Member Info for Nobull

And you don't think that prior ranking finance hoovering up all the cash generated from operations, and this leaving nothing for the ords has anything to do with it? We can't even afford to do any extension planting at present to grow our way out of the excessive debt servicing obligations. The fireworks will start surely when it is clear there is a real prospect of REA being able to repay $100m bank debt out of cash generated from operations, and for that we need these high palm oil prices to persist for 3 or 4 years, I wonder? I am not sure if we can get a 'freebie' from trees older than 23.5 years when the development costs have been written off. That would help as our depreciation charge as a percentage of revenue is higher than for MPE and AEP. Maybe that is because our oil palms are debt financed and theirs are financed out of retained earnings: we capitalise the borrowing costs on extension plantings, and this maybe gives us a higher cost of production than MPE and AEP, I wonder? I was wrong to think that an $11m bank debt reduction in H1 meant we only had to pay back $8m in H2. Only $6.8m bank debt repayment was made in H1, so the remaining amount of the $19m bank debt due for payment in 2020, which was mentioned in the 2019 FY Annual Report and Accounts, could be as much as $12.2m. The $4.2m of the $11m bank debt reduction in H1 was obviously due to exchange rate movements changing the value of the debt, but this change in the value of the debt didn't necessarily relate to the amount due in 2020 - it more likely related to bank debt due at a different time so we still could have a $12.2m payment hanging over us in H2. The high palm oil price and the fact that the whole palm oil price curve has been lifted (the May 2021 contract is over 3,000 ringgit per tonne) ought to mean the auditors next May can't say "material uncertainty as to going concern" especially as our debt ought to be $19m lower, but we are still at risk of the auditors coming out with the same stuff in future years if the high palm oil price is just a temporary thing, so we really need to make huge debt repayments out of cash generated from operations before movements in working capital to justify a decent share price rise in my view. This is a different view to yours, Lignumvitae, but it isn't necessarily a right view. Stock overhangs have no relevance to people who believe in generally efficient markets, I wonder? The problem with charts (they rely on inefficient markets?) is they are right some of the time, but you don't know which times they are right. The stock overhang will maybe clear when the market believes the debt problem is sorted once and for all, and not just in a year when we have high palm oil prices. JMV.

P.S. J.L., do you think the company can economically harvest trees older than 23.5 years? I know the trees get very tall (more expensive to harvest?) and ffb yields drop, but there is no depreciation.

$6.8m of the $19m bank debt due this year was paid out in cash in the first half. The remaining $4.2m reduction in bank debt in H1 must have been due to movements in the exchange rate changing the value of the bank debt, I wonder? The tax charge in H1 was a shock (over $5m - I thought debt interest was tax deductible). But I am hopeful of a full year average Samarinda FOB CPO price of $600 (H1 was $527), for Friday's CIF Rotterdam price was $855 and the average price, whether Rotterdam or Samarinda, is pulled up by a about $1 each trading day, so the FOB average Samarinda price, net of export levy and other taxes could well be $600 by year end. With , say, 230,000 tonnes of CPO production for the full year and a $600 average price, we could see revenue of $145m (15,000 tonnes of PKO to bring in the $7m needed to create the revenue figure of $145m, which should generate enough operating profit to deal with the $5m shortfall in current assets needed to meet the current liabilities reported in H1. We are not out of the woods yet, because the bank debt ioutstanding on 30 06 20 was $115.5m and our cash repayment of $6.8m was so tiny by comparison, but if we can get $100m repaid (or $100m reduction, with the help of a future rupiah devaluation) then the ords can treble just to keep the enterprise value the same (although there is some dilution to come from the warrants, I wonder?). Anyway, I remain optimistic we will get the full $19m of bank debt repaid this year, and another $20m next year. In 2021 we have the $ loan notes to repay too ($27m?). Lord, keep the dry weather coming on Latin America and send plague and pests on their soybean crop, and we should be alright, but with, say, net indebtedness of about $190m by next May, the auditor shouldn't be able to say "material uncertainty as to going concern", but I suppose it is all dependent on the palm oil price then. JMV. The seller on Friday was maybe one of the institutions again.

Yes, British Bulls is total tripe. With CPO CIF Rotterdam at $840 yesterday and unchanged on the day before (source: 10 day chart from Palmoilanalytics.com, the Singapore based web site), and with the whole palm oil price curve lifted today in KL all the way out to Nov 2021 (a good reason to revise the REA eps forecasts upwards, unless the price rise is in anticipation of dry weather and lower yields), our enterprise value ought to be able to rise a bit compared to what it was last May.

