PGW - PGG Wrightson

[BlackPeter]

So they built a good base at around 40 cents based on 2015's level of profit and then the SP went north when they said we're looking at 20% profit growth for 2016.

It wasn't lost on me that basically all this profit growth was from the lower tax rate and earnings before tax showed little growth at all.

Tax must normalise over time so the question I have been mulling over given that they have this continuing problem with significant funding of their legacy superannuation liability is are the shares really worth any more than 40 cents now ?

Extrapolating this super problem out, if they couldn't get good returns last year when the markets were doing well, then that problem will only get exacerbated in this sort of market so the size of that problem won't diminish anytime soon notwithstanding they are committed to a whopping $9m plus contribution this year.

If we get normalised tax and slightly lower earnings than Fy16 I struggle to make the case for the shares being worth more than 40 cps again. Disc: I'm staying out and letting this correct back down.

Anyone care to share their thoughts on this one ?

Valid points, but feel a bit one sided. Things are not either black or white, but mostly grey ...

PWG has at current (@47cents) a forward PE of below 10 - and while last year was (despite all the dairy gloom) not too bad (but not too good either) I think that a normalisation in the dairy sector is more likely than not. For sure, this should improve PGW's business case?

It feels as well that markets see the NZD at the moment more in the upper part of the cycle. If & when it drops (as it must), this would be a shot into the arm for all of NZ's agriculture. Must be good for PGW.

I'd see "fair value" for this share still above 50 cents (my model puts it at 52 cents), but agree that given the current market volatility it is more likely to drop a bit more from here, before it gets up again. I certainly expect them to fall into the mid 40'ies, and given the markets tendencies of overreacting into the low 40'ies. Anything below that would be in my view an amazing buying opportunity (or more than the expected correction).

Discl: sold out (but a minute number to remind me to check regularly for the trend change ...);

[hogiela]

Valid points, but feel a bit one sided. Things are not either black or white, but mostly grey ...

PWG has at current (@47cents) a forward PE of below 10 - and while last year was (despite all the dairy gloom) not too bad (but not too good either) I think that a normalisation in the dairy sector is more likely than not. For sure, this should improve PGW's business case?

It feels as well that markets see the NZD at the moment more in the upper part of the cycle. If & when it drops (as it must), this would be a shot into the arm for all of NZ's agriculture. Must be good for PGW.

I'd see "fair value" for this share still above 50 cents (my model puts it at 52 cents), but agree that given the current market volatility it is more likely to drop a bit more from here, before it gets up again. I certainly expect them to fall into the mid 40'ies, and given the markets tendencies of overreacting into the low 40'ies. Anything below that would be in my view an amazing buying opportunity (or more than the expected correction).

Discl: sold out (but a minute number to remind me to check regularly for the trend change ...);

I had a gut feeling last week so I sold out at 52c also ... glad I did ... bought a little bit more FBU with the proceeds Always looking to re-buy again at a bargain ... the Dividends for PGW have been good to me!

[Beagle]

Hi BP

I've just had another good look at PGW's accounts this morning.

Profit growth in Fy16 was all related to tax, in fact profit from continuing operations before tax for Fy16 was $48.6m, Fy15 $48.8m

Normalising tax and based on EBITDA of $65m (the mid point of their forecast) I see operating profit before tax of $43m this year and net profit after tax of $31m, slightly lower than Fy15 of $32m.

I see EPS of 4.1 cps for Fy17 and using my time honoured PE for agri stocks of 10 which has held me in good stead for ages I see fair value at 41 cps.

Turning now to dividends. Cash flow from operations FY16 $35.2m, Fy15 $29.2m.
Contribution to underfunded superannuation system projected this year $9.51m , last year $1.08m, an extra $8.43m this year coming out of cash flow !!!

Interestingly Fair value of the under funded super liability grew by $9m last year in a year that was pretty good for the markets !

I know they're trying sale and lease back arrangements on many of their rural buildings and I am not surprised as they have to fund this super scheme somehow.

How will they maintain last year's dividend of 3.75 cps given the massive cash requirement of the super scheme and what looks to be a material decline, (my figures not the company's official forecast) in after tax earnings ?

How much will the super scheme liability grow this year given softer equity markets ?

Dairy Recovery - Fair point but I think dairy farmers are moving to a lower cost grass fed model out of necessity to minimise costs so I think there are implications for PGW going forward in terms of the level of sales of supplementary feeds and other on farm expenses. Dairy industry is struggling to break even.

I am bearish on PGW. The numbers just don't add up in terms of how they fund the super scheme and pay for essential stay in business capex and still pay 3.75 cps in dividends. Dividends to be trimmed back to 2 x 1.5 cps ? For what its worth BP I see free cash flow after funding pension obligations from normal operations of only 2.8 cps. Obviously any sale and lease back of rural buildings will boost their ability to fund dividends but effectively they're creating liabilities, (future lease obligations) to fund current year dividends if they pay more than 2.8 cps.

Investor Caution - My figures posted above are to the best of my knowledge how I see it but are dramatically different to average analyst forecast according to 4Traders website so DYOR.

[winner69]

Roger - the last couple of years dividends paid have been more than free cash flow generated (and that includes the $20m odd received from disposals last year)

Difference has been increased borrowings

Nothing oing to change - pay decent divies and if need be increase debt

That's how this works for the majority shareholders i assume

[Snow Leopard]

As I have said before PGW accounts are not the easiest to deal with, containing apparently wild swings in certain YoY numbers and I am mildly fascinated by the part of the guidance that is something on the lines of FY2017 NPAT being "broadly in line" with FY2016".

However I do feel that they are being misunderstood!



Lets see how the years unfold

Best Wishes
Paper Tiger

[kiora]

As I have said before PGW accounts are not the easiest to deal with, containing apparently wild swings in certain YoY numbers and I am mildly fascinated by the part of the guidance that is something on the lines of FY2017 NPAT being "broadly in line" with FY2016".

However I do feel that they are being misunderstood!



Lets see how the years unfold

Best Wishes
Paper Tiger

Great song.Average lip syncing

[Agrarinvestor]

Any reasons for the drop?

[winner69]

Any reasons for the drop?

Disappointed with latest guidance?

High expectations set not going to be met?

Another so so year on the way?

But whatever come hook oy crook The high unaffordable dividend will be fortcoming

[Vaygor1]

Any reasons for the drop?

ALF taking market share?

[Agrarinvestor]

Disappointed with latest guidance?

High expectations set not going to be met?

Another so so year on the way?

But whatever come hook oy crook The high unaffordable dividend will be fortcoming

I had understood that PGW will pay likely the same high dividend as last year, and i remember that PGW/Agria Management like to set the expectations low, and prefer the market positive.
Currently AGRIA is trying to swallow PGW shares from New Hope. I wonder were all the money comes from. But Chinese banks are seeking investment opportunities in the whole world.