PGW - PGG Wrightson

[Balance]

Must have been Snoopy selling out, what with the selling signal in David B's post above about PGW only being able to pay off all their debt in two years from operating activities.

If the sp goes higher in the months ahead, Snoopy will be telling us he was actually buying today on the 'profit warning' !!!!

[percy]

"It's the backbone of the New Zealand economy"

Was thinking it is really "HEARTLAND" New Zealand..... lol.

[Balance]

Snoopy ...those million shares you sold to lighten your exposure ..... Balance bought them

Nice

I wish!

Back in October, PGW's sp was .... 35 cents.

[Balance]

I don't think you can discuss what is a fair buy in price for PGW, without having some kind of future scenario in mind in tandem with your price.

IMO the best thing PGW can do to improve their earnings is reduce debt. Unfortunately with Agria in control, I believe dividends will be reinstated in advance of what is prudent for all shareholders. Some small shareholders may cheer and drive the share price up to 40c. I would see PGW as a sell at that price.

35c to me says PGW are expecting a large increase in contribution from Agritech to offset the decline in Agriservices coming off a boom year. I was very disappointed to hear at the AGM that after Agritech hit a five year rock bottom in FY2012, their profitability has worsened yet again in the opening of the FY2013 year. At the moment I see the chance of a downside risk of the PGW share price as high, and greater than the possibility of missing a share price rally. Of course with any sub 50c shares, a movement of only one or two cents is quite a large percentage move. So if the share price got down to say 32c, I would look at PGW again.

Personally I do not buy the China expansion story. So whether Agria or New Hope stay involved with PGW does not affect my own valuation of PGW. Some may see that differently though. If Agria did start having to sell PGW shares to pay their debts, pushing the PGW share price down as a consequence, I would cetainly look at buying more PGW, maybe a lot more if I could get the shares for 30c....

SNOOPY

Snoopy's take on PGW's sp at 35 cents and 40 cents.

So at 45 cents, Snoopy is long time gone.

[Snoopy]

I see that their cash flow from operating activities y/e 2012 (and after they have paid out their interest) was $58.5m.

Before anyone else gets too excited about this, I would like to point out that if you add investment cashflow and financing cashlow then PGW is strongly cashflow negative. More specifically adding the three numbers:

$58.5m - $32.4m -$82.0m = -$55.9m

Of course FY2012 was an unusual year in that PGW in that they were divesting PGW finance to Heartland. Incredibly PGW turned even that into a negative cashflow event. My assessment of PGW is that they are extremely bad managers of cash, and they have in fact become experts in frittering cash away rather than paying down debt. There is certainly no spare cash in the company and no easy way to generate it.

Nevertheless FY2013 is a new year.

SNOOPY

[Snoopy]

I see that their cash flow from operating activities y/e 2012 (and after they have paid out their interest) was $58.5m. So if they applied all the cash from their operating activities (assuming these stay flat) to pay off their loans it would take them under two years to do it. That doesn't seem so bad to me.

Your thoughts Snoopy?

I think I get the gist of your argument David B. What you are saying is that at an operational level PGW are generating cash. So that means that underneath all the manure of recent years there should be a good cash generating business here.

The first point I would make is that, is that not akin to someone saying:

"Well, I have a really great income, a nice new house and a mortgage." "If I didn't have to make those mortgage repayments I would be making so much cash I would be wallpapering my bedroom with it."

The problem with the above yuppie attitude is that the mortgage does have to be paid. Imagining a scenario where the financing of debt is optional is somewhat spurious. However having said that the debt repayments by PGW will be lower in FY2013. I am forecasting interest payments to go down from $9.5m in FY2013 to $8m in FY2014.

The next point I want to make is the idea of ignoring the investment cashflow. I should point out that even if PGW had received a financing holiday from the banks and didn't pay back any interest or capital, that the negative investment cashflow alone puts a $32.4m hole in your highlighted operating cashflow of $58.5m.

I think the phrase 'investment cashflow' is unfortunate, as some might take it that if PGW has a small 'investment holiday' then they would suddenly be generating lots of operating cash. I don't think this is right, as much of this investment is stuff needed for the normal operation of the business that nevertheless cannot be written off in the year of purchase.

Furthermore one item of investment cashflow was $32.2m on the sale of investments. Remove that from the sum of operating cashflows and investing cashflows and you can see that the underlying business of PGW, before any finance charges are paid, is actually cashflow negative.

I would argue that far from being on the cusp of being able to deliver large cashflows to shareholders, PGW is in fact in a very serious position because in underlying business terms it is desperately short of cash.

SNOOPY

[Snoopy]

Snoopy's take on PGW's sp at 35 cents and 40 cents.

So at 45 cents, Snoopy is long time gone.

