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  1. #4481
    Reincarnated Panthera Snow Leopard's Avatar
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    Hi Agrarinvestor

    You are in a position I would not like to be in, but have been in the past. I hope some good comes of it for you.

    As you probably know we are waiting for the formal announcement of the special meeting to approve, or not, the capital return which has been indicated will be a share buy-back at the equivalent of about $0.31 a share currently held.

    When it happens I am sure it will illicit a few posts (of assorted emotions) on this thread.
    om mani peme hum

  2. #4482
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    I wonder what the pending Govt action of banning all livestock overseas sales will have on PGW ?

  3. #4483
    Reincarnated Panthera Snow Leopard's Avatar
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    Quote Originally Posted by whatsup View Post
    I wonder what the pending Govt action of banning all livestock overseas sales will have on PGW ?
    It will add $47.19 to their annual profit after tax.
    om mani peme hum

  4. #4484
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    Logic & observations point to things happening behind the scene.

    You read it here first.

  5. #4485
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    Quote Originally Posted by whatsup View Post
    I wonder what the pending Govt action of banning all livestock overseas sales will have on PGW ?
    New CEO Stephen Guerin was interviewed on Natrad this morning on this very issue. IIRC he said that livestock exports were not in the PGGW Business plan going forwards and there hadn't been a significant trade going through the livestock division for some time. My interpretation of that is, while any reduction in demand is not positive, not exporting live animals through the PGW livestock channel won't significantly affect 'Livestock Business Unit' profits going forwards.

    SNOOPY
    Last edited by Snoopy; 15-06-2019 at 07:12 AM.
    Watch out for the most persistent and dangerous version of Covid-19: B.S.24/7

  6. #4486
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    Default Seeds of Destruction Part 7: A new beginning PGWRR

    Quote Originally Posted by Snoopy View Post
    Although there are still some boxes to tick, it looks like the deconstruction of PGW is going ahead. My question now is, is there an arbitrage opportunity for those buying in today to make on the deal?
    One of the more interesting stock exchange announcements today was that although 'PGG Wrightson' will not change their name, 'post seed sale', the stock ticker will become 'PGWRR' - the last two letters standing for 'Rural Rump'. By having the longest ticker on the NZX, this will increase the company's 'sense of importance' and help justify the rather 'high salaries for less work' situation that many of the corporate team now enjoy.

    With the seed business gone, expectations will have to be reset. As an exercise I have gone through the last few years results and removed 'Seed & Grain' EBITDA from the Operating EBITDA. Here is the multi-year earnings picture that results:

    Combined EBITDA less Seed & Grain EBITDA equals PGWRR EBITDA
    FY2014 $58.747m $33.965m $24.782m
    FY2015 $69.631m $40.506m $29.125m
    FY2016 $70.181m $41.862m $28.319m
    FY2017 $64.499m $37.045m $37.454m
    FY2018 $70.174m $35.607m $34.567m
    FY2019 $25m (est)
    Average $29.875m (est)

    1/ This period covers the 'modern' era where Mark Dewdney's 'One PGW' philosophy started to permeate the group.
    2/ I have used only 'Operating EBITDA'. That metric Leaves out all 'Equity Accounted Investee Profit', and consequently removes the profit contribution from 'Agimol', representing the 50% interest in 'Agricentro' in Uruguay, an equity investment that was subsequently fully taken in house (FY2019) and latterly sold (EOFY2019). Equity accounted New Zealand based investments retained, being a 50% interest in 'Canterbury Saleyards' and a now 33% interest in 'Agri Optics New Zealand', I do not consider have contributed materially to EBITDA.
    3/ Results for FY2014 to FY2018 inclusive include the full head office corporate costs. I have not quantified any potential EBITDA benefits to PGWRR shareholders from any future reduction in the corporate cost base, as a result of no longer having to service overseas offices, and any unique corporate seed related expenses. Such savings are liable to be significant: several million dollars per year. However the expense of 'right sizing' the corporate head office will also be significant, yet is unknown as I write this. I have therefore decided not to account for any long term reduction in head office employee numbers, until the real effect of this 'corporate restructure' becomes clear.

    (Disclaimer: due to estimates, small divisional restructures or general research tomfoolery, at least one point highlighted in this post may be inaccurate.)

    SNOOPY
    Last edited by Snoopy; 23-06-2019 at 09:31 AM.
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  7. #4487
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    Default Seeds of Destruction: Part 3.2 - NPAT of 'PGW Rural Rump' going forwards

    Quote Originally Posted by Snoopy View Post
    I am going to rework my projected earnings figures with the changes suggested by Balance.

    If the indicative interest rate bill 'before' was $10.235m based on an average debt balance of $179.834m, this implies an indicative interest rate of:

    $10.235m / $179.834m = 5.7% (use in Step 2)

    That means the indicative annual interest payments after debt repayment will be:

    Step 1/ Calculate the incremental peak seasonal debt multiplication factor:

    ((340 - 100.5)/(275 -100.5)) = 1.3725 (an increment of 37.25%). Yet averaged over a financial year and using a linear model, the average increase in incremental debt is only half this:

    37.25% / 2 = 18.62% => Annual debt incremental factor = 1.1862

    Step 2/ Calculate Annual Debt Interest Payment

    Using the liabilities in the balance sheet in post 4345:

    0.057x([$149.205m+$30.806m-$10.926m]
    -[ $21.606m+$31.205m-$8.226m]
    -$100.5m) x 1.1862
    = $1.623m

    For comparison I will also look at an alternative scenario where $118m of debt is repaid:

