By Jenny Ruth
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Wednesday 2nd December 2009 |
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PGG Wrightson's shares now offer reasonable cum rights fundamental value following the announcement of its $249.4 million capital raising and the worst of its negative earnings revisions should be behind it, says Adrian Allbon, an analyst at Goldman Sachs JB Were.
"In our view, PGG Wrightson is raising an appropriate amount of equity to strengthen its balance sheet in line with other New Zealand industrials," Allbon says.
He estimates the company's 2010 net debt to operating earnings will fall to 1.9 times from 4.5 times.
As part of the deal, PGG Wrightson is selling its new 19% shareholder, Bejing-based Agria, $32.5 million in convertible redeemable notes (CRNs) to recapitalise its finance company.
"We believe the CRNs offer PGG Wrightson a cheap source of equity funding to recap its finance book, provided it looks to redeem the notes by 31 December, 2011," Allbon says.
"These notes also facilitate compliance with tighter Reserve Bank capital adequacy requirements and pursuing a credit rating," he says.
"From an Agria perspective, we understand it is happy accepting only an 8% return over the first two years, given it can access capital at less than 1% per annum out of China."
The company is forecasting operating earnings for the year ending June 2010 of $73.4 million and a net profit of $24.1 million.
BROKER CALL: Goldman Sachs JB Were rate PGG Wrightson as hold (upgraded from sell).
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