Things look very rosy for PGW, from a debt perspective, in the FY2019 report. But that was before the capital repayment.
The forecast position for FY2020 does not look so bright.
FY2012 FY2013 FY2014 FY2015 FY2016 FY2017 FY2018 FY2019 FY2020f Short Term Bank Loans $29.709m $47.702m $35.573m $57.195m $36.623m $26.719m $30.806m $3.920m $3.920m add Long Term Bank Loans $111.500m $62.000m $65.000m $66.000m $97.511m $110.925m $149.205m $31.742m $31.742m add Net Defined Benefit Liability (Pension Plan deficit) $26.264m $20.819m $13.528m $14.655m $25.729m $15.827m $10.574m $5.883m $5.883m add Employee Entitlements $17.531m $15.910m $20.837m $20.511m $20.982m $22.946m $31.163m $16.821m $16.821m equals Total Bank and Worriesome Liabiliities {A} $185.004m $146.431m $134.938m $158.361m $180.845m $175.967m $221.748m $58.366m $58.366m NPAT + Impairment & F.V. Adj. (declared) {B} $27.013m (2) $19.769m (1)(2) $41.128m (2) $32.634m (2) $39.810m (2) $44.358m (2) $28.166m (2) $113.876m (2) $11.910m (2) Minimum Debt Repayment Time {A}/{B} (in years) 6.85 7.41 3.28 4.85 4.54 3.97 7.87 0.51 4.90
Notes
(1) Excludes Goodwill Write Down of $321.143m.
(2) Calculation of NPAT and 'Impairment & Fair Value Adjustments' (representing available cashflow for that year) is as follows:
FY2020f: ($30.000m-$9.632m-$3.826m)x0.72 = $11.910m (I am not assuming any impairment or fair value adjustments for FY2020)
FY2019: $131.806m+$3.187m- ($20.667m +$0.450m) = $113.876m
FY2018: $27.080m+$3.877m = $30.957m
FY2017: $46.311m-$1.953m = $44.358m
FY2016: $39.578m+$0.232m = $39.810m
FY2015: $32.611m+$0.023m = $32.634m
FY2014: $42.258m-$1.130m = $41.128m
FY2013: ($306.525m)+$321.143m+$5.151m = $19.769m
FY2012: $24.453m+$2.560m = $27.013m
I have a policy of looking at a company's financial position at balance date. Yet in the case of PGW this grossly underestimates the debt position over the year. I think PGW are on record as planning for seasonal finance requirements of up to $70m. Technically we should probably add about half that amount to the end of year debt to get a representative debt position. But I haven't done this in the above table. If I do make this adjustment for my FY2020 forecast, the MDRT figure rises significantly:
MDRT = ($58.366m+$35.000m) / $11.910m = 7.84
I agree with your assessment that the balance sheet is in the best shape for 'yonks' , if 'yonks' means two years ago. But other than that, the debt position of the company to me looks worse than it has been at any time over the last seven years.
My rule of thumb for the MDRT answer in years is:
years < 2: Company has low debt
2< years <5: Company has medium debt
5< years <10: Company has high debt
years >10: Company debt is cause for concern
So if we ignore the 'seasonal debt effect' ( but should I? ) I would say PGW has a medium level of debt. On balance I have decided this is not a sufficient debt burden to put me off investing more into PGW. Indeed I have upped my holding in PGW in the last few weeks. But rural earnings are volatile. So I would encourage all serious investors in PGW to keep that 'PGW debt burden' at the forefront of your mind. Calling PGW 'well capitalised' I would say is a stretch description of the debt position. "Adequately capitalised' (for now) is probably a more realistic description of PGW's balance sheet.
Market signals come in many forms. Thanks for the warning!
SNOOPY