Daily ShareChat: PGG Wrightson

By Jenny Ruth

Monday 23rd August 2010

Rural services company PGG Wrightson offers above-average risks but the stock dows have valuation appeal, says David Oxley at Craigs Investment Partners.

"Activity in the rural sector remains subdued, reflecting an observable reduction in credit availability, a focus on debt repayment amongst farmers and volatile commodity prices," Oxley says.

"Managment's comments as to the outlook were consequently cautious and we have reduced our forecasts modestly as a result."

Oxley is now forecasting earnings before interest, tax, depreciation and amortisation (EBITDA) will be $72.1 million in the year ending June 2011, down from his previous $77 million forecast but up from the $70.5 million it reported for the year ended June this year.

His revision to the net result is much greater to $29.7 million, down from his previous $39.2 million forecast, reflecting higher interest costs.

The $24.3 million net result for the year just ended was "a creditable performance given challenging underlying trading conditions" and was broadly in line with expectations. The key seeds business' EBITDA was up 6%, the agrifeeds division was in line with expectations while the South American operations were hit by the strength of the New Zealand dollar.

Oxley now values the shares at 71 cents, down from 76 cents previously. The stock "also offers a relatively rare exposure to seemingly positive medium-term agricultural industry dynamics."

Recommendation: Buy.

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