Daily ShareChat: PGG Wrightson

PGG Wrightson still offers both valuation appeal and "a rare means of gaining exposure to seemingly positive medium-term agricultural sector dynamics," although it clearly offers above-average risks, says Craigs Investment Partners.

The positive outlook is despite PGG Wrightson last month downgrading its net profit forecast to between $15 million and $18 million for the year ending June. Previously, it had expected trading performance to be in line with the previous year's $23.3 million result.

After the downgrade, cornerstone shareholder China-based Agria launched 60 cents a share bid to lift its stake from 19% to 50.1%.

Craigs values the stock at 65 cents a share. It says the earnings downgrade "suggests a further deferral in the eventual turn in the agricultural earnings cycle that underpins our positive view on the stock."

It says notwithstanding current stresses, the medium term outlook "appears relatively bright on the basis of global demand/supply imbalances that ought to work in its favour."

Its domestically focused AgriServices businesses should benefit from an improving trading outlook and internal restructuring efforts could potentially leverage the effect on the bottom line.

"In addition, the AgriTech businesses, most notably PGG Wrightson Seeds, operate in a market which ought to display medium term secular growth characteristics, driven by a requirement on the part of farmers globally to further boost agricultural productivity."

Recommendation: Buy.

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