PGW - PGG Wrightson

[Phaedrus]

Am I to understand from this that the "buy" signal only comes .........

Think in terms of A buy signal, rather than THE buy signal. The chart below shows 10 indicators all of which will trigger buy signals sooner or later. You need to evaluate these signals as they occur and decide which one(s) you will act on. Remember that it is not good practice to act on the basis of a single isolated signal from any one indicator. On the other hand, neither is it necessary to wait until all 10 trigger before buying (although very conservative investors may do just that). What you are looking for is some confirmation, some degree of consensus before buying. The degree of consensus you require before buying is a personal decision based on your risk tolerance, fundamental assessment of the stock, etc.

I ... realise that this is only one indicator...and I need to be looking at OBV and crossover lines to establish the actual buy point?

Right. Why restrict yourself to just 3 indicators though? I would also advise you to stop thinking about/looking for a single Buy point. I strongly advocate "stepping" into and out of positions, buying (or selling) incrementally as individual indicators fire off signals. Only if you want to invest a small sum of money (say <$15,000) would it be appropriate to look for a single buy point. This would be set by establishing some sort of consensus from the indicators you decide to use.

So, looking at the chart below :-
There was an OBV "step" and trendline break that gave a "Buy" signal in October. Generally speaking, isolated signals from a single indicator should be ignored.
On 11/1/10, PGW broke above its tentative trendline, giving a buy signal. This was confirmed to some degree by a rising OBV. Some would have bought on this basis. Others will be waiting for PGW to break above the moving average. More will be waiting for a break of the resistance at 66 cents (an uptrend) before acting. Different market participants set the bar at different heights - 3 applicable resistance levels are marked on the chart by light blue lines at 66/70/78. A break of each of these would be a buy signal. You can see that the 4 oscillators at the top of the chart have not triggered any buy signals as yet, though some are quite close.
The Market Strength colour plot is currently "khaki" (get ready to buy). It has reached that level before though, without going on to trigger a (light green) Buy signal.



I don't like to give specific advice because you have to develop your own system to suit your individual situation, risk-tolerance and personality etc. Nevertheless I would suggest that anyone looking for a single PGW entry point wait for a break above the resistance at 66 cents before buying. The more cautious might prefer to wait for a break above 70 cents - a nice round number.

[Balance]

Big volumes going through. Big buying met by equally big selling.

Looks like sub-underwriters selling out - 40% profit simply too tempting.

[Doyle]

Underwriters only have around 20 million shares. At these volumes they would be running out pretty fast. Its not just underwriters anyone who bought in just before they went ex rights in the low 60's is sitting on a pretty tidy profit which is fairly tempting.

Discl: Hold PGW and am in it for the long haul.

[Snoopy]

Projected NPAT of $24.1m means projected earnings per share of:

$24.1/ 771.4m = 3.1cps.

If you can buy shares at 45c, this represents a projected PE ratio of

45/3.1= 14.5

This is of course a 'low cycle' result. If you believe Norgates vision for the potential of PGW, the underlying business will earn $40m per year in 'normal' times. Add to that the interest rate savings caused by $277m of debt being retired (at 8% that equates to 0.7x$22.2m=$15.5m after tax ) and you get a potential net profit of some $55m or 7.2cps.

At 45c you are buying on a 'Norgate wish PE' of

45/7.2= 6.25

So is 45c a bargain or not? I guess it depends how you see things panning out after the cash issue money is raised!

SNOOPY

At 64c PGW is now trading on a projected PE for FY2010 of 64/3.1= 20.6. Hardly cheap although the capital restructuring will shave that interest bill in future years. And if you believe the old Craig Norgate vision of $40m (which translates to $55m, or 7.2cps under the new capital structure) then PGW is trading on a FY2011 PE of 64/7.2 = 8.9.

Why am I bringing this to traders attention? Basically because the higher price you pay for this share the higher your long term risk. Suggesting that conservative investors should wait until the share price rises above 70c implies only buying when the PE shifts above 10. A PE of 10 strikes me as not inappropriate for this kind of company. 70c does not strike me as a low risk entry point. From a fundamentalist perspective, I think there are still a few ducks to be lined up to justify that 70c.