    Step 1/ Calculate the incremental peak seasonal debt multiplication factor:

    ((340 - 118)/(275 -118)) = 1.4140 (an increment of 41.40%). Yet averaged over a financial year and using a linear model, the average increase in incremental debt is only half this:

    41.40% / 2 = 20.70% => Annual debt incremental factor = 1.2070

    Step 2/ Calculate Annual Debt Interest Payment

    Using the liabilities in the balance sheet in post 4345:

    0.057x([$149.205m+$30.806m-$10.926m]
    -[ $21.606m+$31.205m-$8.226m]
    -$118m) x 1.2070
    = $0.4472m


    Rural Services ($100.5m debt repayment) Rural Services ($118m debt repayment)
    EBITDA $34.567m $34.567m
    less DA $6.918m $6.918m
    less I $1.623m $0.447m
    equals EBT $26.026m $27.202m
    x 0.72 equals NPAT {A} $18.739m $19.585m
    No. shares on issue {B} 754.048m 754.048m
    eps {A}/{B} 2.49c 2.60c

    There is a complicating factor that comes into my 'greater debt repayment' scenario. If extra debt is repaid then that money will no longer be available to shareholders as part of a capital repayment. Under the original scenario a capital repayment of $292m was modelled. Under the 'alternative scenario' this capital repayment drops to:

    $292m - $18m = $274m
    Previously I have speculated how large the capital return will be, that we PGW shareholders are due to receive. It has now been announced that it will be $235m; somewhat lower than the $292m shown in the projected balance sheet that we shareholders all voted on! Of the originally projected capital injection, $100.5m was shown to be used to retire debt, leaving just $17.5m of debt remaining inside 'PGW Rural Rump'. Yet because the projected capital return will be $57m lower, that means the amount of money available for debt to be retired is consummately higher - by $57m.

    From an end of June 2018 balance sheet perspective, the maximum debt that can be retired is $100.5m + $17.5m = $118m. This means that with all debt retired, we still have:

    $57m - $17.5m = $39.5m

    of net cash on the balance sheet, after the $235m capital repayment has been made.

    A smaller amount of debt outstanding means our indicative interest bill going forwards needs to be reworked:

    If the indicative interest rate bill 'before' was $10.235m based on an average debt balance of $179.834m, this implies an indicative interest rate of:

    $10.235m / $179.834m = 5.7% (use in Step 2)

    That means the indicative annual interest payments after debt repayment will be calculated as per the steps below:

    Step 1/ Calculate the incremental peak seasonal debt multiplication factor:

    PGW has various seasonal funding requirements that are met by taking on extra debt. The seasonal funding requirements are best measured by changes in 'Net Working Capital'. An annual picture of this variation in net working capital is graphed in the 'KordaMentha' October 2018 report on p34, Figure 6.1. Over FY2018, the minimum net working capital required was around $275m on July 1st 2017 peaking at just over $340m in November 2017. If more net cash was on hand through more capital going to debt repayment, then the funding requirements of the working capital, via interest payments, would be consummately reduced.

    The half year balance sheet reported to the NZX for FY2019 (my post 4499) shows working capital requirements $29m higher that at the EOFY2018. However, based on the previous year, the half yearly reported debt is still $10m below annual peak debt. The annual peak debt of $29m + $10m = $39m will therefore be wiped out by the $39.5m of new net cash on the balance sheet. PGWRR can effectively be debt free all the year round going forwards

    This means there is no longer any need to calculate 'incremental debt' over a business year: All interest payments should be wiped out going forwards.

    Step 2/ Calculate Annual Debt Interest Payment

    Answer: zero

    In a departure from the previous calculation, this time I am going to use average EBITDA over the business cycle, as worked out in post 4486.

    Rural Services ($39.5m EOFY cash balance after debt repayment)
    EBITDA $29.875m
    less DA $6.918m
    less I $0.0m
    equals EBT $22.975m
    x 0.72 equals NPAT {A} $16.529m
    No. shares on issue {B} 754.048m
    eps {A}/{B} 2.19c

    SNOOPY
    Last edited by Snoopy; 14-10-2019 at 08:19 PM. Reason: Revised interest expense to zero
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  8. #4488
    Speedy Az winner69's Avatar
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    Aren’t PGW still going to sell seeds through their outlets ..presuming buying them from the company they sold it to.

    Have you factored this in ...not that clear from your workings.
    “ At the top of every bubble, everyone is convinced it's not yet a bubble.”

  9. #4489
    Reincarnated Panthera Snow Leopard's Avatar
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    Quote Originally Posted by Snoopy View Post
    Previously I have speculated how large the capital return that PGW shareholders are due to receive. It has now been announced that it will be $235m, somewhat lower than the $292m shown in the projected balance sheet that we all voted on. Of that originally projected capital return, $100.5m was shown to be used to retire debt. But because the projected capital return will be $57m lower, that means the amount of long term debt to be retired is very likely consummately lower:

    $100.5m - $57m = $43.5m

    ...
    Hi Snoopy

    If the great & good directors of PGW have in their infinite wisdom decided to keep an extra $57m in the company instead of giving it to us then that is an extra $57m to pay down debt with.

    But probably there have their eye open to launch out in some wonderful new money earning direction with that extra.
    om mani peme hum

  10. #4490
    percy
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    Quote Originally Posted by Snow Leopard View Post
    Hi Snoopy

    If the great & good directors of PGW have in their infinite wisdom decided to keep an extra $57m in the company instead of giving it to us then that is an extra $57m to pay down debt with.

    But probably there have their eye open to launch out in some wonderful new money earning direction with that extra.
    Most probably the later.

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