New Zealand Professional Investment Services Firm

Forsyth Barr

We are proud to be a New Zealand owned firm, with 21 offices throughout the country and over 300 employees. We assist personal, institutional and corporate clients providing a full range of investment services.

Forsyth Barr is a foundation New Zealand Exchange firm (NZX) and accredited market participant. We have been confirmed by the Financial Markets Authority as a Qualifying Financial Entity (QFE).

Research is the cornerstone of our advice. We have one of New Zealand's leading teams of analysts. Our global affiliations ensure comprehensive research coverage of all major investment markets.

New Zealand Professional Investment Services Firm, Forsyth Barr

Equity Bottom-Up

<h2>PGG Wrightson</h2>
1H20 Result&nbsp;— Beefed Up
Guy Hooper guy.hooper@forsythbarr.co.nz +64 4 495 5255
RESEARCH&nbsp;INSIGHTS
PGG Wrightson (PGW) delivered a good 1H20 result, ahead of expectations, as it benefitted from strong commodity prices, horticulture activity, and delivery on cost-out following recent divestments. Despite a good first half, outlook commentary has softened on the back of coronavirus uncertainty and its impact on agricultural trade flows. PGW has pockets of growth opportunities across both its Retail and Agency businesses, and is starting to deliver on initiatives; however, we continue to see macro-challenges across the medium-term, coupled with with subdued farmer confidence, Government regulation uncertainty, and Mycoplasma bovis concerns.
<table class="table table-striped"><colgroup><col> <col> <col> <col> <col> <col> <col span="2"> <col span="2"> <col> <col></colgroup>
<tbody>
<tr>
<td style="width: 48pt;">NZX Code</td>
<td style="width: 48pt;">PGW</td>
<td style="width: 48pt;">Financials:Jun/</td>
<td style="width: 40.2pt;">19A</td>
<td style="width: 42.6pt;">20E</td>
<td style="width: 43.2pt;">21E</td>
<td style="width: 48pt;">22E</td>
<td style="width: 48pt;">Valuation (x)</td>
<td style="width: 42.6pt;">19A</td>
<td style="width: 42.6pt;">20E</td>
<td style="width: 48pt;">21E</td>
<td style="width: 42.6pt;">22E</td>
</tr>
<tr>
<td style="width: 48pt;">Share price</td>
<td style="width: 48pt;">NZ$2.27</td>
<td style="width: 48pt;">NPAT* (NZ$m)</td>
<td style="text-align: left; width: 40.2pt;">9.4&nbsp;</td>
<td style="text-align: left; width: 42.6pt;">14.3</td>
<td style="text-align: left; width: 43.2pt;">17.3&nbsp;</td>
<td style="text-align: left; width: 48pt;">18.2&nbsp;</td>
<td style="width: 48pt;">EV/EBITDA</td>
<td style="text-align: left; width: 42.6pt;">5.9&nbsp;</td>
<td style="text-align: left; width: 42.6pt;">2.8</td>
<td style="text-align: left; width: 48pt;">58.0&nbsp;</td>
<td style="text-align: left; width: 42.6pt;">5.5&nbsp;</td>
</tr>
<tr>
<td style="width: 48pt;">Issued shares</td>
<td style="width: 48pt;">75.5m</td>
<td style="width: 48pt;">EPS* (NZc)</td>
<td style="text-align: left; width: 40.2pt;">12.4&nbsp;</td>
<td style="text-align: left; width: 42.6pt;">18.9&nbsp;</td>
<td style="text-align: left; width: 43.2pt;">22.9&nbsp;</td>
<td style="text-align: left; width: 48pt;">24.1&nbsp;</td>
<td style="width: 48pt;">EV/EBIT</td>
<td style="text-align: left; width: 42.6pt;">9.6&nbsp;</td>
<td style="text-align: left; width: 42.6pt;">3.9</td>
<td style="text-align: left; width: 48pt;">8.0&nbsp;</td>
<td style="text-align: left; width: 42.6pt;">7.6&nbsp;</td>
</tr>
<tr>
<td style="width: 48pt;">Market cap</td>
<td style="width: 48pt;">NZ$171m</td>
<td style="width: 48pt;">EPS growth* (%)</td>
<td style="text-align: left; width: 40.2pt;">-45.3</td>
<td style="text-align: left; width: 42.6pt;">52.7</td>
<td style="text-align: left; width: 43.2pt;">21.1&nbsp;</td>
<td style="text-align: left; width: 48pt;">5.0&nbsp;</td>
<td style="width: 48pt;">PE</td>
<td style="text-align: left; width: 42.6pt;">18.3&nbsp;</td>
