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JL, hi. Yes, in selling up you can maybe sleep better. The risk rating here isn't pleasant, but if they do manage to get on top of the debt problem, the risk rating can fall from "speculative" to "adventurous", the same risk rating that MPE has, and if that happens, the share price won't be 61p or whatever: it'll be a lot higher. The reduction in the interest rate on the new debt is great news. There are a few things in the full year 2020 accounts that bother me: why do they have to separate out distribution costs from head office and admin costs or from cost of sales: the other companies don't have distribution costs. Are they concealing bloated head office costs? Anyway, if they don't make a small profit this year in these times of high palm oil prices, particularly when they have fairly good cpo yields per mature hectare, then there is something wrong, and doubtless there will be a lot of questions at the next AGM. I am more optimistic now that they are going to do the right things. I am an insignificant investor here, but other more experienced, more significant investors e.g. JB can probably cope better with the sight of so much net debt. No, I don't think they are going to dilute the hell out of the ords now, which was my fear when you sold out. All the best.
"Morning nobull, new here and probably naive, but interested in your view. With EBITDA running potentially well above $60m usd this year, interest costs of around £25m, capex running around $10m annualised, surely the company is self financing at least at this juncture? ". Sorry, I can't keep up with all my reply obligations. Yes, it is self-financing now, but I would have thought the market needs to convinced the company is self-financing for the entire cpo price cycle over say a ten year period. The market cap. for the ords probably indicates there is a lot of dilution risk priced in already, the reason why the price to book and price to sales is so low. Obviously if a dilutive equity issue of ords can be avoided, those ratios can normalise pretty quickly by the ords rocketing, I wonder, but the ords aren't going to rocket until the company is really seen to be starting to get the net debt going down on a permanent trend. Of course they need debt headroom at present to maybe get some necessary replanting done, to hold out a bit longer for coal mine sale (no cash coming in from those $38m of loans to the coal mine?) and maybe other things, but things do seem to be improving. If all that dilution risk comes out of the ords price, I would have thought the price to book ratio can double, but WDIK, I'm only a learner investor. You will see on the palm oil price curve here, there is a backwardation with front month considerable higher than back month, probably because soybean harvests are expect to improve in the coming year, but still future palm oil prices are still not bad despite that.
https://www.bursamalaysia.com/market_information/derivatives_prices?code=FCPO
At the AGM I queried whether the company was being run for the benefit of the investors in the prior ranking finance, and was told politely that the directors were more exposed to the ords., which is true of course. Anyway there is scope for a virtuous circle of falling net debt and rising market cap if palm oil prices stay reasonable. Stockopedia has given us a risk rating of speculative and an investment style of "value trap". The last is a lagging indicator in my view, so I expect that to change to "turnaround" due to their algorithm, which probably only kicks in after the share price has risen to 70p, so I'm not put off by that. Their investment style on GKP has flip flopped with small movements in the share price. Not long ago after the big rise turned to pull back, it became a "momentum trap", and then a period of sideaways movement became "neutral style" and then last week after good H1 results that sent the price up about 30% it became "super stock", so not a great deal of good as a predictive indicator. I will have to re-work my forecasts for REA in the light of the results, but I can't at the moment see why they can't make a small profit attributable to the ords. for FY2021. Wigwammer, you are right about everything else in your post.
Apologies. All the figures below should be in usd.
Morning nobull, new here and probably naive, but interested in your view. With EBITDA running potentially well above $60m usd this year, interest costs of around £25m, capex running around $10m annualised, surely the company is self financing at least at this juncture? In the first half net debt fell $15m, with the potential to do substantially more over the coming periods. So it seems to me - and happy to be corrected - that they are on the right path to start materially reducing the debt, for the first time in years. I agree - resolution of the coal loans would be another material and positive kicker. With the equity valuation such a slip of the total assets here, it shouldn’t take much to start moving the needle in the right direction. There have been several PMDR purchases of the ords over the last year, which encourages me to think that resurrecting the shares is a priority for them. With a shareholder base including M&G, UBS and other established institutions plus a full London listing, there should be broader pressure to do so. Do you believe the current price upcycle is going to be temporary?
Hi nobul. I still keep an eye on REA with hopes, slim as they are of buying back in. He'll with cif (R) in the $1200 range and REA see c.50% disappear up in smoke ain't a formula I'm much attracted to.
From memory I pencilled in more than $7•6m but as per REA always have unexpected costs that kibosh the numbers and its like pushing water uphill on the total debt.
Still think I did the right thing in selling up, even if my pick hasn't yet delivered. Hope it works out for you and devonplay.