Yes, some will say it has already risen because of the prefs roaring up yesterday, but if we have managed to repay $19m of bank debt out of cash flows generated from operations, then to maintain the enterprise value, the equity share of the enterprise value can rise by the amount of debt repaid, but 72m prefs x 10p share price rise is less than $19m, and the ords have done nothing.
For me, the reason why the ords should go up is the fact the auditors said there was material uncertainty as to going concern when the palm oil price was $510 on 7th May; it is now $840, so how could they say that again next year? No, the backwardation on the palm oil price curve still shows a healthy palm oil price for next May. My guess is they won’t say it again. They will want sacking if they come out with that again. JMV.

15 minutes ago, the November contract was 3,405 ringgit, and yesterday's CIF Rotterdam price was up$45 to $800. How dumb is SLA? They must be desperate. RNS for crossing 1% boundary soon?

I wouldn't be surprised if it was SLA reducing their stake. The last big trades in MPE were on 28th July at 540p. 580p, when the November CPO price closed at 3,353 ringgit today, is a terrible price to get. KLK must be ****-a-hoop.

I wonder if the company is far too cash constrained to have the luxury to even think about any new planting. If it takes about 5 years for an oil palm to become cash flow neutral (think of all that fertiliser and labour cost until the first fruit crop appears) then the company simply does not have the cash. Why else did it have to sell off PBJ before it was fully mature? And now lately we have sold some bit of an estate to our Indonesian minority partner just so we can pay the debt interest and meet the agreed bank debt repayment schedule.

There may also be other issues associated with planting out vacant land besides having the cash: AEP doesn't seem to be able to despite having an obscene cash mountain that is diluting its ROCE. Truth of the matter is if you bought land priced as having a near zero income stream and you turn it into land worth $18,000 a hectare, and you do it by spending a fraction of that, exploiting the perfect climate for oil palm cultivation, then the indigenous people won't be happy as they would like to do that first, and then have Johnny Foreigner buy it off them at $18,000 a hectare, so that the local person can move on to the next rent-stripping opportunity to repeat the process. I get the impression AEP is in a stand-off with the authorities: why else won't Madam Lim spend the cash planting? Yes, REA will in a few years' time need to replant large areas too because the trees get too tall to harvest easily, I wonder, but we can't afford to chop those down and start again let alone consider new planting on our land bank. JMV.

The sort of capital transaction I had in mind covered absolutely everything : corporate action, equity issue, debt for equity swaps. Fingers crossed palm oil price holds up and we are not diluted further.

JL, hi. I can't see any reason for yesterday's 6p fall. CPO CIF Rotterdam went up $25 to $760 yesterday (source: palmoilanalytics from the 16 day chart), and there don't seem to have been any changes the export levy or export tax, and the rupiah is still down against the US$ since the start of the year even though it has strengthened about 300 rupiah in the last few weeks (but not a lot percentage wise). The only thing I can think of is maybe some sort of capital transaction is about to take place but otherwise yesterday's share price move seems perverse. The weakness of oil palm plantation company share prices e.g. MPE, and to some extent AEP is a bit strange really. One institution asked at either the MPE AGM or the recent presentation about lower than expected operating margins (a polite way of querying control of operating costs, I wonder?), and given we weren't even profitable at the operating level in 2019, the problem of getting operating costs down is maybe more pertinent to REA - I have to wonder if social distancing requirements will make transporting harvesters to where they need to be more expensive. I see the November 2020 CPO contract is up 63 ringgit at 3043 today (3:30pm Malaysian time), so today's Rotterdam price should be higher too. All very perverse. JMV. P.S. I agree with your post about how valuable price to sales and price to book value are as metrics, but they surely only work if a company can somehow improve its operating margins, which in REA's case must depend in part on reducing its operating costs. Fingers crossed they can. The closure of the Singapore office is a good start, but they need to do more, I wonder?

