PGW - PGG Wrightson

[Toasty]

http://www.stuff.co.nz/business/farm...tson-elders-nz

Anyone know what kind of damage we can expect?

[winner69]

http://www.stuff.co.nz/business/farm...tson-elders-nz

Anyone know what kind of damage we can expect?

Collateral?

Probably at worst a few hundred thou and a tarnished reputation .... and the distraction it will be for some managers

[Xerof]

IIRC, the last one against the agricultural sector cost them $5.5mill in ~1996/7 - meat companies over weekly schedule pricing

[nextbigthing]

I hovered up a few extra at the close at 46 cents. Trading sum a juicy divvy in a couple of months I reckon that's good buying.

Roger,

You seem bullish on PGW generally, yet bearish on HNZ due to its exposure to dairy. Granted they're different companies with different revenue streams and risks etc but surely a complete dairy meltdown is going to be almost as bad for PGW. Big irrigation units, supplemental feed, store supplies etc would all be hit hard. Sheep and beef etc will keep ticking along but so will the other revenue streams for HNZ. I appreciate the effect is different, ie large loan right downs versus reduced sales but the overall affect would be the similar as a proportion perhaps.

Thoughts?

Appreciate your work as always.

Disc hold both.

NBT

[see weed]

I hovered up a few extra at the close at 46 cents. Trading sum a juicy divvy in a couple of months I reckon that's good buying.

Looks like somebodies also hovered up at 46c this morning. Was that you Roger? Results out next Tuesday.

[Beagle]

Who me

NBT - Dairy is a very small part of PGW's business and while it's true there will be some effect that already been factored into the SP the loss of a small percentage of sales is quite demonstrably different from the situation at HNZ.
If you read through the latest Tony Alexander report kindly posted by Winner69 in the HNZ thread you'll see the whole sector is under extreme duress and HNZ's loans at an average of a whopping 61% LVR are surely amongst the very highest in the sector.
As I said by PM to Winner this morning its alarming that HNZ even allowed average loan values to get this high and there's prima facie evidence to suggest some of their lending policies are simply too loose / imprudent...i.e. they chased loan growth too hard. IIRC there was a risk officer resigned last year ? Read between the lines there. There's also all their other lending that I've commented about many times before that I'm not comfortable with, unsecured and poorly secured consumer lending.

I think HNZ are under-playing the risks here and the potential for massive write-off's is very real. Apply whatever percentage loan losses you think are right to HNZ's exposure to this sector of circa $200m and interpret what effect on their circa $52m profit in FY16. That said analysts have pulled back their EPS estimate for FY16 for PGW too so your question is well considered with no easy and clear answer.

Bottom line is I think PGW's business is being run better with far more prudent management.

There's also the fact that on one hand PGW are executing attractively priced acquisitions whereas on the other hand despite much talk of acquisitions all HNZ have done is get rid of their director in charge of new product development...I will leave you to decide for yourself if some of their recently developed loan strategies like targeting sharemilkers and unsecured consumer loans through Harmoney and ifinance have worked well of it they've got enough problems to deal with already ? I think the fact that HNZ are not replacing that position in charge of new product development speaks volumes...

[winner69]

I felt like crying when I heard a sharemillker on the radio this morning saying after culling a few of his herd he was then going to sell his tractor and to get a bit more cash. (Shouldn't cry as he probably had 2 )

[arc]

In times like these farming has become a SIZE game. The bigger the farm(s) the easier you can ride out the hard times (you still need to be careful and prudent with consumable farm resources). This is also where the international trend of farm-buying co-op-group schemes will eventually displace traditional nz farmers.

Roger is right though... PGW have/are creating diversity.

[BlackPeter]

In times like these farming has become a SIZE game. The bigger the farm(s) the easier you can ride out the hard times (you still need to be careful and prudent with consumable farm resources). This is also where the international trend of farm-buying co-op-group schemes will eventually displace traditional nz farmers.

Roger is right though... PGW have/are creating diversity.

Its not necessarily about size. the farmers who started dairying at the last milk price peak and taking as well a lot of leverage, they are now in trouble ... while the farmers who are running their operation already for a number of cycles are typically much better off. As well - farmers who run a diversified business will be fine (remember - red meat is currently doing quite well). The farmers who put all their eggs into the diary basket look less flash.

So maybe you are right - in a way it is about size, but BIG is not good. Small is beautiful and diversity in farming is as crucial as in investing. Just a bit of common sense, really - but unfortunately common sense is (not just in farming) not so common after all.

[arc]

Its not necessarily about size. the farmers who started dairying at the last milk price peak and taking as well a lot of leverage, they are now in trouble ... while the farmers who are running their operation already for a number of cycles are typically much better off. As well - farmers who run a diversified business will be fine (remember - red meat is currently doing quite well). The farmers who put all their eggs into the diary basket look less flash.

So maybe you are right - in a way it is about size, but BIG is not good. Small is beautiful and diversity in farming is as crucial as in investing. Just a bit of common sense, really - but unfortunately common sense is (not just in farming) not so common after all.

I must agree, Its a complex issue and yes sometimes bigger is definitely not "better".... more is just more, until it becomes top heavy and Titanics..

I fully agree with the diversity element, and the ability of small players to change track within limited timeframes.