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Thoughts on Murray Goulburn (Mgc)?

Discussion in 'Other Asset Classes' started by Lamby, 17th May, 2016.

  1. Lamby

    Lamby Member

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    As the title suggests does anybody have any thoughts on Murray Goulburn? I've recently acquired 2000 at a buy in of around $1.20 for a long term hold. Share price has since been a falling knife and is currently around 86 cents.
     
  2. sanj

    sanj Well-Known Member

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    I can only.speak generally and not specifically about the share price and what the company should be worth


    MG traditionally have been pretty well run and despite many australian producers struggling over the last 10-15 years and either going broke it getting bought out they were steady in the market.

    obviously the energy ceo did not work out, tbh some of his ideas were extremely valid like moving towards more value add products, using the coles contract to pay for.the capex to make the plant more efficient and lower costs for all products etc.

    unfortunately it was badly executed and estimates were way off. it's obviously going through a bit.of. turmoil atm and I suspect will come good but who knows how long that could be.

    also, with global dairy market being extremely hard to predict atm but on a downward trend I wouldn't be all that confident of a sharp uptick in MG price, unless there's been a heavy fall and it corrects a bit. MG ultimately are heavy players in the bulk, soft commodity space where prices are dictated worldwide/by fonterra/china/eu subsidies so they just have to ride it out for now.

    if fonterra, a lower cost producer than them and supplier of nearly a quarter of the entire world's dairy exports, is struggling to turn a profit on powder sales in this market then MG aren't likely to buck that trend.
     
  3. The Falcon

    The Falcon Well-Known Member

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    Agriculture = commodity business. Pass. This is not the long term investment you are looking for.
     
  4. sanj

    sanj Well-Known Member

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    Thats far too simplistic, there are some dairy processors who are doing very well and have grown strongly in this decade despite the challenges in the global market as well as the high cost of being in australia. burra foods in Victoria is a perfect example, they started diversifying into specialised; high value products targeting japanese food manufacturers around 20 years ago, well before it was an idea every overpaid consultant threw out there but didn't quite understand.

    same with beef, there are people doing very well from being smaller but specialised and high quality - eg blackmores wagyu or from being big and ramping up to meet increased china demand.
     
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  5. The Falcon

    The Falcon Well-Known Member

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    Sometimes simplistic (heuristics) are useful.

    There are always niche operators who make money in any industry. This is not what we are dealing with though. The other issue with Ag is that you have one very large variable - environmental (weather) that you cant do anything about, leading to feast and famine conditions (lumpy earnings and high fixed costs + wasted marketing spend when you cant supply your market through no fault of your own). Although there are exceptions, its a very hard type of business to be in.
     
  6. willair

    willair Well-Known Member Premium Member

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  7. sanj

    sanj Well-Known Member

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    you're right, that's a huge factor in agriculture but an operation like Murray goulburn would actually be reasonably buffered when it comes down to that. dairy and in particular the sort of processing MG does a lot of, is nowhere near as sensitive to the weather as say wheat.

    it would be an extremely rare occasion that MG would not be able to fulfil and order due to bad weather causing a huge drop in production. with the decent shelf life of so many of their products they will have stockpiles of it to cover themselves.

    btw i dont deny your concerns are often valid I agriculture and sometimes In dairy, i just don't think they're all valid in this case and they're actually a pretty solid organisation in general MG certainly has other issues to sort out though.
     
  8. sanj

    sanj Well-Known Member

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    fwiw I spent around 10 years from uni onwards working in family business where we bought, sold and made predominantly dairy and some.other food ingredients between anz, SEA, Japan and EU and we were exclusive exports agent for Singapore and malaysia for 2 australian dairy processors so I'm not just making this stuff up.
     
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  9. The Falcon

    The Falcon Well-Known Member

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    Yep all fine and I don't doubt you.

    Now, speaking of MG in particular, I think there is a real disconnect between what farmers want and what shareholders want. Farmers I'd imagine are looking for high farm gate prices, whereas shareholders are looking for ROI and dividends. Lower farm gate prices facilitate the latter. I think the IPO of this was really a bit of a piss take and Helou has made out like a bandit here and farmers have not been well served.
     
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  10. sanj

    sanj Well-Known Member

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    well with it being a co-op the farmers are the shareholders too.

    it's a tough act to balance the interests of the farmers and the processor which happens to be owned by the farmer. fonterra does it pretty well overall, MG generally have until this guy came around but I've seen it fails elsewhere too.

    co-ops can have a massive advantage over other processors as they can work through ups and downs a bit better but only if management is on point. for the sake of the aussie dairy industry I hope MG lifts their game again.
     
  11. The Falcon

    The Falcon Well-Known Member

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    yep that's right. the farmers were the sole shareholders previously, now they get a bunch of mugs onboard (not unlike myself) that lack alignment with their interests....makes for interesting times ahead I think.
     
  12. Lamby

    Lamby Member

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    Thanks Sanj and The Falcon, apologies for not getting back to it sooner, I appreciate both of your views. Unfortunately Falcon I must be a gluton for punishment - I'm a farmer.

    Have only recently started investing in shares and decided to start off with the industry I know best before branching out, my first buy was AAC - they were trading at a 20% ish discount to their land value let alone the cattle they hold - bought at 1.30 currently trading around 1.50.

    Have purchased further shares at 86.5cents to average down to 1.10. I noticed yesterday that vanguard has held onto their shares... MGC.AU Company Profile & Executives - MG Unit Trust - Wall Street Journal
     
  13. The Falcon

    The Falcon Well-Known Member

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    Hi Lamby, you should note that Vanguard is holding in their Australian shares index fund

    Per mandate, they hold all ASX 300 stocks in VAS and their unlisted fund according to market cap - note, this is a dumb cap weighted index and they are making no judgement on the stock whatsoever.

     
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  14. bob shovel

    bob shovel Well-Known Member

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    Is this what all the hoohaa is about on social media??

    I read one article prior to the media circus and understood mg made errors with pricing and are a co op along with the drought and conditions making it though for farmers? Nothing about coles/woolies playing a part (I'm not up to speed with it all:oops:)
     
  15. T.C.

    T.C. Well-Known Member

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    I'm a farmer too. So I decided to stay away from rural listed stocks since I'm already 80% exposed through my job and land asset. Looking back over the years I think it's been a wise decision. I've seen plenty of rural stocks that look like they'd be good value, and on average I think I'd have done not too well?

    I reckon the whole idea of off farm investments for a farmer is to spread risk? So why invest back into the industry?

    See ya's.
     
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