Member Info for Nobull

SurreyScot, our share price of about £1.03 doesn't seem to agree with your probability of 0.5. A change of control usually involves a substantial premium being paid.

I think the main reason for a change of control maybe is we do not have the ready cash to extract all those P2 reserves within the time left on the PSC. A larger multinational may have the ready cash and experience to get the job done quicker. Even if you said it was certain we will experience a change of control over the next 10 years, time apportionment of a 1.0 probability gives a 2 out 520 probability of a change of control in the next two weeks. For the record, a low probability does not exclude the possibility of a change of control in the next two weeks, and I will jump for joy if such an event happens.

It was right SM was banned. ****eye was right too. There is a difference between a novice investor posting conspiracy theories and investment misconceptions and what SM posted. JMV.

CCC is right.

If someone is certain an event as share price sensitive as a change of control is going to happen in the next two weeks with a probability greater than, say , 0.95, the type of posts made by SM, then
a) he may be posting inside information (criminal)
b) he may be posting untrue information (market abuse)
If he is a professional investment analyst who has worked out some information that is share price sensitive from publicly available info that nobody else has worked out then the info is unlikely to be able to add more than 5% to the share price either way as the company would likely be in breach of its continuous disclosure requirements, and he would probably be in breach of the professional body's code of conduct. My guess is Putup is on the right tracks with market abuse. The main beneficiaries of market abuse in this case would be traders who make money restoring market efficiency, while SM makes the market inefficient with his posts. I support CCC.

Very interesting JL. Thanks for that. Sorry about your Uncle. The thing I remember most about Suharto was the Bre X scandal and that Filipino geologist being pushed out of a helicopter: the drill core samples had been tampered with and Suharto had demanded a bigger stake in the mine, only to reveal himself as the greedy person he was when the mine was shown later to be uncommercial or whatever.

Yes, a re-think is required, but they won't. The high international prices will spur the Malaysians to plant more while the lower price in Indonesia discourages investment and extension planting. Hartato is megapotti, a great way to increase Malaysia's market share. We have been here before - didn't they have 60% export taxes before under Suharto - only foreign owned plantations probably had to pay it as lowly paid port officials turned a blind eye to exports by politically connected owners of oil palm plantations.

There had to be a reason for yesterday's huge rise in the front month contract on the BMD yesterday, and I guess that's it. It is horrific setting the export levy at that amount. Without that sort of levy, the price of palm oil v Brent crude means you would have to be mad to substitute palm oil for crude oil in petrol. The rise in the levy will cut exports, and the biggest gainers are surely the owners of Malaysian oil palm plantations as they get the benefit of higher international prices without having to pay such a punitive levy.

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?).

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.

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.

On MPE, I would say they have underperformed too (or my relative overpaid) since they bought in February, pre pandemic market plunge, at £6.92 on a CPO price of $745. They are now £6.10 on $920. When my relative bought they were on a stratospheric PE (I recommended them to buy), which I presume priced in the expected volume gearing effect (MPE's average tree age is very low). The only difference now is MPE has delivered some production growth, the PE has fallen and there is a backwardation on the cpo futures prices now. What I don't know is whether the CPO futures market was in contango back in February (that might account for the anomaly between share price and CPO price). MPE really ought to be ramping up the extension planting to keep the average tree age down to justify a high PE ratio, but they aren't. They are having a presentation on Tuesday. I hope they come out with some news on extension planting.

JL,hi. Agree about unlikely return to past share prices of £7, etc. - the past distressed asset sales and dilutive fund raisings can't be undone.

On whether we return to the fifties again, I don't think it matters because then the company may find itself duty bound to have a trading update to point out some of the things some investors are failing to spot, even though they could do if they put more effort in e.g. the likelihood of an average FOB Samarinda CPO price of just over $600 for FY2020. The company could also say something like, as long as it is true, "we have reduced rupiah bank debt by $19m this FY". A trading update like that would support the current share price, I am sure. At these palm oil prices no one is going to buy the garbage that the bank is putting the thumb screws on our BoD if the share price goes back down again. JMV. No expertise in these matters.

