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Daily Share Chat: PGG Wrightson

By Jenny Ruth

Wednesday 27th January 2010

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 Jenny Ruth

PGG Wrightson's forecast earnings for the year ending June represent trough-cycle trading conditions, says First NZ Capital analyst Kar Yue Yeo.

"The recent improvement in business outlook among farmers should translate to higher farm spending (even if moderately) and deliver some benefit to PGG Wrightson in 2011," Kar Yue says.

He is resuming coverage of the stock after First NZ Capital and UBS New Zealand underwrote PGG Wrightson's $180.7 million rights issue.

He says he isn't assuming any potential operational upside from the company's relationship with 19% shareholder, China-based Agria.

"With PGG Wrightson's funding issues resolved in late 2009, management can now squarely focus on driving the business foreward," Kar Yue says.

"Notwithstanding the current weak trading environment, management is looking to improve its cost and working capital efficiency and the opportunities to wrok with Agria."

The biggest risk to the company is that lending institutions could continue to tighten lending practices in the agricultural sector, he says.

Kar Yue estimates PGG Wrightson's earnings before interest and tax in the six months ended December were $25 million, down 35% on the previous first half, and a net loss of $1.8 million, reflecting higher funding costs before the capital raising was completed in December and the amortisation of line fees for banking facilities.

Recommendation: outperform (from neutral before the capital raising was announced)

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