Its first-half operating earnings before interest, tax, depreciation and amortisation slid 8.6% to $30.9 million, and the company said tough market conditions may mean its 2016 full-year operating Ebitda will be pushed towards the lower end of its forecast range of $61m to $67m.
Forsyth Barr said the first half was in line with its expectations, even if the mix was slightly different with a better-than-expected performance from the company’s diverse agricultural operations in New Zealand.
The brokerage retained its estimate for full-year Ebitda of $63.1m, noting it was slightly below the mid-point of guidance.
However, Forsyth Barr raised its Ebitda estimates for 2017 and 2018 on the expectation chief executive Mark Dewdney is running his ruler over costs in the business for the first time since he was appointed in July 2013.
It increased its estimate for 2017 Ebitda by 1.8% to $69.8m and its forecast for 2018 by 1.1% to $72.4m.
“PGW highlighted that it will focus on reducing costs over the next few years,” Forsyth Barr food, beverage and agriculture sector analyst James Bascand said in a note.
Bascand estimates the company can sustainably cut about $1.5m in costs, while temporary investment halts could reduce costs by up to $3m.
“While no direct prospects have been identified, a slowing demand environment (following a period of strength) has encouraged management to look at medium-term earnings growth options,” he said.
Market share gains have been a clear focus for PGW since Dewdney settled in to the company, and now “cost-out” initiatives have been highlighted, Bascand said.
Headcount reduction is not the initial focus, with management reiterating investment in people across the business as integral to the strong growth achieved in recent years, Bascand said.
Instead, key options include reducing travel costs through video conference investment, automating basic back-office functions such as accounts payable, putting a spotlight on marketing and sponsorship activities and ensuring returns on investment are viable, and placing a short-term halt on some areas of investment while demand levels are constrained.
Forsyth Barr has a “neutral” recommendation on the stock. It increased its 12-month target price on the slightly higher operating Ebitda estimates by one cent to 45 cents.
