A leading sharebroker has lowered its valuation of New Zealand Farming Systems Uruguay stock, saying the company needed to divest itself of $NZ90 million of land to fund operating cash flow, farm development and meet outstanding debt.
Forsyth Barr has lowered its valuation of the stock from 98c to 76c on the back of concerns about the impact of drought in Uruguay, two $45 million bond issues and an outstanding performance fee payable to PGG Wrightson.
It has retained its recommendation to hold the stock.
Forsyth Barr analyst John Cairns said a forecast capital expenditure programme was dependent on New Zealand Farming Systems Uruguay (NZFSU) divesting farmland during the next couple of years, with the company announcing it planned to sell 7000ha of its 35,500ha land bank.
It recently sold an 830ha farm for $3.6 million and planned to sell a further $45 million of land and lease it back.
Publicly listed NZFSU has taken New Zealand dairy farming expertise and applied it to Uruguay, but it has been hampered by drought and a shortage of cashflow resulting in an expected loss this year increasing from $6 million to $19 million.
It recently raised $45 in bonds issued to Uruguayan investors and planned a second issue in the coming months with the funds used for farm development.
Mr Cairns said the farm development programme was expected to cost $50 million this year and $100 million next year before falling to $9 million in 2011.
The area of land in production would quickly double from 10,200ha in 2009 to 20,000ha in 2013, with a subsequent increase in cows from 11,500 to 54,000 during the same period.
