PGW - PGG Wrightson

[Snoopy]

have my order in @ 31 cents, great top up bargain

Have managed to buy back those shares I sold to Agria at 60c, at a mere 32c over the last week Snapiti. I was about to post that since I have done this you should be right on the mark with your 31c bid as normally when I buy the share price falls within a few days. It seems for once I have managed to pick the bottom! However, overall I am still not looking so smart as my average buy price is 61c (ouch).

Personally I would not be comfortable adding shares to my holding at more than 32c though. I bought on the presumption of the seed business in Australia coming a bit right (a gamble) and the Agriservices side of the business not slumping as much as forecast. My target price for next year was 35c and a 2c divvy. Since PGW is already trading at 37c maybe I should just everything sell up!

I won't be selling up for a couple of reasons.

1/ My exposure to agriculture is about to be lessened significantly as I am forced out of NZ Farming Systems. And I don't want to reduce it even more.

2/ In my experience the rural sector is often countercyclical to the rest of the sharemarket. With everything else looking fairly and fully priced (as a general statement), I am thinking that possibly now is the time to get more exposure to Agriculture. Those Fonterra shares look ridiculously overpriced. So PGW was probably the best option.

Time as always will be the judge.

SNOOPY

[Xerof]

Promoted to Forbar clients on the back of the research note they put out. Once they offload the in-house holdings, it'll most likely fade

[Snoopy]

Promoted to Forbar clients on the back of the research note they put out. Once they offload the in-house holdings, it'll most likely fade

Yes I saw Sparky's transcript of the Forbar note. Forbar are betting that Agria will be getting out of their pickle.

Today (27th November in the USA) is a very important one for Agria, because today is the day the countdown to delisting starts. The Agria share price must average over $1 for the next month, otherwise the NYSE will turn the lights out. As at 4pm EST 27th November, Agria is down again to 80c. With negative cashflow and negative net assets it is up to the banks how long they wish to keep Agria alive.

Given the banks will lose big time if Agria folds, no doubt they will allow Alan Lai some more rope. But surely any other shareholder would have to class themselves as a philanthropist to put more money into Agria now. Ngai Tahu, with their recent top up treaty settlement from the government might have the cash to help. They could put more money into Agria Asia. The other Agria Asia shareholder New Hope may even have an incentive to allow Agria to go under, so I don't expect any help from that quarter. Alan Lai while a wealthy man has the rest of his fortune (outside Agria shares) tied up. The odds of it being all over for Agria are increasing the day IMO.

A fire sale of some PGW shares to repay the first half of the LIC loan could prolong the agony though. This is what Craig Norgate did when his Rural Portfolio Investments first started getting into trouble.

SNOOPY

[percy]

I won't be selling up for a couple of reasons.

1/ My exposure to agriculture is about to be lessened significantly as I am forced out of NZ Farming Systems. And I don't want to reduce it even more.

2/ In my experience the rural sector is often countercyclical to the rest of the sharemarket. With everything else looking fairly and fully priced (as a general statement), I am thinking that possibly now is the time to get more exposure to Agriculture. Those Fonterra shares look ridiculously overpriced. So PGW was probably the best option.
SNOOPY
I would be interested to know your views on Rural Equities on the Unlisted market.

[Agrarinvestor]

So I might be able to by more PGW cheaper than today? That sounds ok to me.

snoopy is right that Agria is in a difficult position, but I don't see this affecting the underlying business. I'm not buying Agria shares, I'm buying PGW shares which in my business were oversold relative to their business prospects, and while they are by no means ready to explode out into 2013 like a Rocket, I see a company that has licked it's wounds, has a plan to repay debt and focus on strengths, and may catch a tailwind or two from improving markets and climate.

At the pricing I've been buying, I believe I'm derisked should Agrias holding be placed to institutions and the market. I might be wrong and maybe such a placement could be at 28c, or conceivably lower, but that's ok. I'll buy more should I be so lucky. Such a placement at a low price would be VERY temporary. I won't be buying any if above today's pricing, now 37c. It is conceivable that PGWs price will rise over the next few weeks and months, and so any Agria placement will be at today's prices or higher.

Snoopys position is interesting as he has lost half his investment but still believes that PGW represents NZs best investment in listed agriculture. I think he's right. Not because it is the best agriculture company out there, but because I think is too damn cheap.

I will be pleased to cheer Snoopys PGW recovery along with my own rise in this holding...

Hi together,

it doesn't fit together. You can not rate PGW as a high potential stock and give AGRIA a sell rating.
AGRIA is holding the majority in PGW and therefore the remaining PGW shares are only entitled to
receive a dividend ! AGRIA, as the 50.22% controlling owner of PGW were valued with only 45 Mio USD and
PGWs Market Cap is 231 USD. That alone means that AGRIAs shares have 200% upside potential .
I can not believe how you come to the conclusion that AGRIA has a problems to get new loans.
You should look at balance and Income Statement and compare it with the past:

http://finance.yahoo.com/q/is?s=GRO+...atement&annual

look and the Assets:

http://finance.yahoo.com/q/bs?s=GRO+...e+Sheet&annual

and the cash Flow:

http://finance.yahoo.com/q/cf?s=GRO+Cash+Flow&annual

The chance for Agria going bankrupt is only 1%, look what the experts are saying:
.
http://www.macroaxis.com/invest/rati..._Of_Bankruptcy

Another Argument if you think about the possibility for Agria going bankrupt. Is this:
http://www.theaustralian.com.au/nati...-1226516223693

China is shopping around for raw materials and Know How. Chinese Government will not allow Agria going bankrupt.

