PGW - PGG Wrightson

[see weed]

It is at times like this shareholders need to remember that PGW is a cyclical share, not a growth share in the conventional sense. PGW in its current form came into being in CY2006. Here is the dividend record since then.

	Interim Dividend	Final Dividend
2006	1.88c	2.82c
2007	1.88c	3.76c
2008	2.35c	5.18c
2009	2.35c	Nil
2010	Nil	Nil
2011	Nil	Nil
2012	Nil	Nil
2013	2.2c	1.0c
2014	2.0c	3.5c

The dividends in the pre 2010 part of the table have been adjusted for the 9:8 cash issue that took place.
9 new shares issued for every 8 held means that these earlier dividends have to be multiplied by a factor of:

8/(8+9) = 8/17

to gain a comparative measure with each shares on issue today.

I average all that out to a calendar year dividend of 3.21c/share (net). Based on today's closing price of 47.5c this is a net yield over the business cycle of:

3.21/47.5 = 6.76%

To satisfy Roger, that equates to 6.76%/0.72 = 9.39% (gross) ("Companies can't impute any more than the company tax rate of 28%").

For mere taxpayers such as myself, I would be earning (net): 9.39% x 0.7 = 6.57%. (I hope Roger will correct me if I have that wrong!)

These figures strike me as about right (similar in yield to the DPC bonds I have applied for). I would say as an income investor you might look at accumulating PGW on any weakness. But it is no longer cheap enough to chase as a bargain. Having said this, we are still in a favourable part of the farming cycle. So 48-50c may not be out of the question soon. Just don't bank on the current level of dividend being permanent.

SNOOPY

discl: have held PGW since it was created

Thanks for that info. I have only held pgw off and on for the last couple of years.

[Leftfield]

These figures strike me as about right (similar in yield to the DPC bonds I have applied for). I would say as an income investor you might look at accumulating PGW on any weakness. But it is no longer cheap enough to chase as a bargain. Having said this, we are still in a favourable part of the farming cycle. So 48-50c may not be out of the question soon. Just don't bank on the current level of dividend being permanent.

SNOOPY

discl: have held PGW since it was created

Very good post thanks Snoopy.

[couta1]

i think you may have posted on the wrong thread? 1.41?

Maybe not after all he has valued Summerset at 82c .Lol. This boy really likes his Tuis.

[percy]

It is at times like this shareholders need to remember that PGW is a cyclical share, not a growth share in the conventional sense. PGW in its current form came into being in CY2006. Here is the dividend record since then.

	Interim Dividend	Final Dividend
2006	1.88c	2.82c
2007	1.88c	3.76c
2008	2.35c	5.18c
2009	2.35c	Nil
2010	Nil	Nil
2011	Nil	Nil
2012	Nil	Nil
2013	2.2c	1.0c
2014	2.0c	3.5c

The dividends in the pre 2010 part of the table have been adjusted for the 9:8 cash issue that took place.
9 new shares issued for every 8 held means that these earlier dividends have to be multiplied by a factor of:

8/(8+9) = 8/17

to gain a comparative measure with each shares on issue today.

I average all that out to a calendar year dividend of 3.21c/share (net). Based on today's closing price of 47.5c this is a net yield over the business cycle of:

3.21/47.5 = 6.76%

To satisfy Roger, that equates to 6.76%/0.72 = 9.39% (gross) ("Companies can't impute any more than the company tax rate of 28%").

For mere taxpayers such as myself, I would be earning (net): 9.39% x 0.7 = 6.57%. (I hope Roger will correct me if I have that wrong!)

These figures strike me as about right (similar in yield to the DPC bonds I have applied for). I would say as an income investor you might look at accumulating PGW on any weakness. But it is no longer cheap enough to chase as a bargain. Having said this, we are still in a favourable part of the farming cycle. So 48-50c may not be out of the question soon. Just don't bank on the current level of dividend being permanent.

SNOOPY

discl: have held PGW since it was created

PGW is a very different beast today than it was in 2006.
Sir John Anderson and George Gould repositioned the business,concentrating on "the customer."
The excellent CEO Mark Dewdney is taking advantage of this, and driving the company forward.
One only has to drive from ChCh to Wanaka to see the changing rural landscape.Irrigation is driving more intensive farming on previously poor land.I noted even sheep farmers are using irrigation.Sheep,beef,arable, and horticulture are PGW's main customers.PGW is looking to also grow their dairy sector.
As the outlook for PGW's customer's looks very good I expect strong growing earnings from PGW.
In short I think irrigation has gone a long way to alter the so called farming cycle.

[Beagle]

Nice analysis Snoopy but I think there's a case to be made for the business being transformed along the lines Percy has suggested and also there's been a massive reduction in debt.
You could make the case that with dairy now in the absolute doldrums the rural cycle is now in a trough...demand for good beef and sheep and other agricultural products isn't going to go away that's for sure !! American's love their burgers, so do I If they can grow their EPS (as they seem confident they can), with dairy presently where it is I think this arguers well for the shares in the long term especially now they have a much stronger balance sheet.

