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<br>FY21 Result — Taking Share</h2>
<div></div>
<p><strong>UNDERPERFORM</strong></p>
<p>PGG&nbsp;Wrightson&nbsp;(PGW) delivered a solid FY21 result, demonstrating strong operating cash flow, reduced debt levels, and a 16cps final dividend. Whilst&nbsp;we have become more positive on the near-term operating environment for PGW, longer-term environmental and regulatory risks continue to exist for the sector.&nbsp;PGW is&nbsp;currently trading on 14x 12 month forward PE ratio, a premium to peers, and in our view does not offer sufficient value to compensate for seasonal agri risk. We see limited organic earnings growth beyond the current period. UNDERPERFORM.</p>
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/224/464/original/image_85988511641629247595434.png?1629247595" class="editor-image img-responsive" data-smartkarma-image-id="224464"></figure>
<div>
<h3>What's changed?&nbsp;</h3>
</div>
<div id="m_3559127274577543717iwrmo3">
<ul>
<li><strong>Earnings</strong>:&nbsp;We make meaningful positive revisions to near-term forecasts reflecting market share gains and an improved outlook for the agri sector. We lift our NPAT&nbsp;forecasts c. +16% across the explicit three year forecast period.</li>
<li><strong>Target price</strong>:&nbsp;We lift our target price +70cps to NZ$3.30, on the back of earnings changes and higher peer multiples.</li>
</ul>
</div>
<div>
<h3>Strong result with significant reduction in net debt</h3>
</div>
<div id="m_3559127274577543717irvpp">
<p>PGW reported a solid operating result with EBITDA of NZ$56m, up +24% on the prior year period and in line with expectations. However, lower than expected depreciation, interest, and tax expenses all contributed to a meaningful NPAT beat, with FY21 NPAT of NZ$22.7m. PGW has achieved a meaningful reduction in net debt of -NZ$26.6m (-80%) from year end FY20 to NZ$6.5m at year end FY21. Strong operating cash flow was driven by 1) improved working capital management, primarily from an increase in payables, 2) lower capex spend due to COVID-19 disruption, and 3) an element of tax paid timing. PGW is exploring possible acquisition opportunities, which we view as most likely to be bolt-on and therefore bank funded.</p>
</div>
<div>
<h3>PGW continues to take market share</h3>
</div>
<div id="m_3559127274577543717ihq3g">
<p>Seasonality is a strong feature in PGW earnings, with the first half driven by its Retail and Water business and the second half driven by its Agency business. Retail &amp; Water EBITDA was up +8.1% to NZ$37.5m, with growth led by&nbsp;PGW's&nbsp;higher margin&nbsp;Fruitfed&nbsp;horticulture business. Encouragingly, PGW continued to gain market share across its rural supplies businesses, and commentary suggests this has continued into spring trading.&nbsp;Agency EBITDA of NZ$25.2m was up +60% on the prior (heavily COVID-19 impacted) year, as both volume traded and schedule rates improved.</p>
</div>
<div>
<h3>Near-term outlook positive</h3>
</div>
<div id="m_3559127274577543717ip5ve">
<p>The near-term outlook appears positive for PGW with commodity prices supportive of increased farmer returns, which should drive elevated farm spend as well as support livestock trading. Supply chain is a challenge (like most industries), with PGW working closely with farmers to ensure sufficient supply, which could see higher inventories carried.&nbsp;</p>
</div>

PGG Wrightson FY21 Result — Taking Share

UNDERPERFORM
PGG&nbsp;Wrightson&nbsp;(PGW) delivered a solid FY21 result, demonstrating strong operating cash flow, reduced debt levels, and a 16cps final dividend. Whilst&nbsp;we have become more positive on the near-term operating environment for PGW, longer-term environmental and regulatory risks continue to exist for the sector.&nbsp;PGW is&nbsp;currently trading on 14x 12 month forward PE ratio, a premium to peers, and in our view does not offer sufficient value to compensate for seasonal agri risk. We see limited organic earnings growth beyond the current period. UNDERPERFORM.


What's changed?&nbsp;



Earnings:&nbsp;We make meaningful positive revisions to near-term forecasts reflecting market share gains and an improved outlook for the agri sector. We lift our NPAT&nbsp;forecasts c. +16% across the explicit three year forecast period.
Target price:&nbsp;We lift our target price +70cps to NZ$3.30, on the back of earnings changes and higher peer multiples.



Strong result with significant reduction in net debt


PGW reported a solid operating result with EBITDA of NZ$56m, up +24% on the prior year period and in line with expectations. However, lower than expected depreciation, interest, and tax expenses all contributed to a meaningful NPAT beat, with FY21 NPAT of NZ$22.7m. PGW has achieved a meaningful reduction in net debt of -NZ$26.6m (-80%) from year end FY20 to NZ$6.5m at year end FY21. Strong operating cash flow was driven by 1) improved working capital management, primarily from an increase in payables, 2) lower capex spend due to COVID-19 disruption, and 3) an element of tax paid timing. PGW is exploring possible acquisition opportunities, which we view as most likely to be bolt-on and therefore bank funded.


PGW continues to take market share


Seasonality is a strong feature in PGW earnings, with the first half driven by its Retail and Water business and the second half driven by its Agency business. Retail &amp; Water EBITDA was up +8.1% to NZ$37.5m, with growth led by&nbsp;PGW's&nbsp;higher margin&nbsp;Fruitfed&nbsp;horticulture business. Encouragingly, PGW continued to gain market share across its rural supplies businesses, and commentary suggests this has continued into spring trading.&nbsp;Agency EBITDA of NZ$25.2m was up +60% on the prior (heavily COVID-19 impacted) year, as both volume traded and schedule rates improved.


Near-term outlook positive


The near-term outlook appears positive for PGW with commodity prices supportive of increased farmer returns, which should drive elevated farm spend as well as support livestock trading. Supply chain is a challenge (like most industries), with PGW working closely with farmers to ensure sufficient supply, which could see higher inventories carried.&nbsp;


PGG Wrightson: FY21 Result — Taking Share