<td style="text-align: left; width: 42.6pt;">12.0&nbsp;</td>
<td style="text-align: left; width: 48pt;">9.9&nbsp;</td>
<td style="text-align: left; width: 42.6pt;">9.4&nbsp;</td>
</tr>
<tr>
<td style="width: 48pt;">Avg daily turnover</td>
<td style="width: 48pt;">54.6k (NZ$127k)</td>
<td style="width: 48pt;">DPS (NZc)</td>
<td style="text-align: left; width: 40.2pt;">15.0&nbsp;</td>
<td style="text-align: left; width: 42.6pt;">16.0&nbsp;</td>
<td style="text-align: left; width: 43.2pt;">18.0&nbsp;</td>
<td style="text-align: left; width: 48pt;">20.0&nbsp;</td>
<td style="width: 48pt;">Price/NTA</td>
<td style="text-align: left; width: 42.6pt;">0.4</td>
<td style="text-align: left; width: 42.6pt;">1.1</td>
<td style="text-align: left; width: 48pt;">1.1</td>
<td style="text-align: left; width: 42.6pt;">1.0&nbsp;</td>
</tr>
<tr>
<td></td>
<td style="width: 48pt;"></td>
<td style="width: 48pt;">Imputation (%)</td>
<td style="text-align: left; width: 40.2pt;">100</td>
<td style="text-align: left; width: 42.6pt;">100</td>
<td style="text-align: left; width: 43.2pt;">100</td>
<td style="text-align: left; width: 48pt;">100</td>
<td style="width: 48pt;">Cash div yld (%)</td>
<td style="text-align: left; width: 42.6pt;">6.6</td>
<td style="text-align: left; width: 42.6pt;">7.0&nbsp;</td>
<td style="text-align: left; width: 48pt;">7.9</td>
<td style="text-align: left; width: 42.6pt;">8.8</td>
</tr>
<tr>
<td></td>
<td style="width: 48pt;"></td>
<td colspan="3" style="width: 130.8pt;">*Based on normalised profits</td>
<td style="width: 43.2pt;"></td>
<td style="width: 48pt;"></td>
<td style="width: 48pt;">Gross div yld (%)</td>
<td style="text-align: left; width: 42.6pt;">9.2</td>
<td style="text-align: left; width: 42.6pt;">9.8</td>
<td style="text-align: left; width: 48pt;">11.0&nbsp;</td>
<td style="text-align: left; width: 42.6pt;">12.2</td>
</tr>
</tbody>
</table>
Result highlights
PGW&nbsp;reported group Operating&nbsp;EBITDA&nbsp;(pre-IFRS&nbsp;16) of NZ$23.7m, up +33% on the prior comparable period and ahead of expectations. Performance was bolstered by favourable trading conditions as well as a reduction in head office costs.
<ul type="disc">
<li>Retail — Fruitfed Supplies continues to outperform with in the business, with it benefitting from ongoing orchard redevelopment and use of land changes in Northland.</li>
<li>Water — 1H20 was another difficult period with revenue declining -34% on the prior comparable period, led by a drop in development of irrigation systems. With Government policy changes and increasing environmental pressure, we do not expect to see a recovery in this sales, although note cost-out is occurring through a reduction in headcount and footprint.</li>
<li>Agency&nbsp;—&nbsp;A combination of favourable farming conditions and strong commodity prices helped lift Agency&nbsp;EBITDA&nbsp;in 1H20. In addition,&nbsp;PGW&nbsp;continues to enjoy robust demand for its livestock&nbsp;receivables&nbsp;business, Go livestock, lifting lending relating to Go products +25%.</li>
<li>Corporate&nbsp;—&nbsp;Following the sale of its Seed &amp; Grain business,&nbsp;PGW&nbsp;has executed on its corporate cost-out programme.</li>
</ul>
PGW&nbsp;announced a fully imputed interim dividend of 9.0cps.
Outlook and earnings changes
PGW issued revised guidance, expecting FY20E Operating EBITDA "around NZ$30m" (pre-IFRS 16), softening prior commentary of "in excess of NZ$30m". Second half earnings are weighted to performance of the Livestock division. Recent weakness in key commodity prices in combination with&nbsp;&nbsp;coronavirus uncertainty has dampened the outlook for the Livestock business. We have, therefore, lowered our FY20E Operating EBITDA forecasts -4.5% to NZ$30.0m on a pre-IFRS 16 basis to reflect increased risk of earnings volatility.&nbsp;&nbsp;