One thing we know for absolute sure Agria love and need their full dividends so the company will be paying the maximum divvy's it reasonably can for the foreseeable future.
SP is in a nice uptrend and was 51 cents a couple of years ago. I see no reason it can't go back to at least that by mid 2015 and potentially mid-late 50's if they can meaningfully grow their EPS.
I'm a happy and relaxed holder. Stick around my beagle friend, there's lots of nice juicy fully imputed divvy's to come and YES it looks like you got your imputation maths right assuming you're on a 30% personal tax rate. But if you're paying more tax on your fully imputed dividends (2% extra) doesn't that beg the question of why not have your shares in your own company at a 28% tax rate, (some free tax advice for you to help feed a keen snooper)

[Snoopy]

PGW is a very different beast today than it was in 2006.
Sir John Anderson and George Gould repositioned the business,concentrating on "the customer."
The excellent CEO Mark Dewdney is taking advantage of this, and driving the company forward.

Wrightson's shareholders have been here before, when very similar customer focussed policies were rolled out under then CEO Alan Freeth, way before 2006. He called it the 'Solutions' Strategy'. Wrightson's had less debt then too. Not wishing to disparage Mark Dewdney, George Gould or Sir John Anderson. I agree with most of what you have written on their business acumen. But I keep coming back to the well known Buffetism. When excellent managment takes on a mediocre business, it is usually the business that leaves with its reputation intact!

One only has to drive from ChCh to Wanaka to see the changing rural landscape.Irrigation is driving more intensive farming on previously poor land.I noted even sheep farmers are using irrigation.Sheep,beef,arable, and horticulture are PGW's main customers.PGW is looking to also grow their dairy sector.
As the outlook for PGW's customer's looks very good I expect strong growing earnings from PGW.
In short I think irrigation has gone a long way to alter the so called farming cycle.

I admire your optimisim that 'things will be different this time' , the farming cycle is a past phenomenon and it is a one way path onwards and upwards from here. But I can't help feeling that if there is a time to take some profits from your PGW holding, it might just be within the next twelve months.

SNOOPY

[Snoopy]

One thing we know for absolute sure Agria love and need their full dividends so the company will be paying the maximum divvy's it reasonably can for the foreseeable future.

This is the one thing that has changed. If debt has a silver lining, it may be that it stops PGW going off on another Norgate style tangent. Alan Lai may not have been able to bring much, as some cynical commentators have said, to PGW in terms of meaningful contacts in China, or deep pockets to fund growth. But if Lai's legacy to PGW is the 'discipline of debt', then he may have made a bigger contribution to PGW than some of those critics ever imagined.

SNOOPY

[winner69]

I found this an interesting comment from Matt Whineray of the NZ Super Fund, esp in the context of investing with a long term horizon

Whineray says the fund is particularly wary of investing in businesses that rely too heavily on management skill. "We have a belief that skill is quite rare," he says.

http://www.nzherald.co.nz/business/n...ectid=11354484

[Stranger_Danger]

This is the one thing that has changed. If debt has a silver lining, it may be that it stops PGW going off on another Norgate style tangent. Alan Lai may not have been able to bring much, as some cynical commentators have said, to PGW in terms of meaningful contacts in China, or deep pockets to fund growth. But if Lai's legacy to PGW is the 'discipline of debt', then he may have made a bigger contribution to PGW than some of those critics ever imagined.

SNOOPY

Funnily enough, that is my entire investment thesis with PGW! I don't see it as a superstar, but between the past and the dominant owners need for cash, I see a focus on the day to day, as much cash as possible paid out to shareholders, and nothing left over for pipe dreams. To which I say, great!

[percy]

Wrightson's shareholders have been here before, when very similar customer focussed policies were rolled out under then CEO Alan Freeth, way before 2006. He called it the 'Solutions' Strategy'. Wrightson's had less debt then too. Not wishing to disparage Mark Dewdney, George Gould or Sir John Anderson. I agree with most of what you have written on their business acumen. But I keep coming back to the well known Buffetism. When excellent managment takes on a mediocre business, it is usually the business that leaves with its reputation intact!



I admire your optimisim that 'things will be different this time' , the farming cycle is a past phenomenon and it is a one way path onwards and upwards from here. But I can't help feeling that if there is a time to take some profits from your PGW holding, it might just be within the next twelve months.

SNOOPY

I never had shares in Wrightson.I did follow Reid Farmers and had shares in Pyne Gould Guinness via Pyne Gould Corp.When Reid Farmers and PGG merged George Gould did a fantastic job bringing the two companies together.Gould knew and continues to under stand rural supplies.Alan Freeth never did.Mark Dewdney does.
PGW is a very different beast today.The basic business has seen a lot of changes,horticulture supplier Fruitfed added to the business,huge and growing business of irrigation added to the business. The basic business was servicing sheep and arable farms.PGW has grown to "full service"rural supply business.So it is unlikely all areas will suffer a down turn at the same time.Irrigation has changed the landscape,with what was once poor land now being intensively used for such uses as growing grapes to dairy farms.All of which is offering more opportunities for PGW.China's [and Asia's] growing wealth means on going demand for NZ farm produce.