RE: Palm Oil Prices10 Jan 2025 18:44
congratulations mallard on a truly comprehensive analysis.
i am concerned that we are not able to see the wood for the trees.
the issue here is that we have a business on a p/e of 5.4 which has barriers to entry and which is stable albeit operating on a margin of only 3%.
the macro economic threat is often mentioned but i think this is a red herring because economic pressures will stimulate economy brand sales.
over the last eight years growth has been almost exactly the same as inflation. any switch to dosage packaging has not improved margins.
there are however other prospects:
1) ultimately the pension scheme will end as will top-ups (£4m) and actuarial losses (£4m).
over eight years there has been no improvement here; the deficit remains the same ~£30m.
there is an additional threat here from virgin media versus ntl which will impact
2016 obligations of £150m. there is no estimate of this so say 5%?
whilst the pension situation is at best unchanged the turnover is up by a third.
2) the debt shows no obvious trend at around £130m.
the outstanding position here is that in y/e 2022 there was a massive hit to profits
because the energy crisis was not covered by provisions to increase prices.
long term finance costs of about £6m shot up to around £20m.
the problem looking forward is that finance costs will be impacted by rising interest rates.
(interest rate increases hit highly geared businesses such as this.)
overall the finance situation is positive because
expectations are worse than the likely worst outcome.
3) y/e 2024 showed a massive rise in gross profit which had been steady at around £240m but
which shot up to £347.9m.
the probable main cause of this was that energy costs fell back again not offset by contract prices.
on the other hand the 2024 report was very bullish in its prospects and this indicates
that there is also a long term improvement.
the november trading update had y/e 2025 expectations of adjusted operating profit down by 7.4m
presumably it is possible to predict the figure so accurately because
all contracts run six months in advance.
this would suggest an earnings figure of £25m giving a forward p/e of 7.2.
so the 2024 jump in profits of £21m might be say:
£10 energy cost fallback + £7m finance improvement + £4m operational growth.
overall this is positive.
the question remains:
why is such a good business so cheap? why is the share price falling?
what are the possible threats?
the risks and uncertainties listed in the annual report look pretty bull****ty to me!
do you have any other ideas?