PGW - PGG Wrightson

[bunter]

PGW is due to report in late February and has been forecasting increased profit for the full year and noting a strong performance in H1.

I'm guessing EBITDA will be up 10% for the FY, but that longer term, the profits will be patchy with not much growth, and prone to earnings shocks.

The company talks about growth but doesn't seem to have any convincing concrete plans other than running its existing business well.

Looks undervalued all the same - IMO a yield of 14.2% is not sustainable - either the price goes up or the dividend comes down. Think I'll get some more.

PGW 31/1/15	ShIssued m		755
	Growth 15 %		10%
	Price 30/1/15		0.485
	14	1H15e	2H15e	15e
EBITDA-Ass	58.7	32.285	32.285	64.57
Int	7.9	3.95	3.95	7.9
Tax	8.5	4.675	4.675	9.35
EBDA-Ass	42.3	23.3	23.3	46.5
NPAT	42.3	23.3	23.3	46.5
eps	0.056	0.031	0.031	0.062
Div Int	0.028	0.031
Div Fin	0.035		0.038
Div Ttl	0.063			0.069
Div yield	12.9%			14.2%
Payout %	80%	71%	89%	80%
Pay%InclSD				92%
Valuations
Growth 10y	5.0%	7.5%	10.0%
GrahamVal	1.04	1.32	1.60
DivFlowVal	1.19	1.34	1.51

'-ass' means excluding associates' earnings.
'SD' = last year's 1c special div, paid at the same time as the final div.
Graham = Benjamin Graham - Buffet's guru.
DivFlow is my dividend flow valuation.

[babymonster]

49c seems to be a resistance.

[sb9]

Might test the 50c mark today...

[BFG]

Might test the 50c mark today...

I am starting to see euphoria/"the only place to be" mentality starting to move into these stocks. Not saying they won't go higher, just saying be careful out there (and leave the rational cap at the coat check before entering)

[noodles]

PGW is due to report in late February and has been forecasting increased profit for the full year and noting a strong performance in H1.

I'm guessing EBITDA will be up 10% for the FY, but that longer term, the profits will be patchy with not much growth, and prone to earnings shocks.

The company talks about growth but doesn't seem to have any convincing concrete plans other than running its existing business well.

Looks undervalued all the same - IMO a yield of 14.2% is not sustainable - either the price goes up or the dividend comes down. Think I'll get some more.

PGW 31/1/15	ShIssued m		755
	Growth 15 %		10%
	Price 30/1/15		0.485
	14	1H15e	2H15e	15e
EBITDA-Ass	58.7	32.285	32.285	64.57
Int	7.9	3.95	3.95	7.9
Tax	8.5	4.675	4.675	9.35
EBDA-Ass	42.3	23.3	23.3	46.5
NPAT	42.3	23.3	23.3	46.5
eps	0.056	0.031	0.031	0.062
Div Int	0.028	0.031
Div Fin	0.035		0.038
Div Ttl	0.063			0.069
Div yield	12.9%			14.2%
Payout %	80%	71%	89%	80%
Pay%InclSD				92%
Valuations
Growth 10y	5.0%	7.5%	10.0%
GrahamVal	1.04	1.32	1.60
DivFlowVal	1.19	1.34	1.51

'-ass' means excluding associates' earnings.
'SD' = last year's 1c special div, paid at the same time as the final div.
Graham = Benjamin Graham - Buffet's guru.
DivFlow is my dividend flow valuation.

Thanks for your research.
A couple of points:
1.You have evenly split the EBITDA between halves. This will not be the case. The first half will be much lower and the second higher.
2.I think you have the eps way too high for that level of EBITDA. Likely dps is way too high as well.

Average brokers have the following:
EBITDA $62mil ( you are close)
NPAT $34.6 (huge deviation)
eps 4.5c (huge deviation)
dps 4.25c (huge deviation)

Now there is a good chance that they will beat broker estimates, but by the magnitude you are suggesting?
http://www.4-traders.com/PGG-WRIGHTS...13/financials/

As a holder, I hope you analysis is spot on.

[bunter]

Thanks for your research.
A couple of points:
1.You have evenly split the EBITDA between halves. This will not be the case. The first half will be much lower and the second higher.
2.I think you have the eps way too high for that level of EBITDA. Likely dps is way too high as well.

