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Yes it is very frustrating. A big 3m worth sale today as well. Perhaps KLK increasing their stake?
"...just what does the market want to see...."
Some brown paper envelopes maybe?
Personally I thought the results were good and would have seen a rise in the share price, but the market opened with the price falling ! Just what does the market want to see in order get this price back to what I paid ?
Appears that much of recent CPO rises benefitted DKL as opposed to MPE or AEP (I was in AEP pre-Xmas). At least MPE has a broker coverage! Given the excellent CPO prices, the 2020 FY, at least, will be a stellar one for all 3.
yes Scooby but an unfortunately rather hidden share.
Indonesia has been trying to clear up it's act from illegal activities and has worked well with an incentive from Norway's sovereign fund worth up to $1bn on a results base.
It's much better to work with regulated responsible companies than just to blacklist or not use which is generally Europe's approach. After all palm oil is approximately 40% of the worlds vegetable oil grown on 8% of the area dedicated to vegetable oil cultivation. This could just be shifted to a far bigger problem with Brazil growing inefficient soyabean in the amazon and cerrado destruction.
I don't want to get into an environmental bric bat, but I do think we tend to sweep such problems (human population?) under the carpet.
mpe also does a lot for it's workers and community compared to many countries farming and mining operators.
Thanks MPE should do well this year.
..relevant point to say is current MPE production cost is $385 so a decent margin.
Its about the same as before up to circa $700 but then they get taxed more heavily as it rises so yes they lose about $200 dollars in getting to $1000. However remember the price falling to below $600 months ago means they benefit well against last year. What it will stop is huge beneficial gains if it really spikes as you get currently with gold or copper companies that usually face a static tax rate of boom or bust.
CJ66 - Thanks CJ, so with the tax + export levy - this would not put palm oil producers at a disadvantage?
...might also add that it seems slightly perverse that the CPO price has gone up steadily from 960 to 1090 in 3 months,
whilst the graph here shows the share price going from 620 to 600 (via 690) in the same time frame.
Results were 31st March last year, so hopefully will get a shot in the arm then!?
Hi Scooby - slightly oversimplified the tax seems designed to give producers a reasonable margin - to stop some of the cyclical excess profits and losses. This means that between a CPO price of $700 to $1000 actually gives them about the same profit.
Clearly the higher price does give some benefit, but the real plus comes with expanding production which not only gives higher profits, but effectively reduces the overall production cost with efficiency of the fixed cost base plant and personnel.
MPE's good management (dividends held or increased for 25yrs) and young plant profile (8yrs against a useful life of 25yrs) makes it a good long term company + why it attracts KKL !
I am biased having held the shares for 25yrs, from 47p + a few dividends in the meantime...
Hi CJ66 - you seem to be on the ball on palm oil. Just wondering what you think of the Indonesian export tax and impact. Wanted to re-invest in palm oil again but uncertain at the mo. Thanks.
...bottom line is that mpe production tonnes have grown from 275,300 in 2011 to 835,400 in 2019 (200%+ in 8years),
to an expected 1,424,000 in 2025 without further possible land purchases.
You have to balance what is possible against cost - particularly as it pays a reasonable dividend.
I can't see Tesco growing like this !
I do however hope that the giant KLK will stay away, but that may be up to people recognising the companies potential and buying the shares. Palm oil is not popular in the uk, not without some bad publicity and good reasoning, but people should look at the work and presentation on mpe's website that shows just shooting or shutting out the companies trying hard to be sustainable is not the right answer.
NO BULL> From your lengthy observations with regret I have come to the conclusion that you do not understand the fundamentals of managing a successful plantation Company. Unlike the Directors of MPE.
I will not be commenting further.
