Split Beginnings: History Repeats Pt1
Quote:
Originally Posted by
Snoopy
Livestock Trading: PGW has NZs largest group of livestock representatives with more than 180 representatives across the country, operating more than 50 sale-yard sites across New Zealand. The core market is sheep and beef cattle. But 'PGW Livestock' will also sell dairy cows and deer velvet. Saleyard business is conducted by farmers on site concurrently with PGW's in house on-line sales platform bidrŪ. Others in the NZ livestock trading game include "NZ Farmers Livestock" with more than 100 staff over 15 sale-yard sites, complete with their own web based trading tool: 'MyLiveStock'. Listed 'Allied Farmers' currently owns 67% of "NZ Farmers Livestock."
Here is what PGW says in their Annual Report regarding livestock. This from page 9:
"Our livestock business most closely reflects the fortunes of livestock farming in New Zealand. Lower export prices and the drought resulted in significantly reduced sheep and lamb values on farm, which impacted farm profitability and reduced revenue for our livestock business."
"On average the value of sheep and lambs traded fell by 37 percent on the prior year. While increased volumes were traded in the sheep and lamb markets, volumes in both beef and dairy cattle were slightly back, principally due to the wider market effects of the drought."
"Trading sheep and cattle remains the mainstay of our livestock business."
I think this sums up the state of the livestock market today very well. Except that quote was taken from the 2013 annual report and was written over ten years ago! Who says history never repeats? But more importantly for investors today, the reporting was far more transparent ten and more years ago. The figures for the Livestock section of the company on its own were 'laid bare' (not combined into 'Agency'). How did PGW Livestock get out of their pickle last time, and can we learn anything from that time which will help us forecast the performance of PGW Livestock today? We have our two starting 'recovery' points to compare:
1/ EOFY2013 and
2/ EOFY2024.
That's next.
SNOOPY
Split Beginnings: History Repeats Pt2
Quote:
Originally Posted by
Snoopy
How did PGW Livestock get out of their pickle last time, and can we learn anything from that time which will help us forecast the performance of PGW Livestock today? We have our two starting 'recovery' points to compare:
1/ EOFY2013 and
2/ EOFY2024.
That's next.
'PGW Agency' as a business unit did not exist in FY2012 and FY2013. But we have enough information in AR2013 to recreate Agency as it would have been back then, had the same three business units of 'Livestock' , 'Wool' and 'Real Estate' been combined 'back then'.
|
Livestock |
Wool |
Real Estate |
Total Agency |
Period Change |
|
HY2012 Revenue |
$59.587m |
$47.048m |
$10.899m |
$117.534m |
HY2012 Operating EBITDA |
$3.016m |
$1.254m |
$0.463m |
$4.733m |
HY2013 Revenue |
$51.033m |
$38.017m |
$10.341m |
$99.391m |
(-15.4%) |
HY2013 Operating EBITDA |
$0.607m |
$2.372m |
$0.174m |
$3.153m |
(-33.4%) |
|
2HY2012 Revenue |
$73.648m |
$39.975m |
$15.051m |
$128.674m |
2HY2012 Operating EBITDA |
$15.015m |
$2.066m |
$1.549m |
$18.630m |
2HY2013 Revenue |
$47.467m |
$41.468m |
$13.837m |
$102.772m |
(-20.1%) |
2HY2013 Operating EBITDA |
$11.575m |
$5.010m |
$1.077m |
$17.662m |
(-5.20%) |
|
FY2012 Revenue |
$133.235m |
$87.023m |
$25.950m |
$246.208m |
FY2012 Operating EBITDA |
$18.031m |
$3.320msays |
$2.012m |
$23.363m |
FY2013 Revenue |
$98.500m |
$79.485m |
$24.178m |
$202.163m |
(-17.9%) |
FY2013 Operating EBITDA |
$12.182m |
$7.382 |
$1.251m |
$20.815m |
(-10.9%) |
Compare what happened above eleven years ago in FY2013 with what is unfolding through FY2024.
