Institutions keep PGG Wrightson at arm's length

Institutional investors have been holding off from taking a slice of PGG Wrightson.

"Most people back Mr Norgate - he's got a pretty good reputation, but it wasn't the right sector for the right time in our view," said Rickey Ward, explaining why Tyndall Investment Management has not bought in.

Ward said mergers could often cost more than expected and experience hiccups. The adverse affect of the strong dollar would flow on from the export sector to the farm services and supplies companies and hit earnings.

"So you're [taking] more of a macro view and relating that to the current price rather than disliking the company," Ward said.

NZ equity manager at Tower Asset Management Wayne Stechman said the agriculture sector was "notoriously" cyclical.

He did not rule out investing at the right price, but said Tower's view was that the benefits of putting PGG and Wrightson together had already been reflected in the share price.

PGG and Wrightson had not been great returners in their own rights apart from when operating conditions were particularly favourable.

"It's a bit like airlines and forestry companies. If you stay out of the things forever you tend to benefit by that," said Stechman.

Buying the stock would be more of a 50-50 call if it was around $1.60.

AMP Capital Investors portfolio manager Stan Wilson also said the stock was not cheap enough.

"Because of the cyclical nature of the cashflows you've got to be in probably buying the stock when it's at its absolute extremes - and I don't think we're there yet."

But Wilson said he had talked to major shareholders and was due to visit operations in Christchurch to find out more about the company.

Meanwhile, in a paper, Citigroup analyst Ian Graham criticised the company for overstating group earnings before interest and tax (EBIT) in a results presentation. The figure given should have been more clearly identified as earnings before interest, tax and amortisation (EBITA).

The company said this was a genuine mistake spotted by other analysts at the time and another part of the presentation had it right.

But Graham believed more should have been done to ensure the market was not confused by the mistake. His paper recommended selling the stock but holding if it dropped to $1.47.

First NZ Capital analyst Andrew Mortimer believed too much had been made of the ebit/ebita.

But he said the profit performance was not good. While he had not believed the originally forecast $30 million net profit achievable in the tougher conditions that developed "I certainly didn't expect the magnitude of what they actually finally reported".

The merger was a good idea but Mortimer felt the company's future was "pretty murky" given factors such as the strong dollar and the likelihood competition would intensify.

Forsyth Barr analyst John Cairns thought a decent job had been made of the merger but "the big issue ... is how much of the synergies they can retain".

"I think the merged entity is in a far better position to compete than [PGG and Wrightson] as independent stand-alones."