Daily ShareChat: PGG Wrightson

If Singapore-based Olam International's takeover offer for New Zealand Farming Systems Uruguay succeeds, PGG Wrightson could realise $15.5 million of cash for its 11.5% stake, representing a $3m gain on investment booked in the six months ended December, says Goldman Sachs JB Were analyst Adrian Allbon.

Wrightson would also recover its outstanding about US$10 million (NZ$13.7 million) of debt owed by NZS sooner, Allbon says.

The impact of the takeover is nominal from a valuation perspective but“we believe it does help crystallise the market discount over PGW's NZS stake and outstanding debt payment.”

Allbon's firm is advising Olam.

Wrightson's contract to manage NZS can't be terminated earlier than November 2014 and Allbon estimates if it is terminated, it will mean an "immaterial" loss of about $5 million to Wrightson.

Allbon values Wrightson at 70 cents a share on a discounted cashflow basis and at 66 cents a share on a sum-of-the-parts basis using 2011 estimated arnings.

Wrightson also supplies NZS, although no formal supply agreement exists. Allbon estimates, based on the 2009 accounts, NZS accounts for about 30% of Wrightson's South American revenues.

While arguably Wrightson, without its ownership stake, is at risk of losing some of these revenues, the flipside is that, with Olam capital support, NZS will be in a stronger financial position to complete its farm development.”

Recommendation: Buy

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