Trading Update

Chief Executive, Mark Dewdney announced today that PGG Wrightson (PGW) is forecasting that its full year Operating EBITDA* is expected to be in the $56 - $58 million range, slightly up on the guidance range indicated in February.

Mr. Dewdney said “The market and PGW’s trading performance has held up well in the past six months despite some localised challenges. The upper North Island saw another summer drought develop with farmers looking for rains to come mid-April. Just as this happened we also experienced a tough spell in the South with very wet and cold weather conditions challenging arable production and winter sowing activities.

In recent weeks the dairy forward herd sale contract settlements were transacted to close out the season for Livestock. This saw the Livestock business report a record month for May. Driving this was the large quantum of dairy forward sales transacted in May along with the increasing values in sheep and beef, and higher than forecasted auction cattle volumes yarded. With this busy period behind us we are now better placed to provide a guidance update for the current fiscal year.”

The company also announced that it had acquired a property company, AG Property Holdings Limited (AG Property) that owns a number of properties that are leased by PGW. AG Property collectively owns 40 properties that are a combination of retail stores, seed processing sites and livestock saleyards located across New Zealand. AG Property has no other assets, staff or operations and by acquiring the company, PGW obtains ownership of the 40 properties for consideration of approximately $30 million.

Shortly after the 2005 merger of Wrightson and Pyne Gould Guiness the company sold these properties subject to a lease back to PGW. Mr. Dewdney said “The decision to sell the properties was made at a different point in time, and the company now has a completely different look to its balance sheet and we are pleased to have been able to negotiate their acquisition.”

“The business continues to evolve and this gives us the opportunity to re-shape our property portfolio. A strategic review of the company’s property needs would be undertaken and some of the reacquired sites may ultimately be divested. The important thing is that this acquisition provides PGW with flexibility to review its property and lease needs and make decisions that are right for the business today and moving into the future.”

The transaction will see debt increase by a corresponding amount.

PGW expects to announce its full year results on 13 August 2014 with details of the announcement to be confirmed closer to the time.

[Beagle]

Good credible update in my opinion

[percy]

A very positive update.
Bit early to be thinking divie,but looks safe.Great yield.

[winner69]

Good credible update in my opinion

Yep .....ebitda back to 2012 levels.

That's a good start to a long overdue turnaround

[percy]

Yep .....ebitda back to 2012 levels.

That's a good start to a long overdue turnaround

Not so.
Just continuing to build on the solid new foundations laid by Sir John Anderson and George Gould.!!!

[Joshuatree]

Yep .....ebitda back to 2012 levels.

That's a good start to a long overdue turnaround

OK and int to see s/p 2 years ago was re 30c so are we overpriced and diluted? Not from what I've been reading on the thread. Sorry not familiar with whats gone on in between; less debt and div now i guess.

[winner69]

OK and int to see s/p 2 years ago was re 30c so are we overpriced and diluted? Not from what I've been reading on the thread. Sorry not familiar with whats gone on in between; less debt and div now i guess.

It was just an observation that this years ebitda is going to be about what it was in 2012 and although Percy said 'not so' that is a good and at least some positive earnings momentum which may/ lead to better numbers in 2015.

Fair value goodness knows cause I haven't looked at all the stuff like depreciation and interest and tax.

Maybe snoopy can convert $56m ebitda into real profit