PGW - PGG Wrightson

[Jantar]

...
Lamb value's have been down on last year for most of the season as well.

And last season was up 40% on the previous one. I have a few lambs going to the works on tuesday, and I'm happy.

[Snoopy]

PGW have a large water division which has performed particularly well, based on the dairy sector, in recent years.
This includes consulting, supply of product, installation and maintenance for irrigation, effluent, dairy shed reticulation and fit out, as well as pumps and stock water systems. These will all take a hit by the lower dairy pay out.

On p66 of AR2014, we learn that group revenue would have been $6.12m higher and (EBITDA?) profit would have been $0.17m higher if PGW had owned the newly acquired 'Water Dynamics and Aquaspec" for the whole of FY2014. This represents a margin of:

$0.17m/ $6.12m = 2.777%


PGW did not own this group from 1st July 2013 to 25th October 2013, the first 117 days of FY2014.

During the period that "Water Dynamics and Aquaspec" was owned, it contributed a profit of $1.08m (Operating EBITDA?). If we assume a constant profit margin, this implies a total revenue for "Water Dynamics and Aquaspec" for the FY2014 year of:

$6.12m + ($1.08m/0.02777) = $6.12m + $64.82m = $70.94m

PGW ceased to report a separate result for the irrigation division from FY2014. But if we go back to FY2013 (pre the "Water Dynamics and Aquaspec" acquisition), the legacy irrigation division reported an operating EBITDA of $5.024m on operating revenue of $45.161m (see segmented profit information). This means we can estimate the 'EBITDA' and 'Revenue' for the new expanded irrigation division for FY2014, assuming PGW owned all of "Water Dynamics and Aquaspec" for all of FY2014, as:

Irrigation Revenue FY2014: $45.16m+ $70.94m = $116.10m
Irrigation EBITDA FY2014: $5.02m + ($0.17m+$1.08m) = $6.27m

These two figures can be re-expressed as percentages of the total company figures:

Irrigation Percentage EBITDA (FY2014) = $6.27m / ($58.747m + $0.17m) = 10.6%
Irrigation Percentage Revenue (FY2014) = $116.10m / ($1,219.38m +$70.94m) = 9.0%

While the new combined irrigation is a significant sized business in its own right, I would argue that under the overall umbrella of the whole PGW empire. irrigation is not that large.

What does all that mean? It is possible that the PGW share price will be more resistant to a falling dairy price than you think Snapiti.

SNOOPY

discl: hold PGW

[Beagle]

So how does everyone think the continuing dairy slowdown will impact this share? At the moment an incredible P/E ratio with a strong DIV. But is this likely to change?

I'm not in at the moment but am considering, it just looks a little too good to be true...
... or has it just been overlooked by others?

I topped up recently at 48.5 cents.

[sb9]

Recommended this to one of my mates and he got in at 49c, couldn't agree more on the divvy yield and future prospects.

[Snoopy]

So how does everyone think the continuing dairy slowdown will impact this share? At the moment an incredible P/E ratio with a strong DIV. But is this likely to change?

I'm not in at the moment but am considering, it just looks a little too good to be true...
... or has it just been overlooked by others?

Mista Trix, PGW is my preferred rural industry exposure because they have a wider and hence more balanced 'captive market' than any other rural player I can think of. I say 'captive market', because they tend to sell the basics needed to run farming operations every day rather than capital intensive extras (although irrigation systems are I guess an exception to that). I say 'wider' because some years ago they took over Fruitfed, the leading supplier to the fruit and vegetable sector. You will also be aware they market to those those farmers who make their returns from animals, be they ostriches or cows or sheep.

'Dairy' is always in the headlines, and CEO Mark Dewdney has himself stated PGW is looking to grow their market in that sector. That may sound counter intuitive given the general market outlook for dairy. But Dewdney was also the guy that offloaded PGW's share of their supplementary feed business. With hindsight, that looks to have happened at near the peak of that market. So I don't think you could argue that Dewdney is not astute.

I would prefer to see overall company debt levels a little lower. But then again controlling shareholder Agria, itself highly indebted, is in need of a steady dividend stream to pay down their own debt. And there is little doubt in my mind that the high dividend level of dividends being paid do support the PGW share price.

PGW is now out of the NZX50. Given that 50% of its shares are permanently locked up, and it is unlikely to ever return to the NZX50, analyst coverage is reduced. So yes, you can argue PGW is overlooked by the market. But buying shares in any rural business at the top of the market has in the past never been an astute move. Personally I do think earnings will be lower in the next few years. That means dividends will be lower too, as PGW currently pays out all of its earnings as dividends. For this reason, I have been reducing my own holding. But provided PGW forms an appropriate part of a balanced portfolio, I can see the argument for buying in at today's dividend levels too. IMO many other rural shares in the market are currently very fully valued. So longer term, while PGW remains 'fair value', I can't see PGW being usurped as my principal rural sector investment.

SNOOPY

[sb9]

Wonder anyone has thoughts on recent weakness in price. Seem a lot of selling pressure with big volume on offer....

May be weaker dairy prices outlook one of the reasons?

[Biscuit]

Wonder anyone has thoughts on recent weakness in price. Seem a lot of selling pressure with big volume on offer....

May be weaker dairy prices outlook one of the reasons?

I would look at the last paragraph of Snoopy's post above for an answer.

[nextbigthing]

Wonder anyone has thoughts on recent weakness in price. Seem a lot of selling pressure with big volume on offer....

May be weaker dairy prices outlook one of the reasons?

I wonder if one of the funds is getting spooked and taking some chips from the table, I've noticed a few 'blue chip divvy stocks' getting a slight rinsing the last couple of days.

[James108]

Might top up if it gets a bit lower.

[Agrarinvestor]

Agria up on heavy volume. Can we expect strong earning from PGW or what is the reason ?