R.e.a Share Discussion Threads

[nobull] 25/1/2022 09:40

Just started to read it, NTV. I love that resumption of extension planting (note, not re-planting but EXTENSION planting) and that $6m of impending coal sales. Weird how coal export ban doesn't apply to us. FY2021 CPO production of 209,006 tonnes is a bit lower than I anticipated. Can't grumble at the average ex-mill-gate price of $777 for FY2021 - it isn't as good as MPE's but, hell, we haven't gone bust - huge relief, and it's better than the $680 I anticipated. It is possible that FOB Samarinda and ex-mill-gate aren't quite the same thing, but I am sure they can't be that different. One is maybe higher by the cost of transport from the mill to Samarinda and the cost of loading the CPO on to a ship. I'll have to ask about this at the AGM. Anyway I am pleased overall.

P.S. No idea what andesite sells for, but if it is, say, $10 a tonne, that's $10m revenue over two years for the stone company, enough maybe to pay some interest on our loans to it. Will there be a write-down on the stone interests for starting late? I don't know, but hopefully by the time the annual results are published there will be some stone revenue.

[ntv] 25/1/2022 07:46

I only appear to be able to view part of the trading statement on here so here is the link to the whole thing

[ntv] 24/1/2022 17:49

Hi nobull
re coal. That is what I am trying to say. Hopefully they have started repayments even if only small amounts
Re CPO
The CPO price might well be going into a phase where the price is unpredictable for a while like everything else but with its' export ban it could be a way to make prices rise further on the international markets and extra tax income for them.
Just got to wait for a trading statement to come out. Just hope nothing nasty has leaked out early.
Price now roughly fallen from 160 now. Will it revisit there?
Interesting to see how it all pans out once a detailed trading statement comes out
End of the month maybe?

[nobull] 24/1/2022 15:37

NTV, hi
"Surely just getting the coal out of the ground is a good thing as this means the coal loans might start to be repaid"

Yes. And I believe we will get the coal loans repaid. It is maybe an academic point that coal export bans reduce the value of the coal mine, because we aren't technically owners in the sense that our returns from it are not allowed to be variable as they are for someone with an equity interest: we may have bought an equity interest originally in the coal mine, but the Indonesian Government seems to have subsequently outlawed foreigners having equity interests in coal mines.

"If there is an export ban surely that means domestic supply problems therefore the CPO price might creep up."

I think the Indonesian Govt. wants to keep the price of cooking oil low; an export ban would increase the domestic supply of CPO and therefore drop the price inside Indonesia even further than it already is below the international price, currently below the international price due to the export deductions regime that applies. A reason for the export deductions regime is to keep the price of cooking oil low (as well as make biodiesel-use of palm oil more economic - the export levy is probably used to subsidise the production of biodiesel?).

The problem of subsidy leakage is probably about stopping entrepreneurial Indonesians buying up all the bottled cooking oil and smuggling it to Singapore to sell it at the world price, thus pocketing the government subsidy for themselves.

I think with the high leverage (both operating and financial) we just have to expect the share price to go all over the place, annoying, but par for the course with a stock like this, I wonder? The flat lining for over a year was maybe an anomaly as we worked solely for the benefit of the prior ranking finance, I wonder?

[ntv] 24/1/2022 13:37

re CPO export ban If there is an export ban surely that means domestic supply problems therefore the CPO price might creep up. Another layer of tax thought wouldn't be vey good
Currently RE. gets a good price so benefitting the balance sheet all the time
Interest rates on debt also down but any one off charges make take the shine off that side of things
Re coal export ban
Surely just getting the coal out of the ground is a good thing as this means the coal loans might start to be repaid
Use of their port by third parties may help also as will the beginning of stone sales as they begin to take off

[nobull] 24/1/2022 08:16

CGTequityinvest,
"is it right that they apply a higher levy when prices exceed $1000? Is there a specific formula do you know?"

Yes, at the end of each month, the Indonesian Government publishes a reference price which determines the export levy band and export tax band for the following month. At present we are in the highest band for both. There are no new bands above $1,300 so we have got back our price upside, except for the above article, which implies we cannot get the international price less the export levy and export tax because we will be forced to accept a domestic price that is made, or is about to be made, lower than it otherwise would be by the proposed CPO export ban.

There is a table in this RNS showing the levy and tax bands:



At $1000, the deductions are levy $155, export tax $74, giving total deductions of $229 compared with the current deductions of $375 we suffer.

I have not made any allowance for receipt of "sustainably produced" premium, which can add up to $20 a tonne to the price we get, I wonder?

[nobull] 24/1/2022 08:03

Some not so good news, and this may be the reason for Friday's 10% share price drop.

[cgequityinvest] 23/1/2022 09:45

No bull Thanks for the analysis.I also agree that the recent strength of CPO the company,s operational gearing plus the second half seasonal bias should result in robust results for year ending dec. what I have not quite got clear sight on is the tax regime applied by the Indonesian govt - is it right that they apply a higher levy when prices exceed $1000? Is there a specific formula do you know?

[nobull] 21/1/2022 17:44

Yes, today, CPO must be close to $1,400 CIF Rotterdam if the futures prices today on the BMD are anything to go by...





MPE said their average ex-mill-gate price last year was $810 (the trading update on 17 01 22), a figure that maybe is not a simple average of all the FY2021 trading days' closing CPO prices, like the above stupid averages of ex-mill-gate prices I have calculated, but which is probably a weighted average price, particularly if it is determined by the volumes of CPO sold on particular trading days. I agree things are looking good despite today's share price fall. We should get a trading update soon.

[ntv] 21/1/2022 16:42

Had a little top up on this fall as CPO is pretty strong

[ntv] 18/1/2022 07:42

MPE results give you some idea of the numbers being achieved here
Obviously they will be discounted slightly because this RE.
But there will be a significant improvement the financial state of the company
A trading update soon?