There is no need for a cash takeover if MPE will just get on with some more extension planting. That would surely help to keep a steep production growth profile and allow our shares to trade on a high PE. The Finncap target of £10 is maybe based on a change of control, that being the amount that gives an enterprise valuation of $18,000 per hectare, if I've understood it right. The accounts of KLK won't be relevant in the case of an all cash offer. My relative, although now in profit, will need a lot more than £10 to compensate for the unwanted CGT bill and the loss of BPR. A takeover by them is just pointless fiscal and financial vandalism to a largely well-run company. All I want is more planting. JMV. Yes, I have a grudge against KLK for stopping the buy-backs, buy-backs that would have been value-accretive but for KLK's behaviour.
I think we may safely assume that if KLK make's an offer, which is accepted by the Directors, it will be be in Cash! I am not at all sure that other correspondents are aware of what a substantial company KLK is and that it has many "trade Investments".
Not just in Malaysia and Indonesia. KLK also effectively controls Batu Kawan Bhd (BKAWAN).
It is well worth reading KLK's Report & Accounts.
Bought another 1500 there. Brings me to 4000 now. I have a niggling feeling something is going to happen here.
Many thanks CJ for all that info. I will be over the moon if MPE manage to expand Kota Bangun. I just do not want my relative to suffer loss of a tax privileges and to have an involuntary CGT bill from a KLK takeover, and keeping the average tree age down surely helps maintain the stratospheric PE rating. I really dislike the way KLK stopped the buy-backs – yes, it is their right to exercise their vote in favour of their self-interest, but there is no good business reason for them to take us over other than to pay the KLK directors more for having more responsibility (the increased revenue). If taking us over enhanced KLK’s eps, then I would have thought it was because they were not paying us a full price. There seem to be no economies of scale other than diluting KLK’s head office costs against a larger CPO production figure, what with the optimum plantation size being about 15k hectares. Yes, it has been a baptism of fire for my relative (classed as extremely risk averse by their posh broker) being invested in a hybrid cyclical growth stock like MPE with all its volatility, but we did not have the luxury of time to choose the cpo price at which we bought. Luckily the proceeds were raised from the sale of an OEIC invested in US big cap growth stocks that had had an average annual growth rate of 14% over the last 10 years, and that bombed too after selling, though not as much as MPE, after the start of the pandemic. I remember the Asian currency crisis and a previous CPO bear market and all those punitive export taxes on CPO under Suharto, where the plantation sector was used as a piggy bank to prop up Indonesian banks, so was able to cope with it all this time. I also put two of my relatives (one is a bit woke and anti palm oil!) into REA, although that is much more risky company what with its b/s all shot to bits and what with being loss making at the operating level (depreciation charge as a proportion of revenue is much higher than for AEP and MPE, perhaps because its development costs were debt financed plus it maybe has a smaller immature land area ). If REA goes up 66%, it will leave the same starting capital after suffering 40% IHT. I can’t afford the FT anymore, but I remember John Lee now you mention him. My time is not my own, so I can’t reply quickly. Fingers crossed for CPO to remain high, which it may not: Jan 2022 price is 2,750 ringgit compared with 3,500+ for front month (December 2020?).
Hi Nobull, I appreciate where your coming from now, and you also know the history (I also had some Lendu & Bertam before amalgamation).
mpe's last annual report did say that 'during 2019 the RSPO adopted a change to its standards affecting any new planting' so this was paused - however they are committed to buying land to try and make optimal blocks of 10k hectares and 1 mill. This includes trying to secure another 5k hectares near kota bangun as it has 15k hectares.
Like aep they used to never have any debt, (but partly perhaps with klk pressure) they have upped dividends and land purchases, so I think they will buy more land when cash flow grows in earnest as the cpo price rise / if opportunities arise.
Your absolutely right to teach your relative about commodity pices, as whether its gold or cpo they always go in various lengths of cycles. mpe and especially aep are also examples of small companies with small amounts of shares in issue - so often the price can go both up and down far more dramatically than the industry giants - small company risk and reward, but as you point out the overall longer term direction is ever upwards.
Overall I think mpe will continue to grow, or be taken over by klk, if this happens fingers crossed for a full price - something that looks favourable with the rising outlook for cpo. Hopefully having already failed with the last bid, they have missed this cycles low point.
