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MGC

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43.0¢ mg unit trust

MGC - Valuation, page-2

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PointBreak5

1,167 Posts.

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16/05/16

10:47

Post #: 17775455
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Originally posted by PointBreak5 ↑

MGC Valuation.

No doubt this company has failed the farmers and the unit investors who believed in the story. I am unhappy that the farmers are failing in this difficult time of low milk prices.

But lets be realistic here -> Murray goulburn has been shielding them from lower milk prices for some years now. Fonterra has had to keep its australian milk prices higher than NZ because of murray goulburn.. and they have been unhappy about it. Murray goulburn shielded them through shifting away from GDT auctions and basic milk supply to higher yielding milk supply. So lets look at this alittle more deeply. In my view - its whether the stock has been hit enough or can be hit more from here what matters.

So lets look at the facts.

1. 500-540m shares (210 for the unit trust, rest are farmer owned). Valuation of > $1billion two months ago, now we are down to $500m.
2. NPAT of $40m for this year, so looking at a nice 8-9% yield at the price - fully franked.
3. In 2013 when they had milk prices sub $5, the NPAT was $40m - with a much higher debt load.
4. 1 Child policy relaxed in china (this caused a spike in milk stocks 5 months ago).. I still believe in china growth in regard to milk
5. Capital expenditures of $100m+ per year.. these projects could be stopped/pulled back if they wanted to generate short-term income for the company.
6. AUD - when they did the profit warning, AUD was at .77+. its now below .7280 (now 7% back in the favour of MG)
7. Leverage/gearing levels are historical lows
8. THEY ARE helping farmers with interest free loans.

In my opinion this is a screaming buy with a market cap of less than 500m when the milk price is basically as low as it can go. The company has 70% of sales outside of basic milk. This is protecting farmers from the milk price better than what fonterra can do in NZ. So yes, milk farmers may complain about the sudden drop.. and im not saying MG couldnt have forseen it earlier, im saying MG has done all it can to protect its farmers from the low milk price.

This is a buy.

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I might say - the people who have been hurt the most are the unit investors - who bought in the IPO @ $2.10+. The farmers were always able to get shares at $1-1.24. The FARMERS are the ones who basically got to reduce debt and use the money to expand for future growth. Who is hurt? IPO unit investors who are 60% down. Farmers are 10-15% down. Sure their milk price distribution is down - but this is now inline with global players. The fleecing here has been done on the IPO investors and farmers now have a stronger company due to the outside capital to weather future milk fluctuations.

MGC Price at posting: 97.5¢ Sentiment: Buy Disclosure: Held
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