PGGW tipped for an upturn

Sharebroke Forsyth Barr is forecasting a recovery in the performance of rural servicing company PGG Wrightson reports The ODT. The broker has retained its full-year financial forecast of earnings before interest, tax and amortisation (ebita) of $89.7 million on the back of aggressive debt reduction plans, but has tempered that because of a mixed trading environment. It described trading conditions as mixed, commodity prices being generally favourable but partly offset by a stronger exchange rate and weakening farmer confidence. In an analysis, the broker has also tempered its forecast with concern about the calibre of corporate governance, given the failure to complete the proposed partnership with meat company Silver Fern Farms (SFF). Forsyth Barr valued PGG Wrightson (PGGW) at $1.67 a share, which assumed a $10 million non-tax deductable settlement with SFF. The share value of the country's largest rural servicing company has fluctuated wildly on the back of issues such as the collapse of the proposed partnership with Silver Fern Farms, refinancing delays by cornerstone shareholder Rural Portfolio Investments and a lacklustre performance of New Zealand Farming Systems Uruguay (NZFSU) in which it has a 10.6% stake. Its share price fell from $1.96 early last year to 40c last February. It traded at $1.06 yesterday. PGGW announced at its half-year result that it had secured a new $475 million banking arrangement which required a $125 million reduction in core debt by December next year. It also announced plans to reduce its debt by revamping its non-cash dividend distribution policy, working capital initiatives and the sale of non-core assets. Key to its debt-reduction plan was settling an outstanding $18 million performance fee from NZFSU, which was dependent on the South American dairy-farm developer securing debt-funding finance from Uruguayan banks.