Thursday, March 28, 2024

Wrightson to review structure

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A wide strategic review might again throw-up the question of PGG Wrightson’s 100% ownership of its international seeds business.
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The issue was never far from view in the early years after Chinese group Agria stepped up in 2009 to provide the then-struggling rural services group with strong shareholder stability but potentially splitting it from the group had hardly been mentioned in recent years.

Wrightson had now appointed Credit Suisse and First New Zealand Capital to work on the review aimed at unlocking value and creating the optimum capital structure.

Speaking at the group’s annual meeting in Christchurch on Tuesday deputy chairman Trevor Burt did not disclose any specifics but highlighted the potential for the seed and grain business to leverage its intellectual property internationally to expand its market reach as one of the growth opportunities.

Finding the best way to take advantage of all opportunities, in what the directors said was the next step forward and taking the group to the next level appeared to be the main reason for the review.

Afterwards, Burt said the directors wouldn’t pre-empt anything that might come from the review but there were really good growth opportunities for the Sseeds division to expand and that would require capital and resources.

“Again, without any pre-determined outcome, we need to identify those growth opportunities and the appropriate capital structure and that might tell us what the whole shareholder structure might look like.”

Forsyth Barr sharebroking analyst James Bascand believed the review could lead to Wrightson unlocking value through asset sales.

After lower profit guidance given at the meeting shares traded slightly lower at 56c on the NZX but in a research note Bascand said that on a sum-of-the-parts basis, the seeds and grain business could be worth 40c a share and the combined retail, water and agency, including livestock, parts up to 27c a share, for a total 67c.

On a trading basis, he put a 62c a share target price on the company and, despite the profit guidance, lifted his rating to an outperform from neutral. He noted seeds could provide two-thirds of the valuation while providing only half of group profits.

Seeds was a research and development-leading NZ, Australian and South American business but there was also growth potential in the NZ agency business, covering livestock, Burt said.

That business would increase its digital footprint but also could expand up and down the supply chain where that made good sense in specific business units.

Fronting the strategic review, in place of Wrightson chairman Alan Lai, who also controlled 50%-owner Agria Corporation, Burt earlier told shareholders it was timely to review the overall business, its growth opportunities, operating models, capital and balance sheet requirements and, potentially, shareholding structure.

The review was driven by the board, not by Agria, and he was spokesman for it because he was based in Christchurch, close to the management team.

Credit Suisse had been appointed for its Asian knowledge and First NZ Capital for its domestic expertise.

Burt said Wrightson had a very strong foundation and was well positioned to grow its global business.

It had a very strong management team and the directors had tremendous confidence in them, so the review was not an operational exercise.

The business had momentum and divisions in market-leading positions.

“This puts us in the driving seat as we look to sustain that momentum while we look forward to where the options are to propel the business to the next level.”

The annual meeting coincided with a change of chief executive.

Mark Dewdney retired after four years and was replaced by Ian Glasson.

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