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Despite the half hearted sp bounce yesterday (+6 to 122) cpo continues to fall, currently $1400 and could be heading to $1000. At that price I doubt REA makes money given inflation and increasing costs particularly of fertiliser.
Over on (advn) nobull opined he thought our Stone (80m tonnes) could be worth $16 a tonne (1m cubic metres of andesite stone) On his nos that equates to $1•28bn or £1•04bn roughly 240p which if nobul is only half right would give our revs a considerable boost. Add in our % of Coal loan repayments due these extra monies should compensate us for any longer term falls in palm prices if indeed they head towards $1000.
I guess you could look at a sp of 200 sometime in 2024 if we have reduced our debt to c.$100m, coal loans repaid and stone monies piling up boosted by the gearing effect could turbo the shares but that's too far out for my liking, so very much a ball park figure.
The proposed building of Nusantara the new capital on the East Coast of Kalimantan will require tons of crushed stone which REA will be able to supply in the coming years. It's expected construction will start in 2024 with over 100,000 workers employed.
I think the risk of us defaulting a real worry at one time has passed which should give investors confidence REA will continue to trade profitably even with the extra balance sheet baggage, £ notes, $ notes, loans etc and divs on the Prefs, albeit reducing.
Morning all.
Will REA test its historic low of c.60p which was unthinkable a year or so ago. Looking at the one year graph suggests its a possibility, having slumped from a 208p high to 115p this year a 44% fall, then anything is possible particularly if the US drags the global economy into a full blown recession, then all bets are off.
Trying to catch the bottom is a risky business as now one has to factor in a meddlesome Govt and its audit policies, extra levies and a palm price that stubbornly resists rising. Hardly a background investors seek. Perhaps sentiment will change once stockpiles are flushed through the system and demand reverts to the normal?
For the longer term view its a close call as at anywhere near 100 or sub, the sp is well undervalued given our coal and stone interests will be highly cash generative and i doubt are 'priced in'. However REA intend to exit our Coal interests as soon as practicable and concentrate on Stone where demand is substantial and a valuable adjunct to our palm Estates. If the palm price can stay above $1300 through this half year should see REA continue to make money.
Maintaining an average selling price of c.$770 during H1 will be crucial for revenues though much depends on where palm prices go from here and our ability to get ahead of the debt drag. I guess its watch this space but I'm not that bullish in the short term as the negatives keep piling up.
I'm fence sitting unable to decide which way to jump. My gut feeling is the sp is going lower. So I'm erring on the side of caution, a cop out I know but what's a poor boy to do?
The Bears are in total control here albeit small lot selling is having an altogether overbearing influence on the sp direction. Of course I could have missed something to explain why this is so but I don't think so. Even the Indo Govt couldn't engineer a screw up of these proportions.
Last week REA slumped 25% and is now 10% down ytd. After hitting an intraday high of 208 (mid April) it's been downhill ever since. Seems the more money you make for shareholders the share price goes down, familiar isn't it?
Other Palmers were similarly effected but not to quite the same extent. MPE off 10% (ytd+12%) and ANGLO down 8% (ytd +12%). CIFR prices bounced a bit to close the week down $107at $1450 having started the year at $1320.
The Govt plan to audit all palm companies in an effort to control price rises and tackle ongoing shortages plaguing the industry. Cracking the cartel that runs the industry, dictates prices and supply may be too difficult to overcome as the industry is rife with irregularities that go well beyond the cooking oil fiasco. For instance the ownership of land concentrated among a few large companies who control the permits and stifle competition.
Soon it will be a requirement that palm oil companies be headquartered in Indonesia. There's going to be considerable upheaval in the months ahead which in part might explain the poor sentiment among investors who see a meddlesome Govt however well intentioned messing things up.
Morning all.
We're getting no lead from the other 2 main palm players, Mpe off 12 and Anglo up 10. Theoretically they should move in tandem so to speak but often not the case as Mpe has a younger tree profile than Rea and is free of the train wreck of a balance sheet we have born these years, so comparisons are odious to say the least.
