A leading sharebroker has wiped more than a third off its valuation of listed rural servicing company PGG Wrightson, saying unanswered questions in its full-year result had created uncertainty.
Craigs Investment Partners has reduced its valuation of PGG Wrightson (PGG-W) from $1.19 a share to 74c, saying a decline in earnings in the second half of the 2008-09 result and little guidance from management created "significant uncertainty".
The broker also noted that to repay $200 million of its $409 million core debt by next March as required under its banking facilities, would require the sale of assets and the raising of equity.
It has recommended investors hold the stock. On an as-is basis, Craigs valued PGG-W at $1.06 a share, but analyst David Oxley said the company was likely to undergo substantial change which would dilute that value.
He speculated PGG-W would accelerate its debt reduction programme, sell its finance book and launch a discounted equity-raising process.
"Until the company can provide greater detail around its funding plans, the likelihood of their success and comfort around the earning's outlook, the stock is likely to remain under pressure. We therefore continue to view PGG-W with caution."
The rural servicing company said it could not give a reliable earning prediction for the coming year because of declining farmer sentiment, forecasts of a lower Fonterra payout and a firming exchange rate. PGG-W reported a net loss of $66.4 million for the 2008-09 year, which was accentuated by one-off items.
Its net profit after tax and before those abnormal items was $30.4 million, down 15% on the corresponding period.
Particularly hard hit in the period just reported was customer services business, especially the normally reliable rural supplies and Fruitfed, where revenue fell 14% contributing to a 75% fall in earnings before interest, tax, depreciation and amortisation. The result was also accentuated by an estimated $4.4 million loss from discontinued businesses, Export Livestock, Australian Livestock and its Australian real estate business.
Looking ahead, Mr Oxley said PGG-W was likely to have a three-pronged approach to a review of its capital structure of reducing working capital and chasing the outstanding 2008 management fee from New Zealand Farming Systems Uruguay, selling selected assets with the most likely being its $560 million finance book, and equity raising from existing or a new cornerstone shareholder.