Balance, this that post of mine was made on 28th October 2012. Since that time I have reduced my farming investment exposure, thanks to Olam breaking the spine of the resistance group of which I was a member and acquiring my NZS shares.

In my total portfolio picture, this made me less reluctant to sell PGW at 45c, even though if I had followed my own advice I probably should have. The good thing about this share investing game is that you don't have to be right every time. A large part of it is having the patience to hang on until you are right. I am still on the PGW register with my holding, without any of the anxiety suggested by others.

In fact in this instance, despite the share price drop from the recent high of the late 40s, and despite being wrong on where the share price is now, I am being well rewarded!

SNOOPY

[Snoopy]

In the other case they move with us to HSE it would be cheaper and better for Agrias reputation. HSE has strong lsiting requirements.

Interesting to consider the possibility of Agritch eventually listing on the Hong Kong stock exchange. here are the listing requirements:

http://www.hkex.com.hk/eng/listing/l...q/equities.htm

With $NZ1 = $HK6.50 as I write this.

There are three alternative tests for new entrants listed there. Not all require the company to be profitable, but if not then the market capitalization must be at least $HK2billion, or $NZ307m. Perhaps this is possible?

However with 754.8m shares on issue at 45c, that gives a total PGW market capitalization of $NZ340m. If Agritech is worth half of that share price (and it probably isn't right now) hen it will have a standalone market capitalization of only $170m. There is a long way to go for Agrtitech to go down the HK listing path!

SNOOPY

[Agrarinvestor]

Is PGW movingin the right direction ? YES

	Jun 10	Jun 11	Jun 12	3 years
Gross Margin	23	22	22	22,7
Operating Margin	4,9	2,48	3,4	3,6
Net Profit Margin	1,4	(2,82)	1,9	0,16
Interest Coverage		1,04	3,0	2,0

Net Profit is small but climbing. Interest Coverage is climbing. if you compare PGW with Monsanto
you see the US Giant valuating with 4 times higher then the Book Value and a P/E of 23.
How much room for improvement , for PGW. If they archive the Gross Margin of Monsanto they will have a net Profit that is 10 times higher. I am sure they can do it.!
- I think they will their Australia business
- I think they will make use of AGRIAs prepaid land use rights in china and produce seeds there. That will improve the operating margin. Remember AGRIA has Operating margin above 40%. That meany the business is profitable if they had more money in the pockets.


@Snoopy,

cash level is higher as before. In the annual report you see 15.09 million instead of 0.2 one year earlier.
The cashflow is negative because they have reduced loans. I don't understand you. Why are you always complaining. Do you really think you know more then the people who purchased these large Blocks of shares during the last weeks. And with Agria you will see a large surprise in the next months.

[Snoopy]

Is PGW movingin the right direction ? YES

	Jun 10	Jun 11	Jun 12	3 years
Gross Margin	23	22	22	22,7
Operating Margin	4,9	2,48	3,4	3,6
Net Profit Margin	1,4	(2,82)	1,9	0,16
Interest Coverage		1,04	3,0	2,0

Net Profit is small but climbing. Interest Coverage is climbing. if you compare PGW with Monsanto
you see the US Giant valuating with 4 times higher then the Book Value and a P/E of 23.
How much room for improvement , for PGW. If they archive the Gross Margin of Monsanto they will have a net Profit that is 10 times higher. I am sure they can do it.!
- I think they will their Australia business

I think with cash concerns you should be analyzing the position of the company today. It is all very well looking at three year averages. But as you know, PGW today is a very different company to PGW three years ago. If PGW does not have the cash it needs today it matters not one jot that they did have the cash in 2010, or that in an average year they would have had the cash. If bankers want a loan repaid, they want it repaid this year.

PGW have largely done the selling off of unwanted assets now. They do not have another PGW Finance to sell off in future years, although given this transaction generated negative cashflow when they unloaded the business unit to Heartland, perhaps this is just as well!

I agree that things would improve dramatically if the profitability in Agritech Australia improved to the level of a Monsanto. But given this business is probably loss making right now, this would be a huge leap of faith and could take a decade. In the meantime PGW must survive until that time. It seems much more likely to me that a further injection of capital of some kind will be necessary.

- I think they will make use of AGRIAs prepaid land use rights in china and produce seeds there.

This would be a good idea, but I have to ask 'what seeds'? Has anything come of PGWs China specific R&D yet? While Agria is congratulating itself with joint venture university research projects, have these projects come up with anything commercial yet?

That will improve the operating margin. Remember AGRIA has Operating margin above 40%. That means the business is profitable if they had more money in the pockets.

But Agria don't have money in their pockets. All they have is a non value adding management overhead, which is not adding value to a marginally profitable investment - PGW. This is why Agria are losing money.

SNOOPY