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Wrightson shares hit 14-month high after profit upgrade gets nod of approval

Tuesday 2nd August 2016

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PGG Wrightson shares rose to their highest level since May last year after First NZ Capital analysts followed the company's profit upgrade yesterday by raising their price target for the stock. 

The shares rose 6.4 percent to 50 cents, adding to yesterday's 4.5 percent increase after the Christchurch-based rural services company beat earnings guidance for the year ended June 30. First NZ Capital analyst Kar Yue Yeo kept his 'outperform' rating on Wrightson stock and lifted his target price to 65 cents from 50 cents. 

Wrightson yesterday said trading operating earnings before interest, tax, depreciation and amortisation exceeded $68 million and net profit was about 20 percent higher than the $32.7 million reported in 2015. First NZ's Yeo said that implied ebitda of about $71 million and profit of $39 million in the year just ended. 

"Despite ongoing headwinds in the fortunes for the New Zealand dairy sector, PGW clearly has gained sufficient market share momentum not only to maintain but also deliver a likely record ebitda in FY16F," Yeo said in a client note to customers. "We continue to like management's growth strategy which focuses on improving existing business through share gain in segments where PGW is under-represented and on segments and geographies with structural growth opportunities." 

The broking and research house raised its forecasts for the company by about 10 percent per annum in the 2016 through 2018 financial years. 

Yesterday's upgrade followed an earlier positive revision in June when Wrightson said strong horticulture and beef sectors were making up for the dairy downturn, while its seed and grain business would benefit from higher sales in Australasia offsetting weaker South American results. The company had previously warned flooding in Uruguay posed a risk to earnings, but later downgraded that assessment. 

The stock is rated an average 'buy' based on three analyst recommendations compiled by Reuters wtih a median target price of 48 cents, taken before Yeo's upgrade. The shares have gained 13 percent so far this year, with the 14 percent gain on the S&P/NZX All Index.

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