Asian Plant Di Share Price (PALM)

Sector: Food Producers Sub-sector: Farming & Fishing Market value: £107 million

Takeover target With FFB production set to rise consistently as the estates mature over the coming decade, the shares should power towards Panmure's 380p price target, which implies 65% upside. With the bulk of the heavy lifting already done in developing a mid-sized palm company, the business could also become as a bid target before too long. Larger palm oil players, new industry entrants or even Malaysian pension funds could be prepared to pay a blockbuster price to get their hands on Asian Plantations' prized assets.

Upside risks With global vegetable oil stocks forecast to tighten, an expected recovery in crude palm oil (CPO) prices should benefit the company. Late last year (7 December), Asian Plantations cheered with news it expected to produce and sell over 45,000 tonnes of CPO in 2013, ahead of earlier projections. Besides upgrades to in-house fresh fruit bunch (FFB) production estimates, this reflects purchase deals signed with smaller, neighbouring estates keen to sell their crop to the group's new efficient mill. Additional third-party production wins in the coming months could yet drive further upgrades to revenue estimates. In a landmark announcement (9 January) the firm buoyed spirits with news of the completion of the 60 tonne-per-hour FFB crushing mill as it went operational. Broker Panmure Gordon forecasts the new mill will crush over 200,000 tonnes of FFB in 2013 and therefore generate a ten-fold leap in Asian Plantations' revenues.

Attracted by these compelling fundamentals, Singapore-headquartered Asian Plantations is pursuing its strategy to acquire increasingly scarce palm oil development land in the state of Sarawak, Malaysia's last region with undeveloped agricultural land parcels up for grabs. Floated on Aim in 2009 with a small plot of mostly unplanted land, the deal-hungry plantation developer now boasts four existing estates expected to be both yielding and fully planted by the end of 2013. This should bolster the loss-making company's cashflow, while the acquisition (28 September) of a fifth estate consisting of 7,000 hectares is expected to complete in the first quarter of 2013. The deal will swell the landbank to almost 28,000 hectares.

Rapid development A tropical soft commodity and the most consumed vegetable oil in the world, palm oil can only be cultivated in the equatorial regions of Latin America, West Africa and Southeast Asia. Ever more popular across developing markets such as India and China, the health benefits of palm oil are also driving demand in developed arenas such as the United States, while the commodity also accounts for a tiny percentage of bio-fuels usage too............

palm oil play Asian Plantations (PALM) ahead of potential upgrades to both production and revenue estimates which should foster fruitful share price gains. With an increase in revenues expected for 2013, the £107 million cap is strongly geared into a recovery in the crude palm oil (CPO) price while its attractive agricultural land-bank in Malaysia could even draw a bidder before too long............