PGW - PGG Wrightson

[pennyacw]

The cyclical nature of the industry is always going to result in larger players developing. If you have a well managed business then access to capital during times like this shouldn't be a problem. As a result farms with good capital structure and are well managed will get larger and larger as they are able to concentrate on the long term fundamentals rather than scabbling for survival during down cycles.

[Plutus]

PGW are underweight Dairy, so by luck that will insulate them in part. May effect Water in particular if centre pivot sales slow down from less dairy conversions. They are overweight Horticulture (through FruitFed) which is having a great time (industry just cracked $2b exports) and will more than counter Dairy effect. Overall looks stable through some diversification to me.

[Plutus]

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...

Spot on Roger. If the AVERAGE is 61%, there will be plenty over 75 or 80% - after two years of losses, default interest rates etc. that will grow further - tick, tick, boom.

[IAK]

According to Harbour Asset Management portfolio manager Craig Stent fallout from Fonterra’s lower farmgate milk price forecasts is spreading to other companies exposed to the dairy sector.
“Farmers are going to pull back their capital expenditure on things like fencing and irrigation and equipment plus supplementary feed, so it will have a flow-on effect on companies like Skellerup and PGG Wrightson.

http://www.nbr.co.nz/article/market-talk-expect-flow-effects-fonterra-forecast-nr-176727

[percy]

According to Harbour Asset Management portfolio manager Craig Stent fallout from Fonterra’s lower farmgate milk price forecasts is spreading to other companies exposed to the dairy sector.
“Farmers are going to pull back their capital expenditure on things like fencing and irrigation and equipment plus supplementary feed, so it will have a flow-on effect on companies like Skellerup and PGG Wrightson.

http://www.nbr.co.nz/article/market-talk-expect-flow-effects-fonterra-forecast-nr-176727

Interesting.
I believe Harbour Asset Management have been adding to their SCL and HNZ holdings.

[nextbigthing]

Roger et al, thanks for your replies. We might be about to witness one of the best buying opportunities we've seen in a while.

[percy]

Roger et al, thanks for your replies. We might be about to witness one of the best buying opportunities we've seen in a while.

Wonder whether HNZ would lend on PGW shares??? lol.

[nextbigthing]

Wonder whether HNZ would lend on PGW shares??? lol.

Haha. Apparently they offered Roger a reverse mortgage on his current holding so he could enjoy his spoils now. 'Get your Riviera, before the summer' was the line that got him.
See Winner not all bankers are greedy, thinking about Roger like that.

[nextbigthing]

NBT - Dairy is a very small part of PGW's business

Is it quantifiable? I can't find anything in the annual reports or on the website (other than them saying when payouts were high that they wanted to increase their exposure to dairy across the board), have they given guidance anywhere as to what portion of their overall revenue they estimate comes from dairy?

Cheers

[Master98]

Is it quantifiable? I can't find anything in the annual reports or on the website (other than them saying when payouts were high that they wanted to increase their exposure to dairy across the board), have they given guidance anywhere as to what portion of their overall revenue they estimate comes from dairy?

Cheers

as I know, dairy farmers mainly use their own corporation suppliers such as RD1 and a few others.