Like the above, comparisons are made with the previous (better) year.
|
Livestock |
Wool |
Real Estate |
Total Agency |
Period Change |
HY2023 Revenue |
$ Unknown |
$ Unknown |
$ Unknown |
$84.670m |
HY2023 Operating EBITDA |
$ Unknown |
$ Unknown |
$ Unknown |
$3.643m |
HY2024 Revenue |
$ Unknown |
$ Unknown |
$ Unknown |
$81.589m |
(-3.98%) |
HY2024 Operating EBITDA |
$ Unknown |
$ Unknown |
$ Unknown |
$1.431m |
(-60.7%) |
|
2HY2023 Revenue |
$ Unknown |
$ Unknown |
$ Unknown |
$104.133m |
2HY2023 Operating EBITDA |
$ Unknown |
$ Unknown |
$ Unknown |
$12.425m |
2HY2024 Revenue |
$ Unknown |
$ Unknown |
$ Unknown |
$?m |
2HY2024 Operating EBITDA |
$ Unknown |
$ Unknown |
$ Unknown |
$?m |
|
FY2023 Revenue |
$ Unknown |
$ Unknown |
$ Unknown |
$188.803m |
FY2023 Operating EBITDA |
$ Unknown |
$ Unknown |
$ Unknown |
$16.068m |
FY2024 Revenue |
$ Unknown |
$ Unknown |
$ Unknown |
$?m |
FY2024 Operating EBITDA |
$ Unknown |
$ Unknown |
$ Unknown |
$?m |
|
|
|
Commentary in the HYR2013:
"Livestock earnings were lower than in the same period in the prior year but in line with expectations. Overall the volume of business transacted remains similar, although dairy cattle tallies were down and minor variations are evident across other product lines. These changes are consistent with the market and reflect the higher level of feed that was available on-farm with good growing conditions in the late spring and early summer for most regions."
"Commodity values for sheep meat and venison are significantly lower than for the prior year.which in turn has seen average trading prices back by 33% and 12% respectively. As a commission business, these flow directly through to earnings and are a major driver for the reduced operating EBITDA from livestock."
"Greater volume handled by the wool business combined with improved margins and reduced operating costs has lead to $1.1m year on year improvement in operating EBITDA."
"Real Estate has had a solid six months, although earnings were less than the corresponding period in the prior year. The market remains relatively fickle and turnover in the sector remains well down on long term averages, especially in the large farm segment where we traditionally see a higher market share."
---------------------------
Compare the above from HYR2013 with what was said in HYR2024
"Reduced numbers of Livestock being traded, particularly North Island cattle and dairy. Poor lamb prices (down 28% year on year) have squeezed commission revenue."
"During the year we improved our supply chain partnerships and increased volumes."
"Despite a turbulent global situation, New Zealand's deer market is holding its own and remaining profitable, reflecting the high quality product."
Subsequent to this there was an 18th April 2024 profit warning with "Weak sheep meat demand from China and increased supply culminating in lower farm-gate returns."
"The total number of Wool bales sold was ahead of the same period last year. Although prices for strong wool remain suppressed, it was encouraging to note increases in prices compared to last season."
"Our market share, especially in the fine wool market, has grown."
"We grew our wool contract business which links wool growers with manufacturers domestically and internationally and provides growers with surety of price."
"The New Zealand Real Estate market has endured a difficult time. North Island sales in particular have been low, with the volume of the business significantly back. North Island sales in particular have been low with the volume of transactions significantly back on the business contracted in FY21 and FY22. Within the rural sector the most challenged area is sheep and beef farms, where values look to be reset."
--------------------------
I have to admit to being shocked at seeing HYR2024 revenue for 'Agency' as a going lower, by 18%, than eleven years previously. But I should add that 'Livestock' today no longer includes "The Standardbred Division", shut down over FY2018, that used to specialise in the trading of harness horses. The last year that sales for this division were disclosed was in HYR2017 p7 when revenue was $11.25m. This is typically almost entirely weighted to the second half year yearling sales. So it should not have affected much the first half livestock revenues and EBITDA that I am comparing (see text in table in red).