It's still a long way off being self-financing for the whole of the CPO price cycle. The move of the prefs to near par provides some safer (from the point of the view of the ords) new financing options compared with just replacing debt with more debt, I wonder? Disappointed they haven't sold the coal interests - these sky high coal prices may not last long (see the coal price chart I posted on the RE.B ADVFN thread). My forecast, on the same chat thread,(for the full year doesn't seem miles out, but I'll have to work through the numbers again in the light of today's result. Pleased about the lower interest rate, if it isn't the usual "overgilding of the lilly" stuff of all CEOs. Yes, I think the ords have bottomed; I was stupid not to buy the prefs first. Now, it's the turn of the ords. The sale of the coal interests should provide the next, as DG says, "whoosh". Good luck Devonplay.
Glint on the horizon. I own the Pref and Sterling bond. Considering a move down the cap table in near future.
Even small holders are complaining about the export levy. The Indonesian authorities are undermining our business model in every way imaginable. The export levy is used to subsidise our competitors' replanting expenditure among other things, while we pay the tax and can't afford to replant.
https://www.thestar.com.my/aseanplus/aseanplus-news/2021/06/05/indonesia-yet-to-decide-on-whether-to-revise-palm-oil-export-levy-say-officials
Still, I believe 50p might be the bottom for REA ords, if the BoD cares about adding value for the ords., and if the Indonesian Govt. cuts the export levy. JMV.
Coal now 112.55. There is obviously some "model risk" in my forecast average FOB Samarinda CPO price as the CPO produced doesn't walk out of the mill into customers in neat equal amounts on every trading day in the year as the average annual CPO price I have calculated suggests. CPO production , and sales, are probably weighted towards H2, so it is the price then that matter most, I wonder? Still, I believe 50p might be the bottom for REA ords, if the BoD cares adding value for the ords., and if the Indonesian Govt. cuts the export levy.
Re-iteration of rumours of export levy cut, rumour first mentioned in Platts article
https://palmoilanalytics.com/indonesia-june-export-tax-raised-and-levy-stays-unchanged-levy-schedule-likely-to-be-revised/
Hopefully the $39 increase in export tax yesterday (absolutely outrageous) will be undone with at least a $100 decrease in that, also outrageous, $255 export levy. I suspect the government is destroying more demand with that levy than it is adding - a case of diminishing marginal returns. With spot CPO trading below the reference price, you couldn't dream up a more regressive export deductions regime. Completely mad.
Coal hit $109 a tonne yesterday. The coal interests need to be got shot of and that huge non-cash generating loan to the coal interests recovered. The head office needs to be sold off and staff made to work from home (to get more cash generation). The low enterprise value per mature hectare is not because of agricultural inefficiency but because the share price of the ords is discounting dilution mayhem (ord wipe-out). $157m revenue projection for 2021 ($700 FOB Samarinda assumed) could give an NPAT of $4.8m, although after payment of a $9.1m pref div out of NPAT, a loss would still be attributable to the ords and the non-controlling shareholder. If they can just generate enough cash from producing CPO (not from selling off plantations, not from taking new loans, not from issuing new shares, etc.) to reduce net debt by $31m (the market cap of the ords), the ords can double in price if exchange rates and cpo price remain constant. The next 6 months will show which way the BoD is playing things, I expect. Successful sale of the coal interests could enable the $18m+ pref arrears to be paid off and some net debt reduction. JMV.
"Group aiming to recover its loans to the coal concession holding companies and to withdraw from its coal interests as soon as practicable" Page3, "Overview Highlights", of the 2020 Annual Report and Accounts.
Coal interest loans outstanding are $36.3m (from Note 17).
Coal now $101.7 a tonne, which is less than 20% off the peak of the previous boom-bust coal price cycle. Read Note 17 of the accounts. I am not sure if I have got this right, but there is no cash coming in from the interest piling up on these loans, yet REA is haemorrhaging cash on the effing loan note and bank debt interest and on the preference share divs, so if they can get shot of those non-performing coal and stone interests and get their $57.5m of loans repaid, the company could actually, just maybe, have some positive free cash flow, I wonder, instead of being the "slow death by dilution" company it is at present. Just a thought. Imagine $60m less debt and $6m annual saving in finance costs. Come on REA, make us a self-financing company for the whole of the CPO price cycle, without further dilution.
