PGW - PGG Wrightson

[duncan macgregor]

quote:Originally posted by Snoopy
A lot of water has to flow under the bridge before NZ farmers conquer Asia. The one thing that is certain about farming is that the unexpected happens. If the weather beats down the price of PGW shares in the future, as it surely will, then I am a buyer. In the meantime I am quite happy to hang onto my holding. If PGW really is on a P/E of 21 a lot of the improvement over the next year or two is already built into the share price. Personally, I'll be chuffed if PGW hits $2 over the next twelve months.

SNOOPY

discl: hold PGW
SNOOPY, What a whole lot of guff you write. Are you expecting us to beleave that you were holding shares in a company at $2-30 something watch them fall to $1-70 something then say you would be happy if they reach $2-00 in 12 months. Either you have no system at all or your real name is mary holm.
Fundamental analysis as you have proved, is as useless as tits on a bull. It all boils down to perception as i have told you in the past.
It is how the investors perceive the market, not the PE. Look at your analysis on TEL, RBD, pages and pages of what turned into be useless tripe. The market is controlled by emotion, not mathematics.
Understanding the investors next move has nothing to do with the PE of a company. This is a very good share to trade, it goes to high then drops to low with no risk of losing the lot. If you trade PGW you will make three times as much as your buy and hold method.
MACDUNK

[kittydashwood]

MICK IPSU STATESIDE is a good vehicle for your theory
TIM on ASX could fit too...

[craic]

For once I agree with DMcG. I have held the rural stock for years and I have done very well. It is part of an investment portfolio and I do not have a stop loss. I do however have a top selling strategy and that is to set a figure as my top price and then, if it continues to rise - leave it alone. If it gets to my number or above and then starts to drop back, I sell. My top figure for PGW is 240cps and I am reasonably confident that it will reach that number. Two recent examples of sales under this scheme were SKC at 553cps and WHS at 503cps. AIA, my biggest holding will go on the block at 220cps. The reason I do not have a stop loss is because I am fairly ruthless with the bottom dwellers on my portfolio. I have nothing left to send to the Knackers yard.

[Snoopy]

quote:Originally posted by duncan macgregor

Snoopy wrote
A lot of water has to flow under the bridge before NZ farmers conquer Asia. The one thing that is certain about farming is that the unexpected happens. If the weather beats down the price of PGW shares in the future, as it surely will, then I am a buyer. In the meantime I am quite happy to hang onto my holding. If PGW really is on a P/E of 21 a lot of the improvement over the next year or two is already built into the share price. Personally, I'll be chuffed if PGW hits $2 over the next twelve months.

SNOOPY, What a whole lot of guff you write. Are you expecting us to believe that you were holding shares in a company at $2-30 something watch them fall to $1-70 something then say you would be happy if they reach $2-00 in 12 months. Either you have no system at all or your real name is Mary Holm.

To tell you the truth Macdunk, I wasn't watching. If the PGW share price really did get up to $2.30 I think it would have been before the 40% ongoing profit downgrade. So at the time $2.30 would have represented a P/E of 17-18. Not out of line for a growing company.
So even if I had been watching, I don't think that I would have sold.

What I do know, following the compulsory acquisition of my Carter Holt shares earlier this year, is that I now have only one direct exposure to NZs farming backbone - my shares in PGW. And if anything my relative holding in this sector is too low. I have looked at other ways of getting exposure to farming. IMO holding PGW is still the best way to do it. I don't think that quitting the sector completely, becaue of some transient movement in share price that does not go outside my fair value valuation range, is a sound long term investment strategy.

quote:
Fundamental analysis as you have proved, is as useless as tits on a bull. It all boils down to perception as i have told you in the past.
It is how the investors perceive the market, not the PE.
The market is controlled by emotion, not mathematics.

Short term you are right. F/A isn't necessarily a good predictor of the direction a share price will move. But I don't 'do' short term. I don't trade at all. Long term the market behaves like a weighing machine and that is where ongoing PE matters.

quote:
Look at your analysis on TEL, RBD, pages and pages of what turned into be useless tripe.

