Bumper result for PGG Wrightson

UPDATED: PGG Wrightson [NZX: PGW] shares rose to a four-year high after the rural services firm controlled by China's Agria Corp lifted first-half earnings 47 percent, beating estimates, on improvements in its retail, livestock and seed & grain units.

Net profit rose to $19.7 million, or 2.6 cents per share, in the six months ended Dec. 31, from $13.4 million, or 1.6 cents, a year earlier, the Christchurch-based company said in a statement. Operating earnings before interest, tax, depreciation and amortisation climbed 51 percent to $33.6 million and revenue from continuing operation increased 3.1 percent to $654.7 million. That beat Forsyth Barr's estimate for profit of $12.7 million and Ebitda of $25.5 million and First NZ Capital's forecast for profit of $13.4 million and Ebitda of $26 million.

The shares rose to 53 cents, the highest since February 2011, and were recently up 2 percent at 52 cents. The stock is rated an average 'buy' based on three analyst recommendations compiled by Reuters, with a median price target of 51 cents.

"It shows how much the previous management and decisions made have held back this company," said Grant Williamson, a director at Hamilton Hindin Greene in Christchurch. "When you do get good management in there, what they achieve is really a credit to them."

Wrightson forecast annual operating Ebitda to be in a range of $62 million and $68 million, having previously said it anticipated earnings to beat last year's $58.7 million.

The company beat its own guidance and analyst earnings in 2014 after its rural services and seeds and grains unit underpinned the increased earnings.

"This is a particularly pleasing result for the first half, and whilst there are headwinds facing the agricultural sector such as falling milk prices and more recently a dry summer, we are cautiously optimistic about the remainder of the financial year," chief executive Mark Dewdney said. "The strength of this first half result has given us confidence that the 2015 full year result will be a solid one."

The board declared an interim dividend of 2 cents per share payable on April 8 with a March 12 record date.

Dewdney told analysts the top end of the earnings guidance was based on Wrightson repeating its second-half of 2014, whereas the bottom end reflected the experience of the 2013 second half when earnings were affected by that year's drought.

"We offer investors one of the best ways to get broad-based exposure to agriculture and technology," Dewdney said.

The company's rural services unit, which includes it retail and livestock businesses, boosted external revenue 45 percent to $471 million, while Ebitda gained 15 percent to $33.5 million. Its seeds & grain unit reported a 12 percent decline in sales to $183.6 million, while earnings rose 34 percent $13.4 million.

Wrightson increased its debt by $30 million, buying 40 properties it had previously leased to reduce its lease expense. Net debt was $127.2 million as at Dec. 31, including $18.1 million of cash and equivalents. That increased the company's net debt to equity ratio to 49 percent from 33 percent six months earlier, and up from 37 percent on Dec. 31, 2013.

The company reported an operating cash outflow of $11.4 million in the period, compared to an inflow of $10.5 million a year earlier, with increased interest and income tax payments. A $49 million drawdown on bank borrowings increased cash held by $6.8 million in the half.

Dewdney said the operating cash outflow reflected dairy farmers taking longer to pay their accounts, and as it builds up working capital in its South American business.

Wrightson expects to spend between $20 million and $25 million in capital expenditure over the next 12 to 24 months, building a logistics centre in Uruguay, a Corson maize plant in Gisborne, and upgrading its information technology systems, he said.

Agria first invested in Wrightson in 2009 when the company was forced to raise new equity to repay bank debt during the global financial crisis scuttled its bid to merge with Silver Fern Farms a year earlier.

(BusinessDesk)