nz farming systems Uruguay

[Snoopy]

"NZS was punished by investors yesterday after it surprised the market with a gloomy profit forecast".

What twaddle. The market has been selling NZS down hard - the stock has been in a downtrend for over 6 months. Yesterday's drop was merely a continuation of the pre-existing steep, clearly defined, accelerating downtrend.

Yes the market has been selling down NZS hard for six months Phaedrus, but for different reasons.

The sell down started when management announced a probable capital raising because the business model was *far more successful* than they ever envisaged. The idea was to upscale the investment in Uruguay while prices for land were low relative to the returns they could expect. A call for more money from shareholders will always depress any share price in the short term. So the initial decline in the NZS share price was no surprise, just normal market behaviour.

The subsequent sharp correction in dairy prices may have changed the situation somewhat, as regards the sagacity of scaling up the business model. But the general market related share price declines that had flowed through to NZS by then had already put a halt to the NZS expansion plans, as any prospective cheap source of sharemarket capital dried up.

The more recent declines to 60c are probably more than might be expected just from the parallel dairy price decline. IMO this is because of the impact of the dairy price decline on the NZS company's immediate cashflow. From what was looking like a break even situation in FY2009, we sharehoilders are now looking at a significant loss. But this loss is because of all the dairy shed construction and associated land grooming that was always part of the business development plan. The fact that there is now insufficient cashflow to cover these expenses *for FY2009* is neither here nor there for the long term development of the NZS business. The farm development expenses were always planned for and budgeted for and will reduce dramatically once all of the on farm infrastructure is built.

The other factor in the share price decline which IMO is now exaggerated could be local dairy farmer shareholders selling out to gain access to some quick funds to shore up their own dairy farms in New Zealand. I know that Norgate pitched the original offer to existing farmers. In hindsight IMO, the original offer would have been better suited to city folk looking for rural diversification.

Norgate does, however, assure us that "the fundamentals are absolutely on track".

Doesn't that make you feel a lot better? Remember, too, that these are only paper losses, so they don't really count.

For those of us who have been in from the beginning, Norgate is right. NZS was set up to allow NZ farming expertise to be applied to a lower cost base country. The rational for setting up NZS is still absolutely sound. Ironically the lower farm commodity prices go the more relevant NZS becomes, as the much lower cost base will be critical to future profitability. Because NZS is in its formative stages we shareholders are not seeing that yet. But we shareholders are still on track to be well rewarded once NZS comes out of its development phase. At the moment any new business which is consuming more cash than it generates is tarred with the same dirty brush, no matter how temporary the cash consuming situation might be. So NZS is being punished by the market.

But NZS has minimal debt, and must be regarded as an extremely low risk investment even in the current environment. Also NZS is not dependent on a resurgence in dairy prices to be profitable. The NZS land is equally well suited to raising cattle to sell as beef, as was outlined in the original prospectus. The choice of owning a farm in New Zealand weighed up against owning shares in NZS is still an easy one to make.

SNOOPY

discl: hold NZS

[Snoopy]

Norgate played the market on the rise now he finds he is caught out with to much debt at a time when debt is something to avoid. Macdunk

So what is your solution Macdunk? Norgate, via Rural Portfolio Investments, should sell out of NZS at rock bottom prices? How about selling his 10m NZS shares to PGW at a price of $1.50? Wouldn't that be a better deal? According to the NZS company annopuncement page on stocknessmonster, 30th September 2008 update, that is what he actually did. Yet you still regard Norgate as a poor dealmaker?

SNOOPY

[winner69]

So what is your solution Macdunk? Norgate, via Rural Portfolio Investments, should sell out of NZS at rock bottom prices? How about selling his 10m NZS shares to PGW at a price of $1.50? Wouldn't that be a better deal? According to the NZS company annopuncement page on stocknessmonster, 30th September 2008 update, that is what he actually did. Yet you still regard Norgate as a poor dealmaker?

SNOOPY

Might be completely and utterly wrong (again) but I though all or most of all those multitude of transactions between Norgate/RPI/PGW/PGWF were all unwound when the PGW fund raising event didn't go ahead

There was a bit furore at the time when it came out that the cash Norgate/RPI would have had to front up in that PGW capital raising was effectively going to be PGW cash.

But making sense of SSH notices is pretty difficult anyway ..... which means RPI might have kept that $15m anyway .... all pretty obscure these dealings aren't they

[duncan macgregor]

SNOOPY, It is to late for Norgate to sell out. NZS is a poor investment for the shareholders who understand the low return in farming. PGW should come out of it alright with a big increase in export sales at the expence of the mug city share holders who will get burned by holding NZS. Norgate expanded to quick taking on to much debt when times were good, now he has to pay the piper. I will tell you one more time farming has a return of about four or five pc on capital plus a capital gain. To borrow money expecting a high return paying a manager is a fools investment. Take a closer look at the NZ companies records going overseas thinking they know it all then think again. Macdunk

[duncan macgregor]

What I am saying is if i buy a commercial building to rent out in NZ i can expect a return on capital between 6% to 8% in rent plus a capital gain when i sell. If I buy a farm in any country in this world take your pick [excuse the pun]I can only expect a 3pc return on capital if i run it myself plus a capital gain when i sell.
To place managers in and run it like a company is a fools investment.
Thats only my opinion having been around farms in quite a few different countries. The investors coming into this will be city people i cant see any practical farmers investing in this. macdunk

Thats what i said last year its all coming to pass. Macdunk

[Snoopy]

SNOOPY, It is too late for Norgate to sell out. NZS is a poor investment for the shareholders who understand the low return in farming. PGW should come out of it alright with a big increase in export sales at the expense of the mug city share holders who will get burned by holding NZS. Norgate expanded too quick taking on to much debt when times were good, now he has to pay the piper. I will tell you one more time farming has a return of about four or five pc on capital plus a capital gain. To borrow money expecting a high return paying a manager is a fools investment. Take a closer look at the NZ companies records going overseas thinking they know it all then think again.

