Daily ShareChat: PGG Wrightson

By Jenny Ruth

Sunday 10th May 2009

While rural services company PGG Wrightson has made considerable progress on a number of fronts recently, including renegotiating its banking facilities, settling its dispute with Silver Fern Farms and reporting a strong first-half operating performance, Forsyth Barr analyst John Cairns isn't recommending the stock.

He values it at $1.59 compared with Friday's close at $1.56, up from as low as 59 cents in February.

"Trading conditions are mixed with a generally favourable commodity price outlook and growing conditions offset in part by a weakening in farmer confidence levels due to concerns over the outlook for the global economy," Cairns says.

To settle the Silver Fern Farms dispute PGW has paid it $30 million cash and 10 million PGW shares, financing it with a three-year up to $25 million subordinated debt facility from South Canterbury Finance. Cairns estimates the interest rate is about 12%. South Canterbury has an option to convert all or part of the amount drawn down to PGW shares within 90 days at $1.50 per share.

"We would expect South Canterbury Finance to exercise its call option in respect of at least part of the debt outstanding," Cairns says.

He says PGW is highly geared with net debt at December 31, excluding its finance company debt, of $422 million. That includes $45 million of seasonal debt which will unwind over the second half.

BROKER CALL: Forsyth Barr rates PGG Wrightson (NZX: PGW ) as HOLD

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