PGW - PGG Wrightson

[Joshuatree]

Don't know any details fair friends but 'reading between the lines' of a few convos I doubt it will be a 'slap on the wrist' of 100k or so. Anything else we can only speculate - and we're good at doing that round here.

Thanks Bill, ...Not again!! Is that what they mean re "to improve the expertise and soft skills of staff and management"...

softly softly fixey priceme

[Snoopy]

Should have read the script instead of just looking at the pretty pictures

Mark said re the 61- 67 million guidance - at this point at the upper end of the range.

So must be more like 65-66 million - probably threw the 61 million in to give himself a bit of wriggle room if things are ****e ....wonder why go so low

It's because of the weather Winner. If that naughty little brat 'El niño' starts running around he can cause trouble. But that is only if he bunks school. How much school he bunks matters. Mark is thinking the worst case scenario is a dry summer and autumn. Dry summer only won't be so bad, as a wet autumn will be a big buy signal for farmers to start planting pre winter crops - not ideal, still OK for PGW.

SNOOPY

[Snoopy]

http://www.nzherald.co.nz/business/n...ectid=11491116

Article relating to price fixing case from Aug this year, interesting point from that was:

"Companies convicted of price-fixing can attract a maximum penalty that's the greater of $10 million, or three times the commercial gain, or if that can't be established easily, 10 per cent of turnover".

$10m spread over 754.8m shares represents 1.3cps, probably already provided for. Don't be nervous about relatively small things. There are far bigger things out there to worry about than this.

SNOOPY

[Snoopy]

EPS trends interesting

Used to be 8/9 cents over 2007/2009 but that was when things were pretty good. Best since was 2014 when eps was 5.6 cents

But it fell to 4.5 cents in 2015 (yes fell) and latest guidance implies another fall in 2016

So eps back to 2012 levels.

Growth strategy?

No wonder the share price languishes where it is. Another disaster year and what will happen to it?

Winner, I am sure there are no inaccuracies in your post. But there are other ways to look at the figures. And I don't think your summary gives a fair overview of the way PGW has been managed in the post Craig Norgate era (after FY2009).

Those early eps figures you quote are before the capital reconstruction. During the Agria lead bail out, the number of shares on issue jumped from 281.3m to 754.8m, while the underlying business remained substantially the same size. So it is not realistic to think that 'earnings per share' measures will ever return to 2007/2009 levels. It was unfortunate for shareholders at the time a bail out was needed. But it was, and PGW came out of it with new financial discipline. The great increase in the number of shares means that eps comparisons with the Craig Norgate era are no longer meaningful.

As for the 'fall' in eps figures from FY2014 to FY2015, you get a quite different perspective if you look at the underlying business result, rather than working from the 'bare' EBITDA figure. Below are the figures I am working from in the FY2015 'Statement of Profit and Loss'.

	FY2016F	FY2015	FY2014
Operating EBITDA	$66.5m	$69.450m	$58.747m
add Associate Profit	$0.181m	$0.181m	$2.521m
less Depreciation & Amortization	$7.948m	$7.948m	$11.242m
less Net interest	$10.780m	$10.780m	$7.926m
less Income tax	$16.172m	$16.172m	$8.472m
Total	$31.781m	$34.731m	$33.628m
eps, based on 754.8m shares	4.2c	4.6c	4.5c

SNOOPY

PS Stuck in a forecast for FY2016. It looks like the dividend over the coming year of 4cps is on.

[winner69]

Any penalty will probably be treated as on-recurring and won't affect 'normalised earnings'

Anyway markets are forward looking and as this won't affect f16 'normalised' earnings or F17 expectations it won't be affecting the share price (except for a day or two when its known and when the shock horror punters sell out and that is the day you top up eh).

Probably wont even be any corporate reputational damage either - the world seems to forgive this sort of behaviour these days - all done and dusted and forgotten a month later

[couta1]

$10m spread over 754.8m shares represents 1.3cps, probably already provided for. Don't be nervous about relatively small things. There are far bigger things out there to worry about than this.

SNOOPY

One of the best pieces of advice you have ever posted Snoopy. Disc-Holding a large number.

[Beagle]

Been on the AGM and thought to share some of my impressions with you ... for the benefit of shareholders who couldn't make it:

Full board attendance and lots of senior managers - everybody easy to recognise on their green PGW ties. Management clearly takes the AGM seriously. As well - a lot of Agria people there ... but no surprise, given that they own 50%.

