Dividend Capitalisation Method valuation: Part 1 (FY2019 Data)
Quote:
Originally Posted by
Snoopy
My valuation method to reflect the dividends actually paid from years 2012 to 2018 inclusive, representing the whole Alan Lai era.
Year |
Dividends Paid 'per share' |
Total |
FY2012 |
0.0cps + 0.0cps |
0.00cps |
FY2013 |
2.2cps + 1.0cps |
3.20cps |
FY2014 |
2.0cps + 2.5cps + 1.0cps (s) |
4.50cps |
FY2015 |
2.0cps + 2.0cps |
4.00cps |
FY2016 |
1.75cps + 2.0cps |
3.75cps |
FY2017 |
1.75cps + 2.0cps |
3.75cps |
FY2018 |
1.75cps + 1.25cps |
3.00cps |
Average FY2012 to FY2018 inclusive |
|
3.17cps |
(f) indicates forecast result.
(s) indicates 'special dividend'. I have decided not to include any special dividend in this dividend model as I consider the special dividend is unlikely to be repeated.
My valuation method to reflect the dividends actually paid from years 2012 to 2019 inclusive, representing the whole Alan Lai era.
Year |
Dividends Paid 'per share' |
Total |
FY2012 |
0.0cps + 0.0cps |
0.00cps |
FY2013 |
2.2cps + 1.0cps |
3.20cps |
FY2014 |
2.0cps + 2.5cps + 1.0cps (s) |
4.50cps |
FY2015 |
2.0cps + 2.0cps |
4.00cps |
FY2016 |
1.75cps + 2.0cps |
3.75cps |
FY2017 |
1.75cps + 2.0cps |
3.75cps |
FY2018 |
1.75cps + 1.25cps |
3.00cps |
FY2019 |
1.25cps + 0.75cps |
2.00cps |
Average FY2012 to FY2019 inclusive |
|
3.03cps |
(f) indicates forecast result.
(s) indicates 'special dividend'. I have decided not to include any special dividend in this dividend model as I consider the special dividend is unlikely to be repeated.
SNOOPY
Dividend Capitalisation Method valuation: Part 2 (FY2019 Calculation)
Quote:
Originally Posted by
Snoopy
Plugging in a representative yield, one that represents the ups and downs of the farming cycle of PGG Wrightson in its current form, we can now arrive at our 'Capitalised Dividend Model' valuation
(Representative Dividend per Share) / (Acceptable Yield) = Share Price (an algebraic manipulation of: Dividend per Share / Share Price = Yield )
3.17c / 0.72 x 0.095 = 46.3c
Note that I am using 9.5% as my acceptable gross yield. Some might argue that is high. But I think it is fair given that much of PGW's profit comes from low margin commodities subject to weather event demand. Some years ago PGW paid no dividend at all for several years in a row. This kind of risk is reflected in my selection of a 9.5% acceptable yield, about half as much again more than a tier one utility company.
This 46.3c valuation is measured at the average point in the business cycle. One might argue that we are now riding high in the business cycle and that this 46.3c valuation is consequently too low given today's circumstances (sp closed Friday at 57c). I wouldn't argue with that. If I use my +20% rule of thumb, one might expect a share price of 56c at the top of the business cycle. Given agriculture is currently in quite a sweet spot in New Zealand I would say Mr Market has it about right. Likewise 37c would be the bottom. I wouldn't be selling or buying more PGW shares based on these numbers.
Naturally all of this earnings based valuation doesn't reflect any takeover premium that might come to the table as a result of the offer for PGW Seeds, should that offer go through. This is still of interest for those who object to the proposed sale of the seeds business. Such shareholders may be able to invoke minority buy out rights. A buy out price should reflect the company valuation, pre any offer, and this could be below the recent market price for the shares!
SNOOPY
discl: hold PGW
Plugging in a representative yield, one that represents the ups and downs of the farming cycle of PGG Wrightson in its current form, we can now arrive at our 'Capitalised Dividend Model' valuation
(Representative Dividend per Share) / (Acceptable Yield) = Share Price (an algebraic manipulation of: Dividend per Share / Share Price = Yield )
3.03c / 0.72 x 0.095 = 44.3c
Note that I am using 9.5% as my acceptable gross yield. Some might argue that is high. But I think it is fair given that much of PGW's profit comes from low margin commodities subject to weather event demand. Some years ago PGW paid no dividend at all for several years in a row. This kind of risk is reflected in my selection of a 9.5% acceptable yield, about half as much again more than a tier one utility company.
This 44.3c valuation is measured at the average point in the business cycle. If I use my +20% rule of thumb, one might expect a share price of 53c at the top of the business cycle. Likewise 35c would be the bottom.
One might argue this valuation is historical and has been overtaken by the Danish offer to buy out the seed business. This dividend / 'sustainable earnings' based valuation doesn't reflect any takeover premium that might come to the table as a result. However, I don't believe yet that the 'seed business sale' is a done deal. In fact, I believe that management have been a little arrogant saying they don't see any impediment to the buyout and expect it to be rubber stamped. It is up the the overseas investment office to see any impediment - not them. The PGW share price weakened off on Friday to leave a 4c buy sell spread at the close (48c buy 52c sell). It looks like someone wanted out. I have been waiting in the wings for just such an opportunity and as a result I topped up my shareholding at 49c.
Even if we take into account the 2c fully imputed dividend over the year, it is clear the plan to sell the seeds business is not liked by the market and significant destruction of shareholder wealth has occurred as a result. I am picking the share price will go up from here if the seed business takeover offer is canned, but it will also go up if the seed business takeover is successful. It is a short term focus on a more difficult operational year and uncertainty as to whether the deal will go through that is keeping the PGW share price below 50c right now.
SNOOPY
discl: hold PGW