Macdunk, NZS has been structured so that it is designed to operate with no debt. NZS did take on significant debt when their shares were only partly paid. This debt was repaid when shareholders fronted up with the rest of their subscription money.

NZS have recently established a debt facility with Uruguayan banks, which makes sense because they operate in Uruguay. But generally they are using earnings from their farming operations in Uruguay, which are a lot higher than 3%, to fund their expansion. No doubt they will go into operational debt to fund the timing difference between when they pay their farm input costs and when they cream off the profits, if you will excuse the pun. But as a general policy, as I understand it, the idea is to operate NZS as a debt free entity, with individual shareholders deciding how much debt they are comfortable with to borrow to fund buying the shares.

In my case I haven't borrowed anything, so from my perspective NZS is virtually a debt free company. In the case of Norgate, if I have unravelled his share transaction dealings correctly, he now holds his NZS stake via PGG Wrightson, which has significant debt in its own right. And Norgate's PGG Wrightson shareholding is owned by Norgate's Rural Portfolio Investments which is an almost entirely debt funded house of cards. At the moment Norgate is many times richer than I am. By the end of the year it might be a closer contest, and I say that not anticipating any great change in my own wealth! That means I agree with you that Norgate may be in trouble. But any problems he has, real or imagined, will not affect the operational performance of NZS.

Once again the real risk picture is the opposite of what you paint. It is PGW that is the more risky investment, simply because of the much higher debt levels that company carries. However, with a PE of 4 and interest rates on the way down, I do still regard PGW shares as a good bet, albeit a riskier one than NZS.

SNOOPY

discl: hold NZS, PGW

[BRICKS]

NOW what about the share price of 60 cents is it a time to BUY or talk in silly
point talking DRIBBLE..

[duncan macgregor]

SNOOPY, It is to late for Norgate to sell out. NZS is a poor investment for the shareholders who understand the low return in farming. PGW should come out of it alright with a big increase in export sales at the expence of the mug city share holders who will get burned by holding NZS. Norgate expanded to quick taking on to much debt when times were good, now he has to pay the piper. I will tell you one more time farming has a return of about four or five pc on capital plus a capital gain. To borrow money expecting a high return paying a manager is a fools investment. Take a closer look at the NZ companies records going overseas thinking they know it all then think again. Macdunk

It looks like the pigeons are coming home to roost. Another NZ company getting their fingers burned in Australia. PGW now selling up in Aussie but keeping its seed business going. Will they abandon NZS now that dairy farming is in the doldrums?. Your Opinion Snoopy would be rather interesting. Macdunk

[Dr_Who]

It looks like the pigeons are coming home to roost. Another NZ company getting their fingers burned in Australia. PGW now selling up in Aussie but keeping its seed business going. Will they abandon NZS now that dairy farming is in the doldrums?. Your Opinion Snoopy would be rather interesting. Macdunk

Nothing new, they are just joining all the other NZ companies who have tried going global... eg: WHS, TEL... etc

[Snoopy]

It looks like the pigeons are coming home to roost. Another NZ company getting their fingers burned in Australia. PGW now selling up in Aussie but keeping its seed business going. Will they abandon NZS now that dairy farming is in the doldrums?. Your Opinion Snoopy would be rather interesting. Macdunk

PGW moved into Australian real estate and livestock (principally in the state of Victoria) at the demand of their New Zealand customers Duncan. If the NZ customers (read farmers) no longer have the cash and borrowing capacity to buy farms and livestock in Australia, then I guess it doesn't make sense to stay there. PGW are actually very responsive to the needs of their customers, principally NZ beef and sheep farmers.

39 staff from four locations in Australia will lose their jobs. But to put that into perspective PGW has 300 real estate sales staff over 61 offices and 290 livestock representatives within New Zealand. I think the big story here is not that PGW are pulling out of Australia. They aren't. The seeds division is still expanding in Australia: PGW bought Auswest Seeds and Keith Seeds in the last financial year. The shock is that the confidence from NZ farmers is so low that PGW need to take such drastic action.

As for PGW abandonning NZS, well I suppose PGW could sell their NZS shareholding to repay some debt. But that sale would be at a loss. After such a high profile NZS capital raising I don't think PGW will be selling unless they have to. I can't see them selling the stake while Norgate remains PGW chairman.

As far as NZS having to curtail their operations because of any trouble PGW might get into.... Well NZS is an independently listed company with its own board. The future of NZS is no longer joined at the hip with the fate of PGW. Remember NZS was not set up purely with dairy in mind. The original prospectus put almost equal weight on the ability of good South American land to raise livestock. Besides I am fairly sure that dairy is still profitable in Uruguay, despite what has been happening in N.Z to our farmers. The lower the milk price goes in dollar terms, the more economic sense NZS makes. I would say NZS is here to stay.

SNOOPY