[wigwammer] 13/1/2022 14:42

Malaysian palm oil index closes at new all time highs. :)

[nobull] 12/1/2022 10:03

NTV, hi. No, I don't have any Wentworth, but I did look at a company video clip presentation given by the CEO. I also looked at Aminex too, that being another Tanzanian gas play. I've not followed either for a while - too busy.

[ntv] 12/1/2022 09:38

You got some Wentworth nobull?
Bought a few in the recent big drop there
Don't like the management costs there. Well over paid imho

[nobull] 12/1/2022 09:17

Panmure Gordon appointed on the old girls' network? No. I've confused the CEO of Wentworth Resources with ours. The former was previously employed by Panmure Gordon.

[nobull] 04/1/2022 10:25

How horribly wrong I am about the steepness of recovery! Well, you have to laugh. At least the value of my holding is going up a lot!

[ntv] 04/1/2022 10:12

Nice start to the new year on this one

[wigwammer] 04/1/2022 09:28

Thanks nobull, and I agree - there is a highly material asset base here that will hopefully and increasingly land in the laps of shareholders as debt is paid down. Hopefully we will get more clarity on the impact of the tax regime through 2022.

[ntv] 03/1/2022 21:30

Stockopedia way out on AEP current nett cash
interesting analysis

[nobull] 03/1/2022 19:33

CousinIT, yes, they cut the top rate of export levy from $255 to $175 in July, but in early December 2020, the highest export levy chargeable was just $55: they almost 5 timesed the highest rate of export levy payable - that's shocking.

My point is I don't think one can expect the share price graph to go up as steeply as the share price declined in April 2020 because of this. Were the old, early December 2020 deduction regime to have continued, we'd have absolutely cleaned up and repaid masses of debt and cleared the pref arrears by now, I wonder? Yes, I get that they are entitled to take back some of the benefit for supplying extra CPO demand.

[cousinit] 03/1/2022 15:36

Just to say that the various levies were reduced (crudely by 1/3) from the beginning of July - see 30/6/21 RNS

[nobull] 03/1/2022 12:05

Wigwammer, seasons greeting to you too. No, I haven't been selling - couldn't if I wanted to.

...the palm oil price is currently 50% higher than in the prior 2016/17 peak. So when you say the government is taking a lot more this time, it is a lot more of a much bigger pie. Can you be more specific about how much is “a lot more” as a percentage of sales?"



The short answer is no. The unhelpful answer maybe is I am thinking about the whole cpo price cycle, going back at least 10 years. I just get the impression that the amount of levy and tax being taken compared with 10 or 12 years ago, when CPO price was around this level, is a much bigger percentage tax take.

The higher percentage tax take seems more like an opportunistic windfall tax than a justifiable reward to the Indonesian government for its creation of extra cpo demand by legislating compulsory use of biodiesel; it feels like an extra tax to take away the benefits we've got from other parts of the world suffering from a poor soy bean harvest, which is not a nice thing to do: we need the high profits of the good times to help us keep going during periods of low CPO prices.

An indication of how the CPO export deductions regime changed in December 2020 is here:

"As such, the export levy will be raised by US$12.50 to US$15 per tonne for every US$25 per tonne increase in the CPO reference price beyond US$670 a tonne and up to US$995 a tonne. Previously, the export levy was fixed at US$25 to US$55 a tonne for CPO and processed palm products regardless of CPO prices."





Source:

So I expect our share price to climb back to its former levels (over £2), but maybe not as quickly as it declined at the start of the pandemic; a slower rate of recovery seems more likely because of the higher tax take and because of the anticipated dilution from exercise of the warrants in 2025 or whenever.

While I have forecast 8p eps attrib to the ords for FY2021, arguably using a method of questionable validity, I can't see how FY2022 will be profitable if we have to pay out 10p arrears to the pref holders. I hope for a share price of £2 by YE 2022, despite the grotty FY2022 eps outlook, grotty because of the pref arrears planned to be paid, not grotty because of there being anything unsound about our business model.

CPO futures prices at 6:15 pm today in KL, the front month price of which ought to keep the Rotterdam CIF spot price above the key $1,300 level, I hope.



Below is an excerpt of a spreadsheet comparing the three London listed palm oil producers, using their 2020 accounts. What is interesting is how their total assets are quite similar. However, the market caps, even if you don't use the out of date share prices used in the comparison are wildly different. The companies differ in the amount of equity supplied by the non-controlling shareholder (minority interests) and in the amount of debt used to finance the operations. Imagine if REA could just pay off all that debt and redeem the prefs, using funds generated from operations, then its market cap would need to go up 5 or 6 times what it is now, if it kept the same no. of shares in issue. AIMO. DYOR.

[nobull] 24/12/2021 13:24

Agreed, NTV, about dollar loan note and the stone interests. Although I don't like the debt, it makes sense to keep the $ loan notes going as long as possible at the same interest rate as it must be more value-accretive than if those notes were replaced with ords equity, I wonder?

Nice recovery today of front month to back over 5,000 ringgit a tonne again (equivalent to over $1,300 in Rotterdam, allowing for all the usual differences when comparing what are probably very different contracts?). I can't explain the recent REA ords price rises, unless it is in anticipation of news about the coal interests or unless the stock has been tipped somewhere.

Yes, I see if you re-run CPO price cycle, the chart maybe should be a reflection in a vertical line through the Feb 2021 mark on the x-axis, except the climb back this time shouldn't be so steep, particularly if some warrant dilution is taken into account, I wonder? Merry Xmas all.

Oh, I forgot - another thing that's different this CPO price cycle is the percentage the govt. takes - they take a lot more this time.