Average brokers have the following:
EBITDA $62mil ( you are close)
NPAT $34.6 (huge deviation)
eps 4.5c (huge deviation)
dps 4.25c (huge deviation)

Now there is a good chance that they will beat broker estimates, but by the magnitude you are suggesting?
http://www.4-traders.com/PGG-WRIGHTS...13/financials/

As a holder, I hope you analysis is spot on.

I never read the broker valuations; you can work out the difference between the pros' valuations and this amateur's better than I can!
They seem to be suggesting a 20% FALL in 15 earnings. PGW disagrees.


I split EBITDA 50/50 for the two half years just to get a rough idea of the dividend payout % - it doesn't make any difference to the figures of interest - 2015 NPAT and dividend.

The 2014 NPAT and dividend figures are actuals - see http://pggwrightson.co.nz/Userfiles/...ort%202014.pdf , p30.

And the 2015 estimated NPAT and divs are simply the 2014 ones plus 10% - PGW said it looked like the 2015 figures would be 'better'.

10% might be too much - hence other valuations (table above) based on long-term 5% and 7.5% growth.

[Snoopy]

The 2014 NPAT and dividend figures are actuals - see http://pggwrightson.co.nz/Userfiles/...ort%202014.pdf , p30.

And the 2015 estimated NPAT and divs are simply the 2014 ones plus 10% - PGW said it looked like the 2015 figures would be 'better'.

10% might be too much - hence other valuations (table above) based on long-term 5% and 7.5% growth.

Bunter, the PGW dividend paid out last year was greater than the net profit of the company on a normalised earnings basis. You can't carry on paying out more than you earn, when as a company you still have a significant debt burden. So I would suggest using last years dividend as a 'base' figure and increasing your dividends from there in what is a cyclical agricultural market will give you an unrealistically high dividend forecast figure. Even your 'conservative' lower estimate is IMO likely to be too high.

SNOOPY

discl: hold PGW

[noodles]

I never read the broker valuations; you can work out the difference between the pros' valuations and this amateur's better than I can!
They seem to be suggesting a 20% FALL in 15 earnings. PGW disagrees.


I split EBITDA 50/50 for the two half years just to get a rough idea of the dividend payout % - it doesn't make any difference to the figures of interest - 2015 NPAT and dividend.

The 2014 NPAT and dividend figures are actuals - see http://pggwrightson.co.nz/Userfiles/...ort%202014.pdf , p30.

And the 2015 estimated NPAT and divs are simply the 2014 ones plus 10% - PGW said it looked like the 2015 figures would be 'better'.

10% might be too much - hence other valuations (table above) based on long-term 5% and 7.5% growth.

Have a look at pg.28 of the annual report. It highlights the one-off items that increased profit. Operating EBITDA is the important amount. From that you can work out what NPAT should have been.

Snoopy is correct. You should not include the special dividend (1c as I recall)

[bunter]

Bunter, the PGW dividend paid out last year was greater than the net profit of the company on a normalised earnings basis. You can't carry on paying out more than you earn, when as a company you still have a significant debt burden. So I would suggest using last years dividend as a 'base' figure and increasing your dividends from there in what is a cyclical agricultural market will give you an unrealistically high dividend forecast figure. Even your 'conservative' lower estimate is IMO likely to be too high.

SNOOPY

discl: hold PGW

I excluded the 1c special dividend from the 2014 dividend figures.
From NZX...

22/08/2014	Final	3.500c	0.618c	1.361c	03/10/2014	NZD
10/03/2014	Interim	2.000c	0.353c	0.778c	02/04/2014	NZD

I used 2.5c + IC for the final div.

Excluding the special div it paid 80% of NPAT out (don't know about 'normalised').
I think it is reasonable to use 80% payout for 2015.

BTW by my calcs, including the special dividend, PGW didn't pay more than it earned in 2014 - it paid 98% of total earnings.

[bunter]

Have a look at pg.28 of the annual report. It highlights the one-off items that increased profit. Operating EBITDA is the important amount. From that you can work out what NPAT should have been.

Snoopy is correct. You should not include the special dividend (1c as I recall)

Spec div - see above.

Operating EBITDA - that is the approach I tried to use.

Took the company's figure for operating EBITDA, which excludes excluding associates' earnings, non-operating items and fair value adjustments.

Then took off interest and tax.

As it happens - it give a figure ('EBDA-ASS' above) which coincidentally is the same as the reported NPAT.

Does that method look right to you - any income in there that shouldn't be?