On the contrary. TEL and RBD continue to be good dividend paying shares. In the case of TEL in particular, I have been buying significant blocks of shares (well, significant for me) to the exrent that my shareholding has increased by nearly 40% (in share number terms) since the unbundling slump. I would not have had the confidence to do that without my F/A.

quote:
Understanding the investors next move has nothing to do with the PE of a company. This is a very good share to trade, it goes too high then drops to low with no risk of losing the lot. If you trade PGW you will make three times as much as your buy and hold method.

I know farming as a fickle business Macdunk. I have cousins who are farmers. I don't for a moment think that I can predict the weather, rules around trade access to foreign markets or even what is going to happen to the kiwi currency. If you think

[kittydashwood]

High fuel prices exerts another squeeze on food producers as suddenly producers have the option of growing for bio desiel or ethanol.
Look at the Archer Daniels Midland price, look at the ethanol squeeze on sugar.
The increase in fuel cropping can only place more pressure on global food prices.
PS still no NZ butter on US supermarket shelves, FPA selling well but in a deflationary environment (who wants to buy a luxery item that will be cheaper tommorrow)very interested to see the Pumpkin Patch selling well via their own branded stores, attached to Nordstrom. Colours seem to be a miss this year and the kids are all hispanic and asian and the hype is all pakeha

[rmbbrave]

Simmering food sector off the boil
29 August 2006
By SUE ALLEN

New Zealand needs to lift pastoral productivity by 50 per cent in the next decade if the $15 billion food and beverage industry is to survive.


Tony Nowell, co-chairman of the Food and Beverage Taskforce, unveiled yesterday a 49-point plan for the sector, which generates about half of New Zealand's merchandise export earnings each year.

Mr Nowell said the industry faced challenges on every front, including an unrelenting squeeze on margins as supermarket chains consolidated buying power.

Competitors such as China and South America were expanding production and improving quality; overseas food-safety regimes were becoming more stringent; there were constraints on land because of urban sprawl; and consumer tastes were changing.

In the present market, maintaining a compound growth rate of 5 per cent would not be easy, he said.

The task force had a three-pronged plan to maintain growth levels: improved productivity; new products; and entry to new markets.

Mr Nowell said international best practice for pastoral productivity was about 19 tonnes of dry matter per hectare. New Zealand's average of about 12.

"So, if we can move the pastoral sector more toward best practice, and fairly aggressively. . . then clearly there is a very large gain for the country."

An example of new products was developing functional foods such as added calcium milk and sports drinks.

Food tailored to specific genetic types is becoming an increasingly hot topic overseas and this was an area New Zealand could develop, he said.

Other recommendations included using a "NZ Inc" brand overseas, which would help smaller players; $750,000 of Government money to promote New Zealand food and wine domestically, including a New Zealand Food Week; and more help for exporters.

Key assets included New Zealand's biosecurity regime, which had helped exporters capitalise as competitors were hit by bird flu, foot and mouth and mad cow disease. But that needed protection, he said.

AdvertisementAdvertisementThe industry also had to work harder to become an employer of choice and more research was needed to work out more about markets and consumers.

He believed the vision the task force had set was achievable.

"However, it won't be easy and it will need a concerted effort by both the private sector and Government to achieve the ends we believe are possible."

A "peak organisation" was needed to champion the changes required made up from private industry and government organisations

[Snoopy]

quote:Originally posted by craic

I have held the rural stock for years and I have done very well. It is part of an investment portfolio and I do not have a stop loss. I do however have a top selling strategy and that is to set a figure as my top price and then, if it continues to rise - leave it alone. If it gets to my number or above and then starts to drop back, I sell. My top figure for PGW is 240cps

$2.40 is one of the higher PGW valuation figures I have seen as a 'prediction'. But is it out of line? I have already expressed some concern over the seemingly high ongoing P/E that PGW trades at: 25+ (with the share price north of $1.80.) Nevertheless when there are difficult times on the farm some of the established industry players do trade at high P/E ratios. I think Carter Holt traded at a P/E of 50 by the time it was taken over.

Another way to value a company is by EBIT multiple. If we look right back to the Grant Samuel December 2004 valuation report on Wrighton's (as it was then), in Appendix 2, we can get an idea of what these EBIT multiples are. On a 'good' year that multiple is about 8, and on a bad year it rises to 12 for rural services companies.

