The good old days.....3/11/05:).
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Alan Lai may have to negotiate terms better than his current banking arrangements for a theoretical 100% debt funded buyout of the rest of PGW to work. Below are the latest reporting period results of the current 50.1% leveraged buyout.
PGG Wrightson Agria (50.1% PGW shareholder) Net Profit: 1/2YR FY2016 +NZD16.066m -USD3.832m Net Profit: 1/2YR FY2016 -NZD5.782m (based on USD/NZD 0.6627) 50.1% Net Profit: 1/2YR FY2016 +NZD8.033m
It seems the structure of the Agria business has turned an underlying $NZ8m half year Agria share of profit at PGW into a near $NZ6m loss. Yet there was no mention in the Agria press release of any one offs that might cause such a discrepancy. So I'm guessing it is structural?
SNOOPY
Half year report didn't inspire confidence. No question the prolonged dairy downturn will have a substantial effect on companies with a meaningful exposure incl PGW, the banks and SKL.
Recent NBR survey showed 86% of participants thought any upturn in dairy wouldn't be forthcoming anytime soon with many thinking it was years away.
Recent flattening in the GDT auction futures for the rest of the year says the market thinks there's very little prospect of a recovery anytime in 2016.
Dairy is 24% of PGW's business. REINZ index of dairy farm sales fell a whopping 14% in the single month of February 2016. Vast over-supply of farms for sale and few buyers.
I fear that down on the dairy farm things are FAR worse than many of us townies realise. Might we see a real reversion to predominantly grass fed cows with land values halving as the only way to survive many years of $4 dairy pay-out's ? Implications for PGW's supplementary feeds business over the long term ? Current slight reduced dividend level safe ?????
As a long term hold for the divvy I see no problem with this iconic stock even though I'm very much in the red currently:cool: PS-Farming has always had up and down cycles, that's the nature of the business.
PGW divested their 50% interest in the 4Seasons Feeds joint venture in FY2014 (31st May 2014) to their joint venture partner International Nutritionals Limited. Of course, this didn't mean that PGW are getting out of supplementary feed at the retail level. But it does now mean they can choose the level of feedstock in their stores to 'meet the market', rather than being tied to accept the output of their joint venture regardless of market conditions. I remember criticising Dewdney at the time on this forum for selling out of what was then a high margin profitable joint venture. But perhaps this is why Dewdney is CEO of PGW and not someone like me! PGW booked a $4.65m profit on the sale of this 4Seasons Feeds stake.
Subsequently to all this, 'The Dewd' spent around $6.5m acquiring Waterforce, later integrating that into the existing 'PGW Irrigation' division. I would be hard pressed to say anything except that PGGW Irrigation has been badly affected by what is happening in dairy. Are there enough golf courses around Auckland that they can irrigate to make up for this? Maybe overall the strategic timing of both events added together is more neutral!? I guess time will tell!
Dairy farm sales will be positive for the Real Estate division, if not for the farmers selling.
Shareholders have to remember that 76% of PGW's business is not dairy. Personally I am expecting some decrease in earnings for FY2016, and that means a decrease in dividend too. Yet that means the dividend yield will only be high rather than exceptionally high. Furthermore these very low prevailing interest rates will likely support the share price at near to today's levels, even if the dividend is reduced. I am not nervous about holding PGW myself. If the share price does fall agian, I'll be lining up to buy some more.
SNOOPY
A very long term chart of PGW shows it is either
A cyclical and we are due boom times and the share price heading to the skies again
or
One of those companies that is always gunna do something special but never seems to deliver. Except for the time our recently departed Craig was in charge the share price has always been about 40 cents/50cents - even going back to last century. Been changes in strategy, restructures, droughts, extreme milk prices and everything else good and bad but stuck in that range.
What's different this time? Probably in 2030 the share price is still 40 cents and all its good for is a steady divie (most years)
And I have not mentioned share price follows eps growth
Chart from ft.com and it says adjusted for any splits etc but no doubt Snoopy will point out that on rights adjusted basis and some bonus shares the chart is a load of crap
I
Thanks Snoopy, appreciate your thoughts. I agree that interest rates are looking like plumbing hitherto unheard of lows which will be supportive of the market overall and high dividend yield shares in particular but I get a real sense of foreboding this dairy downturn will drag on and on.
Thanks for the chart Winner.
"Might we see a real reversion to predominantly grass fed cows....etc "
Is above necessarily a bad outcome longer term ? Isn't this where NZ's edge lies within dairying ?
RTM
Yes before the craziness of intensification and massive amounts of supplementary feeds, (some would argue greed for capital gains) set in and land values soared this is how they used to farm in dairy and made reasonable money for many, many years with $4 kg pay-out's.
History repeats, land values will eventually halve or decline potentially even more and dairy farmers will have to revert to traditional low cost farming techniques. Banks will take massive haircuts and then several years later once fear has subsided along with global milk production the craziness will start all over again with the GDT auction prices start going up.
In the meantime I think PGW just scrapes along at the bottom of the cycle of its trading range at ~ 40 cents.
hi, just want to know if everyone has received the dividend already? i still have not received the check yet....