SNOOPY
Split Beginnings: History Repeats Pt3
Part 2 'the data' was getting long. So I thought I would put 'my reaction' to this data in a follow up post. The half yearly report excerpts are qualitative. So equating these to likely changes in revenues is an art, which I can't claim I will 'get right' each time. But here goes, with how I see things!
Agency
Despite the longer term decline issues, wool looked to be having a positive first half both in HYR2013 and HYR2024.
Real estate was difficult in both comparative first halves. But with talk of a need to revalue sheep and cattle farms downwards in HYR2024, I would suggest the market sounds a little worse over HYR2024 than HYR2013, However real estate has always been the smaller triumvirate of the wider 'Agency' picture.
Note that the PGW profit downgrades from last years FY2023 $61.194m EBITDA figure, have manifested themselves as forecast FY2024 EBITDA's of $52m, $50m and, with the April 2024 downgrade, now $43m. PGW management seemed to reinforce the further decline in 'LIvestock', when in their 18/04/2024 profit downgrade, they specifically mentioned further weakness in lamb prices. My inkling is that on a 'net' basis, almost all of the decremental April 'profit warning EBITDA decline (-$7m)' over 2HYR2024, where the Agency segment dominates the outlook, will be attributed to the 'Livestock' 'sub sector business' of 'Agency'.
When forecasting earnings for FY2024, based on what we know from FY2023, I think it is easier to start from what we do know from FY2023:
EBITDA |
HY2023 |
2HY2023 |
FY2023 |
HY2024 |
2HY2024 (forecast) |
FY2024 (forecast) |
Δ FY2023 to FY2024 |
Agency |
$3.643m |
$12.425m |
$16.068m |
$1.431m |
$7.637m |
$9.068m |
($7.000m) |
Retail & Water |
$48.918m |
$5.211m |
$54.129m |
$39.962m |
$2.973m |
$42.935m |
($11.194m) |
Sub Total Operations |
$52.561m |
$17.636m |
$70.197m |
$41.393m |
$10.610m |
$52.003m |
|
Back Office |
($4.717m) |
($4.286m) |
($9.003m) |
($4.775m) |
($4.228m) |
($9.003m) |
$0m |
Total |
$47.844m |
$13.350m |
$61.194m |
$36.618m |
$6.382m |
$43.000m |
($18.194m) |
Table Notes
The sequence of calculations used to compile the above table was as follows:
i/ Assume Back Office costs are unchanged for the year: $9.003m-$4.775m=$4.228m
ii/ Assume $7.000m hit on Agency: => FY2024 EBITDA = $16.068m - $7.000m = $9.068m
iii/ Assume $11.194m hit on Retail & Water: => FY2024 EBITDA = $54.129m - $11.194m = $42.935m
iv/ Calculate Agency EBITDA 2HY2024: => $9.068m - $1.431m = $7.637m
v/ Calculate Retail & Water EBITDA 2HY2024: => $42.935m - $39.962m = $2.973m
-----------------------------------
Observations
1/ 2HY2024 (estimate) Agency EBITDA of $7.637m, marks a decline from the prior comparable period figure of 2HY2023's $12.425m, of 39%.
2/ FY2024 (estimate) Agency EBITDA of $9.068m marks a decline from the prior comparable period of FY2023 EBITDA of $16.068m, of 44%.
This 44% forecast annual percentage decline is much worse than the comparable period 11 years prior, where EBITDA declined a mere 10.9% over the year. Why this should be, I am not sure. The only thing I can think of is that the Livestock sale yards have a certain base operating cost which cannot be trimmed below a certain level. Thus there comes a point, apparently reached (?) in FY2024, where you cannot employ just half a car park attendant (to use a single staff member example) to save costs.
SNOOPY
---------------------------
P.S For completeness, although this series of posts is nominally about 'Livestock', I will have a look at the consequent implied EBITDA for the 'Retail and Water' segment, the other trading segment of the company, as well.
Retail & Water
Observations
1/ 2HY2024 for Retail and Water, I estimate EBITDA of $2.973m, which is down $2.238m or 43% from the $5.211m EBITDA earned over HY2023.
2/ FY2024 (estimate) for Retail & Water is $42.935m, which is $11.194m or 21% down from the $54.129m earned over FY2023