I would expect some bottom fishers to appear this afternoon and hopefully tomorrow. Vols are c.84,000 atm sided 2•8:1 in favour of the reds but as I said 6 months down the line, who knows?
I concur with nobulls usual spot on assessment of the situation and REAs longer term outlook. As to why the shares have tumbled of late you might come up with several options but in 6 months time will we be at 120? I very much doubt it!
The share price ought to recover simply because of the coal and stone interests becoming strongly cash generative. The palm oil levy seems a tad excessive as after the recent palm oil price falls, not such a big levy should be needed to subsidise biodiesel production, given Brent crude is still high. The high export tax ($288) is presumably to try to bring down domestic cooking oil prices, but palm oil has fallen a lot recently so maybe the three export deductions (export tariff, export tax and export levy) will reduce due to a lower cpo reference price being used to determine which taxation band applies - unfortunately our current ex-mill gate price probably reflects one that is suffering taxation for a reference price set far higher than the actual palm oil price, so we are having a very bad month in terms of the amount of tax being taken, but I would hope the authorities would adjust things to be a lot fairer - in the past they have done this when the levels of taxation have been excessive, but WDIK? In the longer term, the company's financial position has moved from being on a knife-edge to a much better place, and despite things not being so good just this month, the longer term looks quite bright: for example a debt repayment of $70m over the next 20 months could add £57m to the market cap, giving a new share price of about £2.50, I wonder? JMV. AIMO. DYOR. Yes, I do think the share price will recover.
Do you think things are likely to be reversed and the SP will recover?
At this rate of decline 110 cannot be ruled out which will pretty much force me to add. A mrkt value of c.£54m (123) is bonkers whereas fair value must be north of 200...
"Nevertheless I'm not being shaken out due to a few months of weak prices and output. A mrkt value of £59m
is hardly representative of Nav and H2 on target for another profitable year."
I agree. They must be getting those coal loans repaid what with coal at $390 and production costs of about $110. The same will be true with regard to the loans to the stone interests - the andesite could sell for $16 a tonne, and I would hope their productions costs are not more than $10 a tonne, and they have an awful lot of it but I suppose that is irrelevant as their profit is capped due to only having a loan interest rather than an equity interest. They could also spend about $6m on another biogas plant to convert their vehicle fleet to run on gas, making savings in diesel costs of about $2m a year. CPO futures are up a bit this morning helping to negate yesterday's horrendous price falls. Panmure Gordon has price target of about £4, but I'll be happy if net debt gets down to $100m and we have a share price of £2.50 by end of next year. The days of "material uncertainty as to going concern" are hopefully long gone. ATB.
Nevertheless I'm not being shaken out due to a few months of weak prices and output. A mrkt value of £59m
is hardly representative of Nav and H2 on target for another profitable year.
This should, assuming Cpo prices get their mojo back see a significant reduction in debt this and next year which has been a drag on the sp for ever. Having just reported our best results since the Magna Carta the shares kick us in the nethers with the lowest sp since 3/2022. T'was ever thus!
Been a bad week for London palm stocks and in particular REA which has tumbled 28p since the beginning of May. We are now almost back to January 2022 prices (REA 130p).
None of this bodes well for H2 prices with cpo trading at $1385 and in need of some consistent policy making by the Govt. Easing crude oil is adding to the bearish sentiment as does weakness among other raw materials.
The immediate outlook does not look very optimistic due to sluggish demand, biofuels losing their appeal, China woes and accelerated Indonesian exports. Against this background REA will do well to stay above 100 as were likely losing money after the Govt have picked our pockets clean.
Hi nobull, i'm as confused as you! Unfortunately we're an easy target for a rapacious Govt with little address.
Why for God's Sake we have not merged with MPE which surely would benefit both sets of holders in the long run .... is beyond me! He'll, they must have thought about it.
Morning JL.
According to MPE there is a new export deduction on top of the two you have listed called "export tariff". According to REA this is only payable if you don't want to comply with the DMO requirements and want to export. What I can't understand is why the introduction of such an additional fee should cause the MPE ex-mill gate price to drop $300+ over the last ten days or so. Yes, I get that CPO prices have dropped a lot, but I can't see that why firms can't still export without paying the export tariff by just applying for the export permit in the normal way, proving they have complied the with the DMO requirements. $688 of deductions to export is horrific. I guess the export tariff ceases in August and that it all means REA will just take a bit longer now to get to net debt of $100m, something I was hoping they would achieve by the end of next year.