CPO CIF Rotterdam on Friday closed at $920 a tonne. Fantastic.

http://www.palmoilanalytics.com/price/16 (click 10 day graph to see it)

That is, get this, a 78.6% CPO price rise since 6th May 2020, the day before the auditors said there was material uncertainty as to whether we were a going concern. The ords have risen from 51p to 65p over the same period, a 27.5% rise.

I always thought commodity price gearing was all about the shares moving a bigger percentage than the underlying commodity, but not in our case it seems. The effect of having so much prior ranking finance/having a stock overhang neutering the commodity price gearing effect is a new experience for me.

At this rate, the $17.2m of pref div arrears (4 divs of 4.5p if you include the one due on 31 12 20) and the $20m of bank debt due in FY2021 will all be affordable out of cash flow from operations, I wonder, if this CPO price holds up.

I can't quite share Evil's optimism but I do think some things are coming right:

I can't see how we can have less than $147m of revenue if all palm derived products produced are sold this year. There is no way we will have an FOB Samarinda average CPO price of less than $600 for FY2020, so the question is what EBIITDA will we have? $40m seems quite do-able on that revenue figure, $20m of which can pay down bank debt, and the other $20m can go on debt interest payments (the finance charge in the Income Statement is always a load of old cobblers if you think it is an indicator of how much debt they are really servicing). The true figure is in the note to the cash flow statement. The FC is probably stated after cost blow-outs, and sometimes gains, from exchange rate movements, which on $200m of debt can lead to wild swings in the charge even on small movements in the exchange rate, making it difficult to work out ihow we are reallly doing. Well the $20m debt repayment out of cash flow should do something to lift the total market cap (ords + prefs)), but it will probably lift the prefs first before the ords price in anything, I wonder? Today was a better day on the BMD. The $38.5 rise to$890 Rotterdam price on 25th November seems completely at odds with the more modest ringgit rise in the same commodity in ringgit with a different delivery place but the same date.

If the arrears on the prefs are paid off or nearly paid off, the Emba holding should return to having voting power of about 29%.

An extra $2 a day , up from $45 on Friday, on a 75% share of 38,000 bopd, 365 days a year, gives us an extra $20.8m on the bottom line, so that might be enough to swing us from a projected FY2021 loss of $9m into an $11m profit. How perverse the share price performance today is! I am not expecting resumption of divs next year, but if Brent keeps performing like this, you never know. I liked yesterday's update, but I am still conscious our BoD might be leaving out a lot of things. Haven't got over that "your directors are aligned with shareholders" crap and the "how value accretive the buy back was" nonsense.

The Shado, hi. Their voting power reduced but that is not necessarily the same as their stakes being reduced. The preference shares gaining a right to vote because of the arrears means the no. of votes that can be cast has increased greatly, thus diluting everybody's voting power. I agree with you about the CEO's salary if that is what it is. Yes, because the debt is so huge there is no money left over for ordinary shareholders. Once the ROCE exceeds 11.25%, money that would otherwise belong to the preference shareholders suddenly gets redirected to the ordinary holders (the effect of the financial gearing starts to kick in?), and in that situation REA ought to outperform less financially geared oil palmers, but I think we are a long way from that yet. MPE has a lot of volume gearing to come, I wonder? AEP has gone berserk - their idle cash is maybe about to be deployed more productively, I wonder?

The big seller could I suppose be M&G, Aberforth LLP, First Sentier or Artemis. First Sentier (a.k.a. First Investments?) dropped below the notifiable interest threshold a long time ago, so it is hard to tell if they are selling . The employees of Nokia Bell don't have a lot of say maybe where their pension savings are invested, but Artemis are fund managers and run OEICs where investors can withdraw their money, which can lead to forced sales of the underlying investments.