Kuvey, hi
The short answer is I don’t know if the prefs have more upside. A longer answer that touches on some of the issues that may be involved is below.
Yes, I think there is 13.5p of div arrears owing on the prefs (3 divs of 4.5p missed?). I wasn’t expecting any ord div any time soon – I just hope for. an absence of an auditor’s qualification about material uncertainty as to going concern in the next set of results, or maybe in the next but one set of full year results (May 2022), and therefore for a reduction in dilution risk, which might send the ords up a bit if they were previously priced half way between two outcomes: losing all your money in a firesale liquidation and keeping your money in a rosier scenario.
If the enterprise value remains the same for a given palm oil price (ignoring cpo production volume changes for a minute, to keep things simple), then any debt repayment on debts that bear interest must surely, in a relatively efficient market, allow the market cap. to rise by the amount of debt reduction, where market cap, in this case, is defined as no. of prefs x pref share price + no. of ords x ord share price. Such a scenario raises the question of how much of the debt repayment is going to be apportioned to each of the equity classes, the question you ask about which class has more upside.
Now this is where I get stuck (no prior experience of this scenario). One strategy, to reduce interest-bearing debt, is to get the prefs up to near par to issue more prefs to repay the bank debt, a strategy that requires all pref arrears to be paid as rapidly as possible, a repayment strategy that may require the main bank debt lender, Bank Mandiri, to be more accommodating.
Another strategy is to make more use of the free preference dividend arrears capital by increasing the dividend arrears, sending the pref share price lower, and use this non-interest bearing arrears capital to accelerate repayment of interest-bearing bank debt.
Both strategies are maybe a bit extreme, so I guess from the words in the H1 results about how the Board is conscious of pref share holders needing dividends for income that the Board will treat both ‘obligations’ (interest bearing and non-interest bearing) equal handedly regardless of short term cost.
Obviously if palm oil went to $1200 (very unlikely, but not impossible), the ords would probably outperform the prefs. I haven’t been following the outlook for UK inflation and interest rates, so I can’t comment on whether the prefs would trade at or near par if there were no dividend arrears. They seem to be priced to reflect little flexibility from BM in extending bank debt repayment dates.
Considering all the above, I still don’t know if the prefs have more upside than the ords in the short term, but I shall watch with great interest and learn from the situation.

To get a quick up to date CIF Rotterdam price (much more up to date than anywhere else) is this:
http://www.palmoilanalytics.com/price/16
Once you get to the page (if you don't get bad gateway error), you have to click on 10 day graph to see what Friday's Rotterdam price was. The only problem with the site is it always gives the price to the nearest US$2.5 for some strange reason. If you want accuracy but are prepared to put up with a price that is at least 2 trading days out of date, then I use the Sipef website. If you get a bad gateway error with palmanalytics, just persevere and refresh the page again).

The MPOC web site is excellent for a ringgit price for the previous trading day.
But the best ringgit price site to know what the price was 20 minutes ago is

https://www.bursamalaysia.com/market_information/derivatives_prices
Just select the FCPO contract, and it shows you all the CPO prices for different delivery dates out to about November next year. You can see there is a backwardation at present. The October contract is up 40 ringgit at 3060 at 6:36pm Kuala Lumpur time. Yes, I think the REA ords are cheap given the palm oil price we are at and the prospect of Net debt to EBITDA coming in at say about 8x (far too high I know, but it was a lot higher for 2019) for 2020. Just my view, and no expertise in the matter.

The debt for equity swap probably make it less likely any preference div will be covered by profits attributable to the controlling shareholders, all other things being equal, which they never are. Fingers crossed for CPO to storm ahead: it is our only hope.

Devonplay, many thanks for all that helpful information. I think that yield to maturity is just another name for redemption yield. I couldn't find a clean price for GB00B8MM32, but your current (flat?) yield implies a price of about £75 per £100 nominal. Anyway, assuming clean price tomorrow of £74.82p, I make tomorrow's YTM or redemption yield 17.8%. I have assumed two interest payments per year, except in the final year when there will be three different payments: 30 06 25 (regular 6 months' interest payment), 31 08 25 (2 months' interest), 31 08 25 (payment of £104 per £100 nominal). Anyone buying the bond tomorrow wouldn't get the free warrants, so I didn't include any value for them even though they must have some value even though they are far out of the money (they have time value?). Sorry, I didn't use your bond calculator: I wanted to do it the hard way in Excel and see the present value of each of the 13 payments on the bond and just type in different redemption yields until the sum of the present values came to £74.82p. It is probably impossible to buy any your bond at £74.82p tomorrow, as anybody holding it will probably want to keep it until redemption, and why wouldn't they with 17.8%!

I get it now what our directors are up to: for a given palm oil price and cpo production volume, the EBITDA stays the same (EBITDA doesn't care who supplies the equity to generate the earnings, whether it comes from controlling shareholder or non-controlling shareholder) while the finance charges fall due to the lower amount of debt due to DSN exchanging its debt for equity, which is good for you (better interest cover?), good for Bank Mandiri, but bad for me except I should be grateful for the debt for equity swap if the alternative was going bust. Sorry I have been a bit slow on the significance of Friday's results. All the best.

If 17% yield to maturity is the redemption yield, then that's better than investing in a basket of US big cap growth stocks e.g. Microsoft, Amazon, Facebook, Alphabet, etc. The Threadneedle American Select Growth fund that invests in these stocks recently had a 10 year annualised return of about 14%, I believe. There has to be some catch: ytm perhaps is not the same as the annualised figure required to discount all the cash flows on the bond you have to the current price of it.

