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Monday 29th June 2009 |
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PGG Wrightson, New Zealand's biggest rural services company, was raised to a "buy" at the research firm AspectHuntley, which said the stock became better value after tumbling on a profit warning.
Shares of Wrightson dipped to $1.12 on June 24, when the company said normalized earnings for the year ending June 30 would be $30 million to $32 million, down from previous guidance of $36 million to $42 million, because of a downturn in dairy farming and a lack of spending by sheep and beef farmers.
The shares traded recently unchanged at $1.18 on the NZX.
"Valuations appear attractive considering the sharp pull back in the stock", said analysts at AspectHuntley, a research unit of Morningstar, which kept its fair value for the stock at $1.80.
Wrightson managed to settle a dispute with meat cooperative Silver Fern Farms amounting to $42 million in April after gaining what was effectively a $25 million loan from South Canterbury Finance, with the finance company holding the right to convert the debt to shares.
Costs of the failed transaction to acquire a half stake in Silver Fern and a writedown of Wrightson's stake in NZ Farming Systems Uruguay contributed to a net loss of $32.8 million in the first half. In February, Wrightson won agreement from its banks to refinance about $475 million in loan facilities, gaining what managing director Tim Miles said at the time was "a 21-month period to reduce PGW's leverage to levels acceptable in the current credit environment."
The company also gained assurances from major shareholders Pyne Gould Corp. and chairman Craig Norgate's Rural Portfolio Investments that they wouldn't dump their shares.
AspectHuntley said Wrightson "seems to be making good progress in increasing operating and free cash flow through cost cutting, working capital reductions and asset sales, with $20 million of assets earmarked for sale in the next 12-to-15 months."
Management seemed confident of its ability to repay $125 million of amortised debt by December next year, the analysts said in the report.
The ‘buy' recommendation compares to a consensus ‘underperform' based on ratings from six analysts collated by Reuters.
Businesswire.co.nz
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