Other shareholders - my estimate between 50 and 70 (I know, I should have spent more time counting them). Still lots of empty seats - would be nice to get the room next time full.

Presentation published on the NZX: https://www.nzx.com/files/attachments/223559.pdf.

After a brief introduction from chairman Alan Lai - the main part of the presentation was hold by Mark Dwedney, and he answered as well the questions (I think all of them ...). Now - we know how the year went (actually - not too bad ...) what I heard "between the lines" is that they try to improve the expertise / soft skills of their staff and the organisational culture.

Mark talked about a number of "exciting contracts" they won in the wool area (high quality / high margin), but didn't quantify them.

Strategy: South America was still boasted as opportunity - and when I followed up after the meeting with some of the directors, they called South America "low hanging fruit" but it felt that they are as well still working on China as long term target (no surprise given the board composition).

Financial results outlook: Came obviously with all the appropriate disclaimers ... but the earnings downgrade from this morning was more packaged like: "if we achieve that, than it will be the second best year in recent history" (and yes, this is what it is - check slide 22). Overall people appeared to be reasonable optimistic (despite the dairy sector) and expecting definitely a recovery in 2017.

Most of the overseas directors (but Alan) stood for re-election - and they all talked about the growth they expect long term to see ... maybe as well a reflection on the share price Agria paid for PGW, but it felt (as well in individual discussions) that they do see huge future growth potential in Asia - though mid to long term.

Good to see all the candidates speaking to the meeting ... though I must say, that most of the came better across in a 1-to-1 after the meeting than in their address to the meeting (cultural background - eye contact / language?).

Some of the questions I found interesting and didn't comment on earlier (like future markets - s. above) .... in no particular order:

Q: Expected milk price payout for 2016? Marks answer (with lots of disclaimers and his private view ...): Fonterra's current indication of $5 /kg is probably quite realistic ... though personally could he see it going up to $6 (he said ... maybe ... just his hope);

Q: Given PGW's slim margins - what is their unique sales proposition? A: Expertise of their staff ... (and maybe that's something they try to improve with their training focus).

Q: What would a very dry summer mean for PGW? A: A summer with some regions dry would be "business as usual". If really all parts of NZ would be impacted, than things are more complicated, but even than there would be opportunities (e.g. if the drought is followed by a not too late drought breaker ...

Q: Impact on silverfern deal ... A: They have a good relationship with Silverfern and don't see that at risk. Good to see them now on a more solid financial basis.

Q: reason for increased inventory in South America (actually Max from the NZSA found this point - Respect - he must have read the report!)? Answer: they do expect improved business and took this risk ('You can buy seeds only once a year")'

Q: Gender diversity in the board? A: concern noted ... they do have a policy ... but as we see, at this stage it is just males on the board (though obviously with some ethnic diversity.

There was as well a question on why they report on EBITDA instead of NPAT ... but somehow did the answer escape my attention ...

Ah yes - most of the questions came either from the NZSA ... and from one other shareholder (who shall not be identified). Went well, though a bit more wide spread question basis next time couldn't hurt ...

My personal impression on PGW: I think I go with the Chinese owners and do recognise long term value in this company. Intend to stay invested (and potentially accumulate if the SP drops). However - I said that before for other companies ... and I was not always right ... i.e. DYOR!

Thanks BP, good post. I agree and think in the context of the very difficult patch dairy has gone though / is going through the company is doing quite well. I think 4 cps fully imputed is a fairly safe bet as a minimum going forward so 4 / 0.72 = 5.55 cps gross / 0.425 = 13.1% which makes it one of the very highest dividend yielders on the NZX. Shareholders are being extremely well and can comfortably afford to be patient to enjoy better times ahead.
Good Hold in my opinion.

[Snoopy]

Thanks for all your Snooping Snoopy. I appreciate your insights and in depth knowledge of the PGW.

Time for a little more snooping, in fact the full 'snoopshot' treatment! How does PGW go when subjected to my four investment selection tests?

1/ Top Three player in chosen market?

PGG Wrightson Limited (PGW) was formed in 2005, a result of a merger between two established agricultural supply service leaders: Wrightson Limited and Pyne Gould Guiness. However, the DNA of the operation goes back much further than this. Wright Stevenson & Company was established in Dunedin in 1868. Even they are a new boy on the block though, as Gould Beaumont & Co. had been founded in Christchurch as early as 1851.