"GKP is a trader's share, it's no longer one for "long-and-strong" LTHs." And why not. You have already banged on about production risk, exploration risk, permitting risk, commodity price risk to name but a few, and most oil producers have these risks, and the bigger multi revenue source, geo diversified, and vertically integrated ones are obviously safer but why should you be cautioning against a liquidity risk play and volume gearing play as well? Why are you not banging on about all these risks on other oil producing company chat boards? And while I am about it, why aren't you banging on about exchange rate risk and litigation risk as well, if this is your stance? Seems a bit remiss to leave out those risks.

I agree with you, JL that it is a cost of doing business. The market seems to be ignoring the negative effects of the post balance sheet date event buried in the outlook highlights; it maybe likes the improved prospects for liquidity even though it comes at a cost to the ords (a bigger share of profits going to DSN in the future, something not apparent in today's results due to it being a post balance sheet date event, I wonder?). Anyway today's rise in the October CPO contract to 3,080 ringgit a tonne might cushion the cost to the ords a bit if it is sustained. Fingers crossed.

Yes, I agree with you. But the thing I did not like was that post balance sheet date event buried in the middle of the outlook highlights - yes, a clever place to put it, but its effect on the balance sheet and on the income statement will only become apparent in how detrimental it is in the full year results, but I guess if we have Bank Mandiri standing on our wind pipe, then this is what we had to do to survive, and it is a case of don't whinge if one invests in recovery plays. Fingers crossed for sustained increases in the CPO price.

Third time lucky:

"except the tax kicks in at such a low palm oil price that largely debt funded cpo producers can't even pay their interest charges. What better indication is there that the export levy is set to kick in at too low a level."

Something wrong with the 't' key on my keyboard:

except the tax kicks in a such at low palm oil price that largely debt funded cpo producers can't even pay their interest charges. What better indication is there that the export levy is set to kick in at too low a level.

"The group's net indebtedness reduced over the six months to 30 June 2020 and has subsequently continued to reduce. The group has been able to achieve such reduction by funding its cash flow requirements from improved operating cashflows, and increased credit from suppliers and customers. Provided that current higher CPO and CPKO prices and good crops continue, the group believes that, even without new additional bank facilities, it will be able progressively to reduce such extended credit to normal levels while continuing to meet its other commitments."

We are not out of trouble yet! The news about an increase in the export levy from $50 to $70 is dire, although I suppose if the Indonesian government is driving up palm oil prices by making biodiesel compulsory, then it is entitled to take some of that benefit back in tax. However, the export levy is set to kick in at far too low a palm oil price. It seems to be a rent tax for the privilege of exploiting the near unique climate required for oil palm cultivation and for the privilege of being able to tap the lower labour costs in developing countries, except the tax kicks in a such a low palm oil price that largely debt funded cpo producers can't even pay their interest charges. What better indication is there that the export levy is set to kick in a too low a level.

1. rising sustainable dividends (it was just maintained, which is the right thing given the huge capex program)
2. no backwardation on the palm oil price (at present the Oct 2021 palm oil price is over 200 ringgit below the spot price)
3. lots of new plantings (e.g. at least 5000 hectares of new plantings; instead there was hardly any)
4. a low PE ratio (instead it was high before the results so a 500% increase in operating profit had no effect on the share price)
5. cash piling up (instead a huge amount e.g. $50m is going on 2 new mills and maybe biogas plants at Bumi Mas and Musi Rawas). What extra profit will this $50m expenditure bring in from processing ones own ffb? Not a lot, I wonder?
6. An end to the rent tax (the $50 export levy is an obscene rent tax in all but name). We don't get the benefit of it since we don't make any higher value-add palm derived products for export at international prices, I wonder?
7. A decent ROCE. Last year's ROCE wasn't enough to be even debt funded by bank loans. You need 11% ROCE to be able to afford the interest on rupiah bank loan, I wonder?

These are just a few of the things I expect the market wants to see. The above are 7 things we didn't get in the results. Yes, a 500% increase in operating profit is good, but it is off a low base, I wonder? Yes, there is an inconsistency in the valuation: my relative bought at £6.92 in February on a $725 palm oil price. Yesterday, CPO was $720 and the share price was £5.60!

Maybe you are right, JL to get out. We still have next year to get through too, which if REA gets through this year okay, will, all other things being equal, provide the company with $2m savings on its lower rupiah bank interest bill. We will soon see how things are in the H1 results. Anyway I draw comfort from the high cpo prices on the BMD Futures market, even out to the end of December. However, share price moves like today's may be indicative of some sort of dilutive equity raising I wonder? All the best.