Forum Archive Index - July 2002

["tennyson@caverock.net.nz" <tennyson@caverock.net.nz>]

One of the most useful items of farm attire is the long gumboot. 
In winter what was firm pasture land can turn to soft mud.  The higher 
your boot, the less likely you are to get brown socks.

Farmers know this, and no doubt so do the sales staff at WRI.

"The New Zealand economy has slowed but continues to perform well.  
Business investment and growth are reflected in the large number of 
new jobs being created.  During the year the Reserve Bank found it 
necessary to take action to steady excess demand which was putting 
inflation targets at risk.  The resultant rise in interest rates and 
strengthening of the New Zealand dollar had adverse impact on farm 
incomes and debt servicing costs."  

A good summary of today's situation?  Actually it was written by
Sir Ron Trotter, Chairman of Wrightsons in 1995, and was part of 
his chairman's report of that year.  

I thought it might be interesting to overlay the revenues of 1995 
onto today's cost structure and see what happens.  In 1995 
Wrightson's was rather a different beast as it still had its 
financial arm.  So rather than take revenues exactly as reported in 
1995, we only take the revenue streams that remain today:



1995 Revenues:

Livestock Commission Revenue $33.0m
Wool Revenue                 $27.4m
Real estate Commissions      $13.4m
Seeds Group Turnover         $53.9m
Agrifeeds                    $10.0m
Warehouse Merchandising     $376.0m

Total                       $513.7m

2001 Cost of sales:         $548.5m
                           --------

Profit (loss)               ($34.8m)



However, there is good reason to believe that the FY2002-2003 is not 
going to be this bad.   The 1995 year included the big drought in 
Hawkes Bay, and sheep and beef farmers were suffering their lowest 
prices for many seasons.  Furthermore the benefits of GATT had yet to 
really flow through.  If we accept that the value of livestock has 
risen by 50% between 1995 and 2002, then the livestock commission 
should also increase in proportion. 
 
If we then add in an adjustment for inflation of 1% per year 
compounded over 7 years (that makes a 7.2% increase in the revenue 
obtained from Warehouse merchandising), then we can add a 
representative incremental figure as a merchandise revenue price 
adjustment.  We now have:

Livestock Commission Increment $16.5m
Merchandising Increment        $27.1m

These adjustments more than wipe out our projected 'loss'.  The 
expected profit is now $8.8m, or 6.6c per share.  Based on a share 
price of $1 this is a gross yield of 8%, which is hardly a disaster.

The gumboots may have sunk a bit into the mud.  But the income 
investor is a long way from having brown socks.

SNOOPY

disclosure:  Hold WRI







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Message posted by Harry Tennyson
 using Pegasus Mail 2.55
I have Word 97 to read attachments
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