Old fashioned tortoise I know, but I look at my dividend against my original purchase price as a 37% yield - always a close follower of the FT's John Lee!
CJ, hi. I agree with you about both companies' past achievements. The record of capital growth of Rowe Evans is very good. So is the dividend record. I agree with you that they have done the right thing getting rid of Lendu's cotton and beef cattle stuff and selling off Singapore Para's and Beradin's estates, and I think I understand the realpolitik of the situation with Bertam and its successor-in-interest, the associate property development company.
I think there is a difference between replanting and extension planting as far as eps growth is concerned if, for the sake of simplicity, you imagine constant cpo prices. My relative is a new investor here so the future cpo volume growth profile is of great interest (there is nothing my relative can do about cpo price volatility). Yes, the purchase of Bumi Mas and Musi Rawas were excellent acquisitions. But without extension planting (if there is any vacant land), I can quite see the PE ratio falling into single figures in about 4 or 5 years' time. Yes, the dividends will be fantastic, but growth is important too. Everything else about this company is excellent - I just do not want to see KLK pick up more stock on the cheap - and boosting the production growth profile with extension planting should keep the PE ratio high, I wonder? Yes, I was myself in AEP before Mdm Lim's takeover - I still have the old annual report. The only thing wrong with the company is the idle cash pile but they can correct that any time e.g. make an acquisition, and doubtless they will. I never made any money on it, but I learnt from all my mistakes: I even remember taking up a rights issue at about £1, waiting years, and selling out at £1 and seeing them go to £6 shortly afterwards. Of course I had a very poor grasp of it all then, and some would say I still have.
I don't quite agree, if you look at their history they have expanded hugely from a very small Malaysian plantation. Many of the current sites are new, from proceeds of selling the Australian cattle business. As young they don't need replanting and most of the excess land is non plantable for various reasons.
AEP actually has a much slower plantting expansion record and is very conservative with a 51% controlling shareholder.
I love both companies and have held both over 25 years buying mpe (or Rowe Evans as was then) for 47p and aep for about the same - with no intention of selling!!
Yes, and they are at it again today. The BoD has taken its foot off the gas pedal. That might be why SLA are selling, I wonder? The $900 CPO price for CIF Rotterdam might be another reason. We shall see if it is all a flash in the pan. It surely can't be because of past performance: for example anyone buying at 44p, 31 years ago, and selling out at £5.90 would have capital growth of 8.73% a year - and that's ignoring all the dividends. Maybe SLA prefer big cap growth stocks.
What is the point of having your shares trade on a stratospheric forward PE ratio in anticipation of production volume growth if you can't be bothered to keep the average tree age down by doing new extension planting? Musi Rawas is the only estate where they might, and I stress that, might do some extension planting. Without constantly expanding the amount of vacant land planted up, there is a risk that these shares will eventually trade at £7 on a forward PE of 2, as the volume growth comes through over the next five years, always cutting the PE and never advancing the share price, and then the market leaves the shares on a low rating as it prices in zero future cpo production volume growth. Of course the future palm oil price is a huge unknown and has far more effect on the share price, but one can't help noticing AEP powering ahead with more planting. One thing from today's presentation was that the capex will suddenly cease at some point and more money will be available for dividends - but most people maybe don't want their shares to end up trading on a forward PE of 2 in 2028 reflecting zero future production volume growth.
They didn't answer a question about whether new high yield seed varieties from the likes of Univanich Palm Oil are going to radically alter the future supply economics of palm oil and cause the whole palm oil market to trade around a very much lower future average ten year palm oil price than has been the case over the last ten years.
The sustainability and traceability presentation (not normally my thing) was very good, and it is clear MPE intends to be a leader in this, but future volume production growth just is not their thing, it seems. They don't seem to care about maintaining their stratospheric forward PE, which means the shares surely deserve to move sideways for years on end, unless the palm oil price gives them a boost, which it may do.
More big trades today.
As we thought SLA selling & KLK buying.