A big increase in opportunity in China thanks to new cornerstone shareholder Agria? A new frontier as PGW marches on with their farm development in Brazil? These are blue sky opportunities, to be sure. But a drought or flood in New Zealand or a moribund farm property market will more than offset these potential gains in the short term.

Historically a good time for buying shares 'in trouble' is around a week before the end of rights trading in the associated rights issue recapitalisation. The reason for that is that the 'Mom and Dad' investors are at that point of having to stump up cash for their rights and the opportunity to raise cash (should they need to by selling some of those rights) is a rapidly closing window. Thus you get a kind of 'SELL AT ANY PRICE' effect, of which more organized investors can take advantage. Being a conservative investor (at least by the standards of this forum!) I was able to load up with some extra rights/shares purchased at 59.5c. IMO this was a far better strategy than waiting for some sort of 'break out' above 70c!

I would say that even at 64c, 'conservative' investors have already missed the bus on PGW.

SNOOPY

[Snoopy]

RPI's rights went in the bookbuild for 10 cents each according to stuff.co.nz.

I wonder if Stuff got that right Doyle?

If you look at the post recapitalisation substantial shareholder disclosures for PGW, RPI disposed of 87,017,180 rights for $4,439,519.50. That equates to only 5.1c per right.

According to the FY2009 annual report RPI formerly held 44,150,684 plus 42,646,659 shares making a total of 86,797,343. That number of shares would have entitled them to

86,797,343 x 9/8 = 97,647,010 rights. If they subsequently sold 87,017,180 rights that woudl leave them 10,629,830 rights to take up. With a call of 45c on each right that means RPI would need to stump up:

10,629,830 x $0.45 = $4,783,423

to take up their remaining rights. That is in line with the proceeeds of the rights sold.

SNOOPY

[Snoopy]

If you look at the post recapitalisation substantial shareholder disclosures for PGW, RPI disposed of 87,017,180 rights for $4,439,519.50. That equates to only 5.1c per right.

The reason I am being a bit pedantic about this is that IIRC, RPI agreed to sell some of their rights to Agria as part of the book build. Agria will have done more due diligence than any of us on PGW. So I think it is worth working out what Agria considered it was worth paying for their total stake in PGW.

Agria started out with 41.1m new existing shares pre-rights issue bought at a price of 88c. This entitled them to 46,237,500 PGW rights which they subsequently took up at 45c. They then purchased more rights (at 5.1c?) which resulted in them acquiring 56,767,180 paid up shares at 50.1c.

If I am right then the average price that Agria paid for their PGW shares is:

[(41.1 x 0.88)+(46.2 x 0.45)+(56.7 x 0.501)]/[41.1+46.2+56.7] = 59.3c

Granted there may be a 'desperation discount' in there as PGW was in grave need of the cash. But even if the desperation discount was 20%, that would still equate to a fair value market price of 70c. That doesn't leave much capital gain potential for our 'conservative investor' buying in at 70c does it?

SNOOPY

discl: hold PGW

[Doyle]

I wonder if Stuff got that right Doyle?

If you look at the post recapitalisation substantial shareholder disclosures for PGW, RPI disposed of 87,017,180 rights for $4,439,519.50. That equates to only 5.1c per right.

According to the FY2009 annual report RPI formerly held 44,150,684 plus 42,646,659 shares making a total of 86,797,343. That number of shares would have entitled them to

86,797,343 x 9/8 = 97,647,010 rights. If they subsequently sold 87,017,180 rights that woudl leave them 10,629,830 rights to take up. With a call of 45c on each right that means RPI would need to stump up:

10,629,830 x $0.45 = $4,783,423

to take up their remaining rights. That is in line with the proceeeds of the rights sold.

SNOOPY

Hmmn interesting will look into it, According to their SSH RPI took up 8,424,975 rights. It seems hard to believe that the rights were let go for just 5.1 cents. Of course RPI was a distressed seller, but judging by volume there seems to be plenty of institutional support for PGW 10 cents seems more apporpriate given the indicative valuation was around 11.6 cents. And about half those rights were purchased by Agria at a pre-determined price, while even more were bought by Agria in the book build.