Despite all the facts i have learned now about the chinese seed market and AGRIAs
potency, you should always think about chinese culture. If Alain Lai has not the power
to bring Agria to success, he will lose his face. And loosing his face is an issue in China.
In my Opinion he is a man of honour and i believe his statement:

>>He said twice there was “zero chance” of Agria being put into receivership.<<

http://www.nbr.co.nz/article/pgw-sha...lder-dw-131185

PGW shareprice rose 15% the last days and AGRIAs shareprice declines 20% this is not
logical . The last sale is always a small amount on the ask site. This is manipulation from short sellers.
I am sure they will burn their fingers during the next days.

[GRIFFIN]

How ever you look at it PGW is still one of our long term rural stayers and Agria may yet pull a Hobbit out of the hat, the one thing i have noticed recently is that there is an increasing amount of Farmers joining Farmlands and if they hook up with CRT which they are working through at the moment this Co op could gobble up a lot of rural funds and put a big dent in its competitors balance sheet.

[Snoopy]

How ever you look at it PGW is still one of our long term rural stayers and Agria may yet pull a Hobbit out of the hat, the one thing i have noticed recently is that there is an increasing amount of Farmers joining Farmlands and if they hook up with CRT which they are working through at the moment this Co op could gobble up a lot of rural funds and put a big dent in its competitors balance sheet.

I agree Griffen. Forbarr said that a possible merger of Farmlands and CRT might be disruptive and cause farmers to flock back to PGW. This does seem unlikely IMO. I would imagine that most farmers who are customers of Farmlands and CRT joined because the like the co-operative model. If Farmlands and CRT join forces, we will simply have a larger co-operative. Farmers who joined a co-operative will surely stay under a combined CRT/Farmlands umbrella. Presumably a combined CRT/Farmlands could be in a position to negotiate lower prices from suppliers too. That would put pressure on PGW.

Also, and perhaps you can confirm Griffen, Farmlands are basically North Island based and CRT are basically South Island based. So there would be very little cannibalization of each other's sales if these two co-operatives combined.

SNOOPY

[Snoopy]

I think you might be on to something there, Sparky. There's an awful lot of money to be made by investing in a company with a solvable problem.

The problem is David B at 37c, PGW are sitting on a PE of 37/3.3 of nearly 12. I would say that almost all the money that was to be made last week when the share price was 32c has already been made.

SNOOPY

[Snoopy]

Also, if Agria collapsed, then PGW continues along, it's underlying business in services and seeds unaffected. Sure, the short term share price of PGW might tumble, but that's a buying opportunity. But if PGW collapsed, Agria collapses with it. That tells me that PGW is the safer of the two to own.

Safer of the two does not been safe though. Since Agrainvestor mentioned it, I have calculated the Z score for PGW.

Now, Z= 1.2A+1.4B+3.3C+0.6D+1.0E

Where:
A= (Working capital/Total Assets)
B= (Retained earnings/Total Assets)
C=( EBIT/ Total Assets)
D= (Market value of Equity/Total Liabilities)
E= (Sales/Total Assets)

Now would you like to guess what happens?

SNOOPY

[Snoopy]

Now, Z= 1.2A+1.4B+3.3C+0.6D+1.0E

Where:
A= (Working capital/Total Assets)
B= (Retained earnings/Total Assets)
C=( EBIT/ Total Assets)
D= (Market value of Equity/Total Liabilities)
E= (Sales/Total Assets)

This is the first time I have done one of these 'Z' calculations, so you might want to check if I have got it right:

I have assumed 'Working capital' to be the amount of cash tied up in the business as a result of normal operations at the end of the financial year.

So WC= (Inventory+Biological assets)+(Trade Payables-Trade Receivables)= ($239.4m+$20.7m)+($228.1m-$207.1m)= $281.1m

So A = $281.1m/$980.5m = 0.287

----

B= (Retained earnings/Total Assets)

Now PGW have retained all of their earnings and not paid a dividend. So Retained earnings is equivalent to NPAT

$24.243m/$980.472m= 0.025

--------

C= (EBIT/ Total Assets) = $42.438m/$980.472m = 0.043

--------

D= (Market value of Equity/Total Liabilities) = (0.37 x 754.85m)/$402.698m = 0.694

--------

E= (Sales/Total Assets) = $1,336.8m/$980.472m = 1.363

-------

So putting everything together:

Z= 1.2A+1.4B+3.3C+0.6D+1.0E
= 1.2(0.287)+1.4(0.025)+3.3(0.043)+ 0.6(0.694)+1.0(1.363)= 2.30

A Z-score of lower than 1.8, in particular, indicates that the company is heading for bankruptcy. Companies with scores above 3 are unlikely to enter bankruptcy. Scores in between 1.8 and 3 lie in a grey area.

That means by Z-score PGW is far from a safe investment, and will require further work by management.

Have I got that right?

SNOOPY