The Lemon Fool

Not really banking sector, but continuing a thread about RE.B that was posted here on the old TMF site ..

These have recovered back to 100p - so did we all enjoy the ride, and did anyone manage to pick any up under 80p?

moorfield wrote:Not really banking sector, but continuing a thread about RE.B that was posted here on the old TMF site ..

These have recovered back to 100p - so did we all enjoy the ride, and did anyone manage to pick any up under 80p?

No, but to my mind the risk return is actually better now (my view DYOR). Price may have recovered, but with oil price seemingly stabilised at a level equivalent to a palm oil price that should mean REA does not go base over apex. Happy enough that I didn't panic and dump them as others must have.

Terry.

Price has been moving down recently, and ex-div date coming up ....

for those who have not seen REA have deferred the dividend on the 9% Pref shares - down c 23% today to 59-61

News on the website

I got out during the dip in the oil price. Hadn't previously realised the price linkage between crude and palm.

Makes a change for me. Usually as the share sinks below the waves - hopefully not here - I'm rearranging the deckchairs.

V8

GSVsowhat wrote:for those who have not seen REA have deferred the dividend on the 9% Pref shares - down c 23% today to 59-61

News on the website

You beat me to it, announcement here.

https://www.investegate.co.uk/r-e-a--ho ... 1457EYUDG/

The directors have therefore concluded that the half yearly payment of dividend on the group's preference shares due on 30 June 2019 should be deferred pending an improvement in CPO prices. The directors recognise the importance of dividends to holders of preference shares and intend to make up the resultant arrears of preference dividend as soon as they feel that the group can prudently afford to do so.

These are cumulative so the arrears of preference dividend have to be paid before the ordinaries. I can live with the interrupted cashflow in my portfolio, and am sorely tempted to buy more with the price becoming distressed. 62.5p, (notional) 14.4% yield today.

Interesting times. Anyone else?

I am in a prime position to see the devastation wrought by Borneo/Malaysia/Indonesia oil palm industry up close. Suffice it to say that it is one of the few things I consider it to be absolutely unethical to invest in.

Gosh! sold the last of mine on 17 May at 86p... going for a lie down

There is a fairly substantial palm oil for arms commodity swap going on between Indonesia and Russia. That could also be acting to depress prices.

(In general terms palm oil plantations are a complete ecological disaster, so I share that sentiment.)

regards, dspp

Putting ethics aside - I'm afraid I leave mine at my broker's login page as far as investing is concerned - this will certainly be a good case study of cumulative prefs that have to make up their dividend at a future date. Or just go bust ...

I wonder if anyone has held any others and experienced similar in the past?

moorfield wrote:I wonder if anyone has held any others and experienced similar in the past?

Only of the opposite situation.... divis continued on Balfour Beatty BBYB while suspended on the Ords, and on BP's 2nd Prefs BP.B even though the ords were suspended from 2010.

As you say, payment of the accumulated debt depends whether they have the dosh.

V8

moorfield wrote:[
These are cumulative so the arrears of preference dividend have to be paid before the ordinaries. I can live with the interrupted cashflow in my portfolio, and am sorely tempted to buy more with the price becoming distressed. 62.5p, (notional) 14.4% yield today.

Interesting times. Anyone else?

I was lucky and got out in March at 93p. The question is whether they'll be able to cover their debt interest payments as well as the annual dividend if CPO prices remain low. The fact they are struggling to do this despite record crop production is what is making me stay clear.

The recent increase in oil prices has given a little nudge upwards to the palm oil price, but not a lot, it is still below where it was a month ago. It does not look like there will be a quick fix. My smallest preference share holding (even before the price fall) and it will stay that way for now.

Just crawling through the AR right now.

This business is in a horrid position. It is a price taker and an indebted price taker at that. It has a glut of product that it has to pay harvesting and processing costs for, but it can’t make a profit out of. It is spending money to increase its throughput, which is going to cost more money, but it isn’t making money on the stuff its already producing. It’s last profitable year was in 2014. I think it needs a CPO price north of $800 to make a profit. So a 60% rise from here.

If the price of palm oil passes its breakeven point it might do well. But they have so much to process because there is a glut. So the price is through the floor. Their response: get the pickers to harvest more efficiently: more bunches of fruit quicker.

Good luck all, but leaving aside environment and ethics this one is not a business I could invest in with any confidence. The capital structure is too wonky and it is not washing its face. And the secular trend is for ever cheaper CPO. It’s a race to the bottom, which favours the lowest cost producer, and these guys clearly are not the lowest cost producer.

Follow up to add: There are some things to like about it: There is positive NTAV, directors remuneration is not too outrageous.

My main concern is the fact that the company has to pay out $124.5 million to cover debts between now and 2022.

With sales of c$100m over the last two years and no profit to speak of, that looks to be difficult financing problem to solve, and more funds will be needed: Either a debt refinance or equity raise will probably be needed to get through the impending debt crunch. Not impossible but definitely a near term question.

For this reason I dont think the Ords are a good investment, too uncertain. Prefs obviously rank a little higher, but I question how long payments will need to be accumulating: cash is clearly desperately tight until after 2022 at current CPO prices.

Page 82 of the AR is grim reading.

Cash outflow from operating activities= $26m. Coal is a sideshow that cost over $5m last year, and there is a $23m outflow on property plant and equipment: This thing is leaking money on PPE bigtime. It got net cash inflow from financing of $75m (sold off subsidiary and took out larger bank loan) but the actual increase in cash was just $26m, because so much cash is leaving the business.

That is a truly horrible cashflow statement to contemplate. If they hadnt sold the subsidiary for that one-off boost the net cash outflow would have been absolutely vast, frightening.

This thing is a sieve. A couple more years of low prices and this thing will be in real danger. despite the property backing on the balance sheet.

Honestly, I dont understand the current price of the ords: MCap is 55m GBP. Net Assets are supposedly 261 million. The thing is effectively at a vast discount to NAV, probably because it is bleeding money rapidly, or the market doesnt believe the book value is achievable. Palm oil plantations are probably worth a lot less at current CPO prices. I cant be assed to back and check the accounting policy and date of valuation to see if the land has been valued in a reasonable manner recently.

It might be that the best thing that could happen to the ord share price would be the announcement of an orderly wind up of the company, sale of their landsomewhere close to book value and they might exit with something above current sp. Keeping farming seems like a bad idea. Its been horribly unprofitable of late.

Back if the envelope calculation 33k ha planted up x $10000 ha gives land value at circa 260mil gbp. So NAV of planted land is probably a little overstated on the BS , if anything.

I toke PBJ sale price as a valuation basis, it made the NAV about right. However whether the assets are anywhere near similar quality/value and are values now the same is another question

Hardman have done an interesting research piece dated 18.06.19. It can be found on REA's website. Suggests at least one semi-annual dividend payment this year with the arrears being paid next, depending on CPO price recovery to 650. The CPO price has been at a 10 years low. Demand is expected to pick-up leading to price recovery - which may have started already. Anyway I bought a few more at mid-60s a couple of days ago.