As a matter of interest our sp is a mirror image to that of peer MPE on a ytd basis.
MPE down 9%
REA down 7%
Cpo (cif R) briefly hit $1910 in late April. Since the meddlesome Indonesian Govt's screw ups on export policy changes which led to the Trade Minister to be removed, the price has fallen by c.$500 to c.$1450 today.
Palm prices have fallen to a 6 month low on demand worries, cont China lockdowns and flip flopping policy changes as the Govt try and clear the backlog of reserves. Palm share prices fell in London, Mpe off 66 (916), Anglo down 20 (850) and Rea unchanged at 150p.
July's crude cpo ref price is set at $1650 per tonne, export levy $200 (pt) and Tax $288 per tonne. Analysts expect a recovery in prices and demand during H2.
Morning all.
To those who find reading the late AGM (RNS)...LIKE ME is hard work, go to "investigate" where the figures are presented across the page and not bloody vertically!
If your buying REA for the longer term I wouldn't worry too much about the spread, more whether REA can grow its return on equity (rather than earnings per share) for a better reflection of value. In simple terms has REA created a $ of value for every $ retained?
Better still if equity returns are free of excessive leverage one can track how well management are using the capital employed in the business. Debt levels differ business to business as do cash flows and ideally you should be wary of companies that earn good returns by using lots of debt.
REAs debt level is high as a % of holders funds the question is it manageable and importantly are they converting sales into profits?
You can do the maths on operating margins, (they are good) ROE etc... and compare them to MPE & Anglo.
Cheers John
Still cannot buy for less than 154 !!
Horrendous spread
6000 sells, 11p off the sp in the crazy casino hour. Ignore its meaningless and an oppo to pick up some cheap stock.
No doubt REA is heading in the right direction, Prefs being repaid, CPO revenues well ahead of last year, monies coming in from our Coal/Stone interests, reduction in longterm debt and regular cash flows make for good reading.
All round a huge improvement on past years and long overdue it has to be said. As long as the Govt keep their sticky hands off palm companies we're headed for another profitable year.
Morning arsenal as below.
$ notes $27m
£ notes $31m
Loans $16m
Bank $132m
Drawings $5m
Cash $47m
Net debt $176m
Only one class of Prefs as far as I know of which a part repayment will be paid shortly.
Figs rounded up.
Is the divi announcement for these class of shares, or are there another class of preference shares???
PO export ban lifted much to global mrkts delight. Whatever Widodo was advised to do its backfired! If he wanted CPO lower he's achieved that as the price has tumbled $210 since April.
Despite President Joko Widodo's tough stance on palm oil exports has cost the country hundreds of millions of dollars in lost revenue as the price of the edible oil has remained stubbornly above the desired 14,000 rupiah price which currently trades at R17,300 a litre.
Protests have been staged across the country and smallholder farmers group APKASINDO said since the announcement of the export ban the price of the fruit has dropped 70% below the floor price set by regional authorities and 25% of palm oil mills have ceased buying fruit from independent farmers severely hitting their incomes.
The Rupiah fell to a one year low last week despite an assurance from the Central Bank that it would stabilise the currency. The current ban on exports is costing the country c.$2bn each month it stays in place said Goldman Sachs.
Investors will have to wait for May's data to get a glimpse of the damage that's been done to revenues. Core inflation is running at c.3•5% but is manageable said the Bank.
Indian consumers are turning to Malaysia for their palm oil due to the erratic export policies of the Indonesian Govt. It's very likely that
Malaysia will emerge as the bigest supplier to India the world's top buyer of edible oils.
Malaysia intends to cut palm oil export taxes by c.50% which could see Indonesia's share fall to 35%, down from 75% a decade ago. Indonesia's dominance across S.E.Asia is now being threatened unless they lift the export tax ban.