Under the leadership of CEO Mark Dewdney, PGW has regrouped under the 'One PGW' mindset. Despite being a diverse company, 'One PGW' is about customer relations in the widest sense: where one division not only looks after their own operations but seeks an awareness of opportunities for the complimentary group businesses. Down to earth people serving down to earth customers succinctly sums up the ethic. The recognised business units as detailed in the annual report are below:

1/ Merchandising (rural themed products): Traditional competitors RD1 (Fonterra owned) and Farmlands (a co-operative) are the two other large players in the game. There are others, but on a smaller scale to 'the big three'.

2/ Livestock Trading: PGW has NZs largest group of livestock representatives, handling 50%+ of transactions nationwide.

3/ Insurance: Commission agents for AON and Vero

4/ Real Estate: Specialising in rural and small town properties. Together with Bayley's, PGW is one of the largest two players in what is a fragmented market.

5/ Water: At last with nationwide coverage through recent 'bolt on' acquisitions, PGW offer turf irrigation, for landscaping and sports use, along with their more traditional 'rural irrigation' and the bread and butter ongoing servicing work that tends to be higher margin. There is a wholesale side of the business too, supplying water and irrigation products. With nearly $85m of turnover in FY2015, PGW stands out as a major national player in a fragmented market.

6/ Wool: PGW manages a substantial portion of the strong wool supply chain in New Zealand , from on farm procurement, freight and logistics through to sales (be they via auction, private sales, export (the Bloch & Behrens brand) and domestic). Higher value finer wool is marketed through the associtaed NZ Merino company.

7/ Seeds: The largest seed producer in the Southern Hemisphere, with interests spread across New Zealand, Australia and South America.

The beachhead of PGW remains in New Zealand. But there is potential to replicate the 'One PGW' model, particularly in South America in the coming years. Uruguay in particular is where PGW is building a strong presence.

Conclusion: Ticks the 'major player' (top three) criterion across all markets in which they operate.

[banter]

	FY2016F	FY2015	FY2014
Operating EBITDA	$66.5m	$69.450m	$58.747m
add Associate Profit	$0.181m	$0.181m	$2.521m
less Depreciation & Amortization	$7.948m	$7.948m	$11.242m
less Net interest	$10.780m	$10.780m	$7.926m
less Income tax	$16.172m	$16.172m	$8.472m
Total	$31.781m	$34.731m	$33.628m
eps, based on 754.8m shares	4.2c	4.6c	4.5c

PS Stuck in a forecast for FY2016. It looks like the dividend over the coming year of 4cps is on.

Should cut that tax figure since earnings are lower. Also they paid a high % of tax in 2015, c 30% of NPBT.
I estimated 12.6m.

I sold half yesterday - falling earnings (0.4cps), fine coming, raised chance of a significant drought.
Div yield should fall to 'only' 11.5% if the company's mid point earnings forecast holds and their payout ratio is the same.

Note 'Interest and Finance' includes hedging gains and losses as well as interest.

My 2016 guesses below.

	14	15a	16e
EBITDA-Ass	58.7	69.45	64	Mid pt of estimate
Share of Ass.	2.5	0.181	0.181
EBITDA	61.2	69.6	64.181
Non Op items	6.4	-2.1	-2	Fine?
FV adjustments	1.3	-0.023	0
D&A	-11.2	-7.9	-7.9
NetFincost	-7.9	-10.8	-9.35	Avg of 14 and 15
NPBT	49.8	48.783	44.931
Tax	-8.5	-16.17	-12.58
Disc.ops	0.9	0.14	0
NPAT	42.2	32.753	32.35
ul NPBT	39.6	50.75	46.75
ul NPAT (est)	28.512	36.54	33.66	EBITDA-ASS-NetFinCost-Tax
ul eps	0.0378	0.0484	0.0446
Gross Div Int	0.028	0.028
Div Fin	0.035	0.028
Div Ttl	0.063	0.056	0.0514
Div yield	14.7%	13.1%	11.6%
PO (%of NPAT	119%	83%	83%	=NET div / ul NPAT

[see weed]

Lucky me picked up 15,000 @ .415c 4.58pm this arvo. Many more wanted thank you. I am looking forward to a takeover bid for PGW one day.