PGW - PGG Wrightson

[Beagle]

Believe me Roger ... They'll be plenty who want out of this continuously under performing dog. (and they'll have been badgering PWG mgt to do something so they can get out and its been delivered).

discl: been a holder off and on since 2002ish so not fooled. sold out at 42.5 over a year ago not CG just divi. And todays VWAP? just 42.57. Yeah ... pull the other one.

You calling it a tax dodge, that's a good laugh. Selling more than one investment property and not paying tax on the gain and thinking a simple excuse will hold you in good stead...I don't want to appear to be mean but the I.R.D. love having a crack at that sort of thing so it wouldn't surprise me in the slightest if you have a battle on your hands there.

Yeah I've been a holder before too but you never know they might finally be getting their act together. Every dog has its day

[Master98]

just wondering if it is possible or when PGW will back to NZX50.

[BlackPeter]

just wondering if it is possible or when PGW will back to NZX50.

Well, PGW's market cap ($332m) is certainly significant higher than of the recently to NZX50 advanced (and since then dropping) starlet PEB ($216m). However not sure, whether the full PGW market cap counts for NZX50 entry (given Agrias predominant position - not all shares are freely available).

[nextbigthing]

I don't really follow this stock so sorry if this is an oversimplification, but isn't the large rise in shareprice a little short sighted given the rapidly falling dairy prices and therefore spending power of farmers?

[Snoopy]

That yield is outstanding, so no surprise on the high volume (there are 700M plus out there...). Will wait a bit and see if Snoppy digs deep on this one.

I dug deep into PGW last year Moosie. I have set myself investment rules that limit the amount of capital I can put into shares outside of the NZX50. So I have no plans to dig deeper at this point, no matter how attractive the bone. But my instinct is to say this is probably as good as it gets.

A PE of 7-8 at the top of the farming cycle is in theory about where the share price should be in a cyclical business like this. Mr Market has a tendency to overshoot, so I don't rule out the share price heading higher. And I haven't made any allowance for the new managnement broom. All I am saying is, from here, the statistics are going to start to stack up against you IMO.

I have been looking at the PGW result though. $97.8m to $108.2m is a good rise in commission revenue (note 5). A sign of rising business through the Heartland bank connection? There is more than a million dollar drop in bad debts written off too (note 8).

Much was made of the improved cashflow at announcement time. But to me it looks like a marginal change in difference between two very big numbers. Profit margins remain low. So who knows if it will be sustainable? Meanwhile the asset base continues to shrink. Mark Dewdney has done a commendable job squeezing more profits out of a balance sheet that one might describe as a 'lazy lemon'. But if the lazy lemon balance sheet is getting smaller with time, there will be a limit to the juice you can squeeze out of it.

SNOOPY

[winner69]

I dug deep into PGW last year Moosie. I have set myself investment rules that limit the amount of capital I can put into shares outside of the NZX50. So I have no plans to dig deeper at this point, no matter how attractive the bone. But my instinct is to say this is probably as good as it gets.

A PE of 7-8 at the top of the farming cycle is in theory about where the share price should be in a cyclical business like this. Mr Market has a tendency to overshoot, so I don't rule out the share price heading higher. And I haven't made any allowance for the new managnement broom. All I am saying is, from here, the statistics are going to start to stack up against you IMO.

I have been looking at the PGW result though. $97.8m to $108.2m is a good rise in commission revenue (note 5). An sign of rising business through the Heartland bank connection? There is more than a million dollar drop in bad debts written off (note 8).

Much was made of the improved cashflow. Biut to me it looks like a marginal change in difference between too very big numbers. Profit margins remain low. So who knows if it will be sustainable? Meanwhile the asset base continues to shrink. Mark Dewdney has done a commendable job squeezing more profits out of a balance sheet that one might describe as a 'lazy lemon'. But if the lemon is getting smaller with time, there will be a limit to teh juice you can squeeze out of it.

SNOOPY

Alison Holst told me if you microwave the lemon for a few seconds you get more juice when you squeeze it .... so Mark probably got another year or two squeezing yet

[Snoopy]

2. Based on ex stock price of 39.5 cps, (cum 43), you're paying a multiple of only 7 times last years earnings and the company sounds confident it'll grow current years earnings !!

What Mark actually said in the press release was:
“PGW was confident that it could deliver further increases on this year’s Operating EBITDA result through the delivery of its strategy. However, given the volatility in the forecast dairy price at the current time, and the need to assess the likely impact for PGW’s clients and the sector it was the company’s intention to provide a forecast for the current fiscal year at the time of the Annual Shareholders Meeting in October."

That means Mark is confident of further operational improvements at PGW. But he is not yet in a position to forecast a profit increase. Indeed another interpretation of what he said was that macro-economic factors may yet cause the PGW annual net profit to fall in FY2015

Now if we move onto the profit figure for FY2014, you will see that it was padded out with a lot of favourable 'one offs'. If you look at the ongoing business I get a very different NPAT compared to the $42.3m headlined in the press release.

Operating EBITDA: $58.7m
Equity accounted earnings of associates: +$2.5m
Depreciation & Amortization: -$11.2m
Net Interest & finance cost: -$7.9m

=> NPBT = $42.1m

Using a tax rate of 28%, NPAT is $42.1m x (1-0.28) = $30.3m

With 754.8m shares on issue that makes eps of: $30.3m/754.8m = 4.0cps

Based on an ex-dividend share price of 39.5c, we are looking at a PE of 10.1. 10.1 is not a no growth PE. Mark is going to have to work hard to grow earnings growing forward and the market is already pricing in that he will succeed. As an an investment prospect I would argue PGW is now a dividend play only at an ex-dividend price of 39.5c.

SNOOPY

[Snoopy]

3. Based on ex divvy price of 39.5 cps and assuming next year's dividend is 5 cps (fully imputed) PGW trades on a 2015 net dividend yield of 12.66%, gross of 18.9% for those on a 33% tax rate.

5cps assumes core earnings growth of 20% over FY2014. That is possible but I would say a very bullish earnings outlook given the current rural outlook is mixed. I certainly wouldn't put any more of my own money into PGW under an assumption like that.

SNOOPY

[Beagle]

You can be a sceptic if you like just like with HNZ but I'm happy mate. According to Reuters of the three analysts covering it two rate it as outperform and one as a buy with a target price of 53 cents.
The market is clearly impressed with the result and prospects. I'll have a good look at the full accounts in due course but in the meantime I'm looking forward to the very substantial dividend

[percy]

.
The market is clearly impressed with the result and prospects. I'll have a good look at the full accounts when they're out but in the meantime I'm looking forward to the very substantial dividend

Yes,while you can look forward to the very substantial dividend, I think the improvements made to the core business over the past couple of years,means the company will now have the capacity to pay on going substantial DIVIDENDS.