EBIT figures released by PGW for FY2006 were $29.4m (Rural Services), $6.3m (Finance), $8.9m (Seed and Grain) and $1.7m (Uraguay). That is a total of $46.3m. If we assume that FY2006 was a 'bad year' and use the multiple of 12, I get:

($46.3m x 12)/281.3m = $1.98.

This implies that profitability needs to rise by about 50% in 2007 (our good year) to stop the share price falling from that ~$2 point (if it gets there)! Of course we all know the market doesn't always behave rationally: it tends to overshoot on the upside and the downside. A 20% overshoot on the upside is a price of $2.40, which is Craic's selling point: that looks about right as a point to get out to me. 40c under this $2 valuation reduces us to a share price of $1.60. I would mark that down as a 'good value' entry point. By that same stadard I would regard $1.80 as 'fair value', despite the high P/E that $1.80 applies. That high P/E is IMO caused by 'seasonal factors'.

SNOOPY

discl: hold PGW

[KJ]

Fair comments Snoopy-Looking at fwd PE say 2007 NPAT of $50m (their estimates are $45 to $50m)would give:
P/e of 10 at current price of 186
P/e of 11.2 at SP of 200
P/e of 13.5 at SP of 240

IMO it will struggle to break 200 until there is some good news on improved trading and earnings.Depends a bit on how the overall market sentiment goes.

[Snoopy]

quote:Originally posted by KJ

Looking at fwd PE say 2007 NPAT of $50m (their estimates are $45 to $50m)would give:
P/e of 10 at current price of 186
P/e of 11.2 at SP of 200
P/e of 13.5 at SP of 240

IMO it will struggle to break 200 until there is some good news on improved trading and earnings.

I agree KJ. So why didn't I sell when the share got to $2.30? Because the profit downgrade hadn't happened back then. It is very easy to be wise with the benefit of hindsight! Looks like we are agreed that $2 will be all we can reasonably expect before the end of the 2006 calendar year.

I paid my semi-annual visit to PGW Christchurch branch today (the old Pyne Gould Guinness store on Blenheim road). The blond lady behind the counter (the other lady I think was new) remembered me, even though the last time I saw her was in the big Wrightson superstore (now closed) on Waterloo Road many months (a year?) previously. I took my time wandering around the 'new' store and frankly the selection of product didn't seem as good. Never mind, they had what I wanted out the back when I asked. I guess most farmers know what to ask for anyway when it comes down to it. Apparently the plan is to 'knock out a wall' and extend the display part of the building so that more goods can be shown off.

Having spent all my money on fertilizer, I stopped to have a brief look around the apparel section. The range of goods on display had widened. There were some really nasty looking chinese slave made jean shorts (or were they longs where the legs had already fallen off) then some reasonable looking middle range Aussie stuff, and the top of the range was an NZ made jean with triple stitching. That would be fine except the last kiwi made pair of jeans I bought, the stitching was OK and it was the material that went (a different brand I might add).

There was a steady stream of 4WD mounted customers that came into the shop while I was there, and all bought something. What is more the mud on the 4WD utes was real, not that spray on stuff that the Fendalton folk have. It was 'stock take' day and I remarked that for once it would have been an easy job because the winter had been so bad they hardly would have sold anything! I got the stone faced silent reply to that comment showing it was either true or they were so shocked that I had said it, they didn't know what to say! However, I did prise out of them that the lamb feed and dog biscuits were moving out like hot cakes. We may be looking at a slow start (a good opportunity to purchase shares when the price dips?) and a bumper finish to the season. In the meantime, back to work on the garden!

SNOOPY

discl: hold PGW shares in one hand and a fork in the other.

[Snow Leopard]

quote:
It was 'stock take' day and I remarked that for once it would have been an easy job because the winter had been so bad they hardly would have sold anything! I got the stone faced silent reply to that comment showing it was either true or they were so shocked that I had said it, they didn't know what to say!

Reminds me of my father asking just before the shop closed for the day "Do you have any pies left?".
"Yes we have".
"Should not have made so many then".

I am still smarting from the decision not to invest in Williams & Kettle two days before the takeover was announced.
I recently did 'due diligence' on PGW and rejected them again.