Daily ShareChat: PGG Wrightson

Morningstar says it was "a bit surprised" rural services company PGG Wrightson provided guidance for the year ending June 2010, given the level of uncertainty.

The company downgraded its 2009 earnings to between $30 million and $32 million from its previous guidance of between $36 million and $42 million and said it expects normalised net profit for 2010 will be between $33 million and $39 million.

The company blamed the 2009 downgrade on the disappointing performance of the dairy sector. Morningstar estimates between 25% and 30% of the company is exposed to the dairy industry while sheep and beef account for about 30%.

"A lift in margins will essentially come from cost-cutting initiatives and sales of loss-making businesses such as real estate in Australia," Morningstar says.

"As far as cost-cutting initiatives are concerned, management pointed out it has significantly reduced headcount in the real estate sector and the full benefits of that would accrue in 2010," it says.

Morningstar says management expects the diary sector will rebound sharply whenever the economic recovery occurs but hasn't assumed that scenario in its forecast.

It says the company seems confident of achieving its goal of repaying $125 million of amortised debt by December 2010.

BROKER CALL:  Morningstar rate PGG Wrightson (NZX: PGW ) as buy (upgraded from accumulate).

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