PGW - PGG Wrightson

[Snoopy]

@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.

True the paying back of loans is producing negative cashflow. And I think the picture will become much clearer when we see the half year balance sheet. However based on the EOFY2012 cashflow statement and leaving out all financial cashflows (i.e. only considering operating cashflows and investing cashflows) and leaving out one off inflows of cash from other asset sales (a sub header of investing cashflows) the cashflow position of PGW for FY2012 was still negative overall. This has to be a worry.

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.

The large blocks of shares you refer too are not really that large when there are 754.8m shares on issue! And yes given I have been on the share register of PGW for more than ten years and have lost money on my investment overall (there is nothing like losing money to focus your attention as you try to understand the company better) I probably do have a better business cycle view of PGW than those who are following the 'rural bubble' who have bought in over the last year.

SNOOPY

[Snoopy]

You, someone who has lost money in PGW, has a better business cycle view of PGW? Someone who stayed through all the Norgate years through to the bitter ending of his era of hubris?

I learned my lesson, and my subsequent judgment was improved by holding PGW shares through the Norgate era.

It is hard to believe your better business cycle view is better than someone who bought in at 25-35c, when PGW traded at its lowest point in 2012. In my opinion, this was the point to buy precisely when it was de-risked - when it had already turned the corner but investors didn't realize.

If you recall, I did buy most of my PGW shares in precisely the time period you state Sparky, at a price of 32c

I hate to break it to you Snoops-me-ole-mate, but PGW is not a risky stock for me, precisely because I researched it well and bought it cheaply, prior to this so called rural bubble you are referring to. If there is indeed a rural bubble, which until your post above, I was unaware was in effect.

I don't wish to criticise you too much Sparky, because when it comes down to it your view and mine of where we think PGW is going are not too different.

Where I differ with you is that you have swallowed your favourite brokers view on where PGW is going and swept the caveats under the carpet.

Anyone who has had any involvement in agriculture, and that may or may not include the pointy head who compiled your brokers report, knows that a straight line growth path in earnings for any agricultural business will not happen. The fine print which says "barring any unforseen events", like drought, floods, significant upward movement in the NZ dollar, farms slumping in value (relevant to the real estate division) and price turmoil in overseas markets is all happening right now. Yet you steadfastly believe that PGW is on track and that this years earnings will be 8% higher than last year.

Short of flogging you with a docked lambs tail, is there any way to wake you from your tunnel visioned path?

SNOOPY

[Balance]

I learned my lesson, and my subsequent judgment was improved by holding PGW shares through the Norgate era.



If you recall, I did buy most of my PGW shares in precisely the time period you state Sparky, at a price of 32c


SNOOPY

Please show us when u bought?

[Snoopy]

What I was getting at is that in my view, PGW's current debt is not outrageously high wrt to its assets or its operating cash flows, but rather it is manageable and does not pose a serious threat to the company in the medium term.

OK, I think your view on the debt position of PGW is reasonable.

Of course the less debt the better,

Yes and the key issue that PGW faces, by not earning their cost of capital, is that the best way to improve earnings is to repay their debt as fast as they can. However, it is doubtful that controlling shareholder Agria will allow this to happen.

although I do point out that some of that negative investing cash flow y/e 2012 is a one off,

Yes like the proceeds from sale of investments, a $32.532m one off gain that won't be repeated. Remove that to the -$32.461m sum of the investing cashflows and I get a 'normalised' investing cashflow of -$65m.

That more than wipes out the $58.578m of operating cashflow!

So how much is too much debt for a business to carry? Taking your mortgage analogy, the way I would judge PGW on that score is, if I owned a house that was worth $600,000, and I had borrowed $100,000 mortgage from the bank, and my income (operating cash flow) was $60,000, (i.e., sufficient that if I applied very cent of that to my loan I could pay it all back in 20 months, am I over extended? And the answer to that, I would suggest, is clearly no. So long as I keep my other costs under control, my mortgage level is affordable.

Last years normalised income was $25m though. Not the $60m you are implying here that was operating cashflow.

SNOOPY

[Balance]

OK, I think your view on the debt position of PGW is reasonable.



Yes and the key issue that PGW faces but not earning their cost of capital, is that the best way to improve earnings is to repay their debt as fast as they can. However, it is doubtful that controlling shareholder Agria will allow this to happen.

Waiting for your reply re your shrewd buying at 32 cents.

[Snoopy]

Please show us when u bought?

From mid November 2012 I was buying PGW at 32c, over a period of several days. And no I didn't buy millions of shares. Liquidity was so tight at the price that my ordinary sized order took several days to fill.
Curse all those 'block special crossing' guys that jumped the queue ahead of me!

