By Jenny Ruth
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Tuesday 5th May 2009 |
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PGG Wrightson's $40 million settlement with Silver Fern Farms for failing to complete their joint-venture agreement at least provides certainty, even though it was far higher than management's $10 million estimate, and may lift investor confidence in the stock, says Morningstar Research.
The company is paying Silver Fern Farms $30 million in cash and $10 million in shares and the two companies plan to continue to work together.
There are also some encouraging signs relating to commodity prices. "Dairy prices are recovering while sheep and beef prices are well above the levels prevailing a year ago."
Fonterra's 10 cents per kilogram of milk solids hike in its expected dairy payout will give farmers an extra $120 million and should boost confidence levels, it says.
"We are not changing out estimates but acknowledge that upside to earnings seems probable, given improved business conditions and a lower New Zealand dollar."
Morningstar is forecasting Wrightson's net profit will fall to $42.6 million for the year ending June 30 from $73.2 million the previous year - excluding one-off items and earnings from managing NZ Farming Systems Uruguay, the year earlier result was up 35% to $39.2 million.
Morningstar says Wrightson's debt levels are high but manageable. "Net-net, we are upgrading the stock to accumulate from hold."
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