PGG Wrightson
1H20 Result&nbsp;— Beefed Up
Guy Hooper guy.hooper@forsythbarr.co.nz +64 4 495 5255
RESEARCH&nbsp;INSIGHTS
PGG Wrightson (PGW) delivered a good 1H20 result, ahead of expectations, as it benefitted from strong commodity prices, horticulture activity, and delivery on cost-out following recent divestments. Despite a good first half, outlook commentary has softened on the back of coronavirus uncertainty and its impact on agricultural trade flows. PGW has pockets of growth opportunities across both its Retail and Agency businesses, and is starting to deliver on initiatives; however, we continue to see macro-challenges across the medium-term, coupled with with subdued farmer confidence, Government regulation uncertainty, and Mycoplasma bovis concerns.
         


NZX Code
PGW
Financials:Jun/
19A
20E
21E
22E
Valuation (x)
19A
20E
21E
22E


Share price
NZ$2.27
NPAT* (NZ$m)
9.4&nbsp;
14.3
17.3&nbsp;
18.2&nbsp;
EV/EBITDA
5.9&nbsp;
2.8
58.0&nbsp;
5.5&nbsp;


Issued shares
75.5m
EPS* (NZc)
12.4&nbsp;
18.9&nbsp;
22.9&nbsp;
24.1&nbsp;
EV/EBIT
9.6&nbsp;
3.9
8.0&nbsp;
7.6&nbsp;


Market cap
NZ$171m
EPS growth* (%)
-45.3
52.7
21.1&nbsp;
5.0&nbsp;
PE
18.3&nbsp;
12.0&nbsp;
9.9&nbsp;
9.4&nbsp;


Avg daily turnover
54.6k (NZ$127k)
DPS (NZc)
15.0&nbsp;
16.0&nbsp;
18.0&nbsp;
20.0&nbsp;
Price/NTA
0.4
1.1
1.1
1.0&nbsp;




Imputation (%)
100
100
100
100
Cash div yld (%)
6.6
7.0&nbsp;
7.9
8.8




*Based on normalised profits


Gross div yld (%)
9.2
9.8
11.0&nbsp;
12.2



Result highlights
PGW&nbsp;reported group Operating&nbsp;EBITDA&nbsp;(pre-IFRS&nbsp;16) of NZ$23.7m, up +33% on the prior comparable period and ahead of expectations. Performance was bolstered by favourable trading conditions as well as a reduction in head office costs.

Retail — Fruitfed Supplies continues to outperform with in the business, with it benefitting from ongoing orchard redevelopment and use of land changes in Northland.
Water — 1H20 was another difficult period with revenue declining -34% on the prior comparable period, led by a drop in development of irrigation systems. With Government policy changes and increasing environmental pressure, we do not expect to see a recovery in this sales, although note cost-out is occurring through a reduction in headcount and footprint.
Agency&nbsp;—&nbsp;A combination of favourable farming conditions and strong commodity prices helped lift Agency&nbsp;EBITDA&nbsp;in 1H20. In addition,&nbsp;PGW&nbsp;continues to enjoy robust demand for its livestock&nbsp;receivables&nbsp;business, Go livestock, lifting lending relating to Go products +25%.
Corporate&nbsp;—&nbsp;Following the sale of its Seed &amp; Grain business,&nbsp;PGW&nbsp;has executed on its corporate cost-out programme.

PGW&nbsp;announced a fully imputed interim dividend of 9.0cps.
Outlook and earnings changes
PGW issued revised guidance, expecting FY20E Operating EBITDA "around NZ$30m" (pre-IFRS 16), softening prior commentary of "in excess of NZ$30m". Second half earnings are weighted to performance of the Livestock division. Recent weakness in key commodity prices in combination with&nbsp;&nbsp;coronavirus uncertainty has dampened the outlook for the Livestock business. We have, therefore, lowered our FY20E Operating EBITDA forecasts -4.5% to NZ$30.0m on a pre-IFRS 16 basis to reflect increased risk of earnings volatility.&nbsp;&nbsp;

PGG Wrightson

PGG Wrightson: 1H20 Result — Beefed Up