SNOOPY

[Balance]

From mid December 2012 I was buying PGW at 32c, over a period of several days. And no I didn't buy millions of shares. Liquidity was so tight at the price that my ordinary sized order took several days to fill.
Curse all those 'block special crossing' guys that jumped the queue ahead of me!

SNOOPY

Fooled me.

Especially after your 'Balance ramping PGW sp' accusation.

[Snoopy]

Fooled me.

Especially after your 'Balance ramping PGW sp' accusation.

I apologise for accusing you of ramping PGW on 19th December 2012 Balance.

Having just doubled by holding a month or so before at 32c, I did consider the rise to 40c in just a month to be a case of too far too fast.

SNOOPY

[Snoopy]

Snoopy, I do my homework. For example, I have flown down to Christchurch from Auckland to visit PGG's head office and ask C-level officers questions directly to satisfy my interest in the stock after Forsyth Barr recommended it. I have regularly visited PGG Wrightson stores and offices between Whangarei and Hamilton to ask staff questions about the company performance, and how certain events or trends may be impacting them. I even ask their livestock agents if they are meeting budget and whether the real estate guys are happy. Sometimes, a PGW employee offers up a little gem like "Oh yeah, Mike who does the paperwork in the next room reckons our share price is too cheap and bought some the other day".

I will visit PGW's head office again in a few weeks, after they announce their results, as well as some other aspects of PGW's business in the Canterbury region.

I have to admire your due diligence Sparky.

As for swallowing the analyst's view, I can also say that when their reports came out in November and again in January, I picked up the phone and also traded emails to ask questions of the analyst. I have been impressed with their thoroughness, which is why I liked the report.

Hence why I am optimistic about PGW's future, and disinterested in their past which you have suffered for many years.

I have some sympathy with your 'history is bunk' view. Except when history is forgotten it has a tendency to be repeated.

For example, there has been oodles of angst, some of it (but not all) written by you on this post about Alan Lai and Agria's problems. In fact, little of this had anything to do with the underlying business of PGW in the last quarter of 2012. Even if Agria tips over, then the PGW shares they hold will be placed on market by the banking consortium largely controlled by ANZ. All this angst did, typical of PGW's commentary over 2H2012, was to cause a cheaper entry price in the shares, one which both you and I enjoyed.

I don't agree that Agria should be consigned to the history books. This is very much a live issue as far as PGW are concerned. Granted Agria does not affect the day to day running of PGW. But they do control PGW and could rob it of cash when without Agria there, the cash could be put to better use inside PGW, by paying off debt!

So I am optimistic about their future. They won't be the standout corporate performer of 2013. Rather, they will do better than the market will have thought they would do when I bought. They will be delivering business as usual and meet budgets, with an opportunity to really do well if weather treats them favourably. That's what my homework tells me.

I do believe your and your brokers long term view of PGW is possible. But my feeling is that the ride will be a lot more bumpy than you both think. For example I don't think earnings will grow by 8% this year. But I believe that it is highly possible that earnings will have grown by a compounding cumulative rate of 8% per year in two years time. So why make a fuss if I agree with you that earnings in FY2014 could be 16.6% higher than the FY2012 figures? Because I believe the earnings volatility should be reflected in a lower PE for the company. By my reckoning a PE of 12-13 is already building in a substantial recovery by Agritech in Australia. I want to see some evidence that PGW will achieve this before I commit any more money to the cause. And yes I do realsie that I will very likely be paying a higher price for my next purchase of PGW shares should this come to pass. The trade off is that I will avoid buying PGW shares should the problems in Australia take longer to sort out than management hopes.

SNOOPY

[Snoopy]

Not really a good look to lose the CEO and CFO in one day is it? However Agria itself is only down 2c to US80c.

The above was written on 12th October 2012.

Four months on, one of the vacant positions has been filled.

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BEIJING -- (MARKETWIRE) -- 02/15/13 -- Agria Corporation (NYSE: GRO) (the "Company" or "Agria") today announced that it has appointed Patrick Wai Yip Tsang as Chief Financial Officer effective February 15, 2013. Mr. Tsang is currently a director of PGG Wrightson Limited (NZSE: PGW), the Company's majority-owned subsidiary listed on the New Zealand Stock Exchange, and a director of China Pipe Group Limited, a company listed on the Hong Kong Stock Exchange.

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However the name "China Pipe Group" rings a bell. This is the company of Lai Fulin, the younger brother of Alan Lai! This whole Agria thing is starting to look a bit incestuous.

SNOOPY