I would hope, if the high palm oil prices are maintained or go even higher, that the company would have a trading update long before they publish the 2020 crop production figures next February. CIF Rotterdam CPO price was $880 yesterday, I think, up $10 on the day.

Rugs, the company simply has to pay down debt out of cash generated from operations before movement in working capital, stop doing asset sales for debt cancellations (capitalising debt?), stop extending debt repayment dates (kicking the can down the road), stop doing any new borrowing, stop issuing new shares of any kind (prefs or ords) (diverts profits away from shareholders who don't buy the new shares), cut costs (difficult because in the past REA has added debt interest to plantation development costs so has a higher depreciation charge per mature hectare than some other companies like MPE and AEP have, I wonder?), stop running up pref div arrears for debt repayment (another way of kicking the can down the road), convince Artemis or whoever (Aberforth LLP?) the institutional shareholder is who is selling, that REA is going to have an ROCE of at least 11.25% from high palm oil prices over the next three years (to enable REA to reduce its debts by at least $60m in the manner described). The company has 3 types of gearing: commodity price gearing, financial gearing and a small amount of volume gearing.

Continued...
Benefiting from high palm oil prices for the next3 years is not within the gift of REA, but respectable palm oil prices look obtainable over the next 6 months (the May 2021 CPO contract on the BMD is about 3100 ringgit compared with about 3500 for the December 2020 CPO contract, which is equivalent, maybe, to about $880 CIF Rotterdam, I wonder? Getting debt down in this manner really would put REA firmly on the recovery path, never to return to the downward spiral where the company has been over the last 7 or 8 years, I wonder? It is no good avoiding the auditor’s comment about “material uncertainty as to going concern” next May due to high palm oil prices then, as if we don’t get the debt down once and for all, there is always the risk that if palm oil prices fall again that the auditor will come out with that statement again, not next year perhaps, but in a subsequent year. AEP has a different problem: too much cash being idle. MPE has it about right, I wonder? Anyway if REA gets to benefit from 3 years of high palm oil prices, I think our shares might double or treble. Fingers crossed. J.L. is right: REA is working for its creditors at the moment, so that is maybe a good reason for the shares to do nothing until it is obvious the company’s debts are falling. 11.25% is the figure, which after being taxed at say 20% for Indonesian corporation tax leaves you with 9% to pay the pref div (0.8 x 11.25 = 9). The shares are a bet on sustained high palm oil prices, I wonder, and maybe on our BoD doing the right thing e.g. using surplus cash from high palm oil prices to pay down debt rather than try to improve interest cover through extension planting since in the case of the latter, if you can’t afford the upkeep during the immature period (CPO price downturn), you might not realise a good price in a fire sale. Reducing debt is the safer course of action, I wonder?

LV, hi. I have no problem with markets being inefficient in hindsight but, as you know, that is not meant to be the way markets work! Yes JL, Warren Buffet's success is troubling for people like me who want to believe in broadly efficient markets. Although I am surprised that he ever invested in airline stocks.

Thanks, LV, for that info on your holdings. My relatives only own the ords. Anyway the fact that the May 2021 CPO contract is up today to nearly 3,100 ringgit gives me some confidence we can get through this FY and next FY to achieve maybe a $40m debt repayment largely out of cash generated by the business on the debt balance outstanding on 31 12 19 without any more debt for equity swaps or dilutive equity placings. I see Soybean oil CIF Rotterdam was $950 on Monday, so that must be helping us. It seemed to be stuck in a much lower range before that. Am green with envy reading AEP's extension planting figure in its recent trading update - a good use of that obscene cash pile it has.

I shall have to ask at the next AGM whether there is any scope for a mega profit uplift from keeping trees going beyond 23.5 years. Thanks JL for all the interesting info on your experience in Malaya. We will have maybe another 1000 hectares maturing this year so that maybe helps make 230,000 of CPO production possible this time, and an FOB average Samarinda price of $600 looks more likely now for the 2020 FY.