I don't see PGW as the cyclical company everyone insists it is. It still managed to produce an operating profit of 25 million last year and is forecast to do the same this year despite operating conditions. The actual basic operations of PGW are not as cyclical as one might think, not bad given the current conditions. More-over I see some serious upside to this years profit forecast- It was calculated on a dairy payout of $5.10. Add on the blue sky potential in China and I think a PE ratio of 13-14 is more appropriate and tend to value it on this basis.

Discl: My own ave cost is 58 cents per share, but on current information would need a share price around 80 cents to convince me to sell.

[Doyle]

From memory stuff was quoting Hamilton Hinton Green, with the 10 cents figure.
Found the disclosure notice you mentioned and as far as I can tell I agree the price was 5.1 cents per share. Interesting to note there was another sale of rights by RPI that acheived a 15.9 cent per right sale. Only a few million though, I'd say these may have been on market although the disclosure didn't say.

[Snoopy]

If I am right then the average price that Agria paid for their PGW shares is:

[(41.1 x 0.88)+(46.2 x 0.45)+(56.7 x 0.501)]/[41.1+46.2+56.7] = 59.3c

I have just done the above exercise myself to find out how much my own PGW shares owe me. I know that I shouldn't have done it as these historical exercises are largely meaningless from a future performance perspective. But I have calculated that each of my PGW shares now owe me 80c. Ouch! So I have lost capital, even if I haven't lost money (as some traders might think). I estimate that dividends received over my time as a shareholder equate to around 50c per share (allowing for the recent recapitalisation). And what timeframe is that?

Believe it or not I have been a PGW shareholder since 1995, so that is 14 years. Of course back in those days I held only a very few shares. Most of my shares were bought and/or taken up around the time of the rights issue a couple of months ago (a very good move) and prior to that in late 2006 and early 2007 when the Norgate steamship seemed unstoppable (not such a good move, with the benefit of credit crunch hindsight).

Overall I do not regard my overall investment performance in PGW as satisfactory. But having nailed my mast to the Norgate steamship in recent years I was always going to go where the Norgate ship went, and take the rub off from the consequences - be they good or bad. In one respect I have come out relatively well. And that is I think my own average PGW share buy price is (now) rather lower than Norgate/McConnan paid via their vehicle RPI! But I am certainly not bitter about anything that has happened. I have taken the big slug across the chin and moved on. Not from an ownership perspective you understand. I now own more PGW shares in number and percentage terms, even allowing for the recapitalisation, than ever. But I have moved on from that vision I was looking back on in the rear vision mirror.

Part of my long term investment strategy is to stay plugged into the backbone of the country in some form. I am open as to whether owning shares in PGW is the best way to do that. But when I look at some of the alternatives, like Allied Farmers or some of those meat company shares over the years I don't think that investing in PGW has been a bad choice even if the result (so far) has not been that great.

With some 758m PGW shares now on issue it is fair to say that however well PGW does, those events will move the share price less than half what they would have pre-recapitalisation. In a post credit crunch world, $1 a PGW share is now a distant dream. I would be very surprised if any shareholder on the register now will be alive to see it. Still that doesn't mean there aren't some good dividends to be harvested in the next few years, which is why I intend to hang around on that PGW share register.

SNOOPY

discl: hold PGW

[winner69]

In a post credit crunch world, $1 a PGW share is now a distant dream. I would be very surprised if any shareholder on the register now will be alive to see it. Still that doesn't mean there aren't some good dividends to be harvested in the next few years, which is why I intend to hang around on that PGW share register.

SNOOPY

discl: hold PGW

Snoopy - you have just spoilt the party for many ... surely once that new uptrend is confirmed $1 is a certainty?

But you are prob right. A $1 share price implies a market cap of $758m doesn't it .... and with a PE of say 10 they would need to be making $75m after tax sometime in the future to support a $1 share price.

Mind you from their guff they sent around in the rights issue they did forecast (I think) to have a book value of $650m at the end of F10 .... so in this context a market cap of $758m is not that stretched

as usual in your pragmatic way with a good dose of realism you have grasped what having 758 million share really means ... everything is spread around a lot more eh

Good way of looking at where the shareprice might be heading/