PGGW remains bullish about going ahead with its proposed merger with Silver Fern Farms in taking a 50%, $220 million stake.
While acknowledging two-thirds of its clients in wool, sheep and beef are under duress, PGGW wants to increase its exposure to the still-growing dairying sector.
During a teleconference yesterday, chairman Craig Norgate said after-tax profit guidance for the present year was above analysts' consensus of about $44 million and PGGW was picking a $50 million to $55 million result for the year, including a $4.2 million performance fee from listed NZ Farming Systems Uruguay, which PGGW manages.
Excluding one-off earnings, capital gains and payments from its 15% stake in NZ Farming Systems Uruguay, PGGW would have booked a 35% increase in after-tax profit, rising from $29 million for the same period last year, to $39.2 million for the year to June.
ABN-Amro Craigs broker Peter McIntyre said the company needed to book a strong result, based on its operating earnings, which justified the fair value of its present share price, trading around $2.80.
A 33% increase in dividend, from 12c per share last year to 16c, sent a strong message to shareholders about its performance since the Pyne Gould Guinness and Wrightson merger, and its good outlook, he said.
Revenue increased 30% from $1 billion to $1.3 billion for the year with all divisions increasing their respective performances, despite poor returns to sheep and beef farmers and drought conditions in many areas.
Mr McIntyre said PGGW's rural services and technology were ahead of expectations, up in earnings before interest and tax respectively at 50% to $40.1 million and 15% at $35.1 million.
Net debt had risen 48% from $305 million to $452 million, while assets rose 22% from $1.18 billion to $1.44 billion.
Mr McIntyre said the debt ratio was not unwieldy for PGGW, but he noted a further $145 million might have to be raised for the SFF merger, and while commodity prices were firm, they were cyclical and not immune to a downturn.
"It [debt] is something they will want to stay in control of, especially with the tighter credit conditions at present," he said.
Mr Norgate said Dairy-related revenue for PGGW had risen from 10%-15% of the company's total during the past 18 months to about 25%.
He did not want to see the rural economy turn into a "one-trick pony" with dairying, but with about 100 farms in both the South Island and North Island scheduled for dairy conversion, PGGW wanted to "re-orientate" toward more exposure to the dairy sector.
He highlighted how Southland farmers had reacted to withering sheep returns, in reference to the high number of dairy conversions in the province.
SFF is taking the merger proposals to its farmer shareholders on September 8 for a vote which must gain 75% approval to go ahead.
Mr Norgate would not be drawn on further detail of the merger, but believed there was farmer support for the proposal and wanted pro-merger farmers to turn out for the vote, noting the "anti" merger proponents only had to gain 25% support to stop it.
PGGW expected to fund the merger from $145 million of debt and $75 million in capital raising, Mr Norgate said.
An independent report is due to be released tomorrow on the merger proposal, including a valuation of SFF, formerly PPCS.
