PGG an investors' favourite despite industry wobbles

Friday 11th June 2004

Almost every examination of the rural services sector emphasises its cyclical nature and the consequent need for companies to have good operating cashflows.

One such company is South Island operator Pyne Gould Guinness (PGG), which has had its ups and downs but its shares have been on an upward trend over the past five years.

It has been helped in part because shareholders in rural service companies tend to take the effects of changes in commodity prices and the currency in their stride, a factor that can give a share price some resilience.

PGG has, however, consistently delivered more good news than bad.

A key turning point was its merger with Reid Farmers in 2001, which immediately boosted sales and after-tax profit. PGG's major shareholder, Pyne Gould Corporation, has itself listed on the NZX.

PGG's latest half-year profit of $6.41 million, up 10%, shows it has continued to make progress and for the first time declared an interim dividend.

The company expects some slowdown over the second half but it was "well-positioned to deliver a very satisfactory full year result." The outlook for 2004-2005 was less certain.

Shareholders will be watching closely whether the newly acquired irrigation business continues to affect operating cash flow. The purchase knocked the figure back to the negative with extra working capital required for finance. However, the company expects a healthy operating cashflow for the full year.

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