Coal hit $99.5 a tonne yesterday. That's 20% off the previous boom-bust commodity price cycle, I wonder? REA is owed about $57m in loans to its coal and stone interests, both of which have been non cash generative for a long time, I wonder? REA is not allowed to have a large equity interest in coal (Indonesian law), and it can't have variable rates of return on its loans, but yet it suffers the sort of risks an equity owner suffers, so maybe no surprise they want to get out of their coal interests. My hope is they succeed in getting out and getting their loans repaid in full. If this happens, and it may not, REA could be transformed, I wonder? Just a thought, but I expect the Indonesians are used to having their boot on REA's windpipe, so I wonder if there isn't some catch like a massive haircut on those loans to get out. We'll see.
And finally since my first purchase of REA at 133 (19/8/2018) highest paid 159 lowest paid 49 the share price headed South. I started noting other London palm prices for comparisons sake (wish I hadn't). Here's the result.
Since 17/10/2019.
Anglo 438-- 652 (UP 49%)
Dkl 1•90-- 4•90 (UP 158%)
Mpe 621--734 (UP 18%)
Rea 164--52 (Down 68%)
A holder of REA has had a torrid time in sp non appreciation but you may take comfort in the latest (2021) shareholder funds of $245•8m (£177•9) or 405 pps. On the other side of the coin debts amount to $189m (£136•8m) or 346 pps. Not a great deal of wiggle room without strengthening the balance sheet.
Cant say its been much fun, losing money usually isn't but when I assessed REA I had a 25% chance of picking a winner. Unfortunately I picked the wrong one. I'd have had a better chance (c.33%) of backing the favourite in a horse race and coming out in front. I have filled my contractual obligations here, heh,heh,heh and if your still holding REA paper all the best.
Thank you and goodnight.
Mrkts closed.
Virus (UK) Day 91
177,454 cases
24,594 deaths
End.
Covid-19
05:00
UK 4,418,530 (127,524)*
Indonesia 1,672,880 (45,652)•
* 1907 cases
* 7 deaths
• 4512 cases
• 131 deaths
USA
33•1m cases
591,000 deaths
Global
152•8m cases
3•2m
Rea 54 (53)
Cpo $611 ($1157)
Cif(R) $1220e
Oil $26
Gold $1707
Ftse -144 (5757)
All -73 (3189)
DJ -622 (23,724)
SP -82 (2831)
NS -285 (8605)
R2 -50 (1261)
$1•251
€1•138
IDR 14,991
Anglo 461
Dkl 2•20
Mpe 615
Covid-19
06:45
UK 4,416,623 (127,517)*
Indonesia 1,668,368 (45,521)•
* 2381 cases
* 15 deaths
• 5700 cases
• 187 deaths
DJ -185 (33,875)
SP -30 (4181)
NS -109 (13,861)
R2 -18 (1346)
WTI $63•49
10ytb 1•625%
Nos:- Oil $66•44. Vix 19.
Gold $1769. Copper $4•456.
Palm $1156. Silver $25•980.
$1•382. €1•149. IDR 14,445.
MSCI(W) 2939.
Morning all.
Rea 56 (53)
Cpo $611($1173)
Cif(R)$1355e
Oil $26
Gold $1710
Ftse -214 (5901)
All -109 (3263)
DJ -262 (24371)
SP -27 (24,371)
NS -25 (2912)
R2 -50 (1311)
$1•259
€1•151
IDR 14,938
Anglo 462
Dkl 2•20
Mpe 610
Virus (UK) Day 89
171,253 cases
26711 deaths
I note I bght 2500 REA at 51•08 and 1000 at 49•25 being the lowest closing price at that time. News of an ii selling out saw the stock slump from 93 the Prefs 59•75. Last years results were reported on the 7th, May.
Covid-19
05:00
UK 4,414,242 (127,502)*
Indonesia 1,662,668 (45,334)•
* 2445 cases
* 22 deaths
• 5638 cases
• 218 deaths
DJ +240 (34,060)
SP +28 (4211)
NS +68 (13,970)
R2 +1 (1364)
WTI $64•63
10ytb 1•648%
Selected
Apple $133
Boeing $235
Carnival $27
Coca-Cola $54
Delta $46
Exxon $59
Fbk $325
GE $13
GM $57
JPMC $155
Msoft $251
Moderna $176
Tesla $671
Zoom $320
Nos:- Oil $67.74. Vix 18.
Gold $1766. Copper $4•480.
Palm $1173. Silver $25•965.
$1•394. €1•151. IDR 14,455.
MSCI(W) 2963. FF -8. DF-52.
Morning all.
Mrkts closed.
Virus (UK) Day 89
* 165,221 cases
* 26,097 deaths
Covid-19
04:30
UK 4,411,797 (127,480)*
Indonesia 1,657,035 (45,116)•
* 2166 cases
* 29 deaths
• 5238 cases
• 177 deaths
Global
? 150•2m cases
? 3•2m deaths