skanjete

Thank you very much. Indeed a very interesting lecture!

Last quarter (12/31/16) seems to have been quite good. Non performing loans down to less than 3%. This bodes well...

I"ll second that please. Same. Thanks in advance! I'd be interested as well. Thank you, very much appreciated!!

I have been following the belize bank and Lord Ashcroft since 2007-2008. The main attraction here for me is not so much the possible litigation award. I can't imagine that Dean Barrow will ever prepared to pay the award. Previously he used to work as a lawyer for ashcroft, but rose to power on the back of an enormous anti-Ashcroft campaign. If you study his traject since he rose to power in 2008, he implemented a lot of populist anti-Ashcroft measures, including some nationalisations (without proper compensation of course). He also nationalised some companies from the spun-off Waterloo Holdings from BCB holdings. Belize bank can hope only to receive the awards if another government gets to power in Belize. For me, the main attraction is when/if the bank can work through his post-crisis problems. The bank is very profitable, but for now is still working through his past problems by write-offs and provisions. If you exclude the provisions from the financial business, the bank is priced at a P/E of 1! The intrest margin is incredible : 10,72% Previously to their unsuccessfull expansion to T&C, their Belize Bank with a market share of about 40-50% (this is still the case) had a ROA of 7-9%!! Assets are about 550m$ now, and the bank itself apparently isn't impaired. So if they can work off their unperforming loans from the past and can return to this kind of profitability, they could even produce earnings of about 35p/sh. So the real potential is a lot more than the possible litigation award. By the way : the money won't be returned to shareholders, but will be used to expand in the Caribbean market. A few years ago, there was talk of an acquisition in Trinidad & Tobago. regards,

Could you provide some names of the small PBM's? From what I can read, in some circles PBMs have a bad name, but I can't really put my finger on it why this would be justified.

You're partly right! That's a very hard thing for people to accept...so you will get push back on this. You can have the right training and that's what Benjamin Graham, Buffett, et al are to investors, but: - You cannot teach or train the right temperament - Or how someone will react to a crisis - You cannot teach patience - You cannot teach someone to think independently if they aren't prone to that type of thinking...thus you get cloning practiced rampantly these days - You cannot teach someone to manage risk, especially if they are prone to a gambling mentality or an overly conservative mentality So alongside a firm, if not enlightened grasp, of how to apply an intelligent framework to evaluating securities, you need a number of other characteristics, including both emotional and intellectual traits. That's hard to find! The solace that all investors have though is that they can hone these skills and become better versions of themselves. So while everyone may not be great, most can be good! Cheers! And the main positive : you don't have to be a great investor to achieve a more than worthwhile result. A good investor too can get to a very, very rewarding result.

It seems both of Ted & Todd got some extra money to invest. About each 2b$ over the last 6 months?

His results were presented in some of his presentations. After playing with some figures I think the 9,x %/year compounded return over the last decade is consistent with the 25+%/year he claims he made over the complete period (18,25 years). The last decade includes his worst years, and excludes his best years. That's the the reason for this perceived contradiction. If one only looks at the years he managed the funds (thus excluding the 4,5 phenomenal years at the beginning where he managed his own money), I think his gross return should be around 18%/year, depending on his returns since half 2013.

Today, Sime Darby, pays 1.78 billion dollar for New Britain Palm Oil, also a palmoil producer on the London Stock Exchange. It's offering a premium of 85% to the last stock price of New Britain Palm Oil. The takeover values the palm plantations of New Britain Palm Oil at almost 25.000$/hectare! This transaction provides a reference for the valuation of other plantations. The valuation is in line with the valuation of other plantations listed in Malaysia en Indonesia. It shows however how undervalued the European listed plantations are (Socfinaf, Sipef, MP Evans, REA holdings, Anglo Eastern Plantations,...) Remember Anglo Eastern which I discussed before is valued currently at 5.500$/ha!!

Congratulations to you and your family, Sanjeev!

hip hip houray, happy birthday to Sanjeev!! ;D

In my opinion it's not their size that has effected them, but rather the changed interest rate environment. The lower interest rates lower the value of their float. If and when interest rates start to climb again in the future, they will take a (controlled) hit to their fixed income investments, but the value of their float will go higher, as well as the income potential they can generate from that float. I'm pretty sure their growth prospects would look completely different in a higher interest environment, as well as their P/B rate.

Skanjete, can you help me understand the accounting for plantation development? In the 2012 annual report, it looks like they are valuing all biological assets, including development-stage plantations, using a discounted cash flow analysis. This would seem to suggest they are not capitalizing maintenance costs for developing plantations. Although then they have a contradictory section in the accounting stating that they do capitalize these costs. Have you been unable to untangle this? I think a difference should be made between the accounting for biological assets (the trees) and the other capital investments (infrastructure, plant,...). According to IAS 41, the biological assets are being revalued every year by a DCF model and the revaluation runs through the profit and loss statement. The other investment are being capitalised and depreciated. In the financial report for 2013, published last week, you'll note a big important profit from the revaluation of the biological assets. This is mainly because of a higher 10year average palm oil price, and lower discount rate (still higher than 15%!). This high discount rate in my view also shows part of the undervaluation of the group. In my valuation though, I don't take into account these biological asset revaluations. I concentrate on the cash flow statement, with the knowledge that the asset statement is undervalued. If you start with a cash flow model of a palm tree over his entire life, and then apply this model to the different ages of the different plantations of the group, a lot of things explains themselves. PS. I think results over 2013, especially the second half were stellar! Especially when taking into account the challenging conditions and comparing results to the results of other plantation groups...

It's a well managed company. I've been a shareholder in the past from about 2002-2011, mainly through their subsidiary Jabelmalux which got taken over by Sipef in 2011. At this point I think AEP is at least as well managed as Sipef, but cheaper. I've spoken to somebody from senior management of Sipef who confessed he bought some AEP shares. There were other reasons as well, but AEP was his most competent and cheaply valued competitor he told.

I hope I succeeded in explaining why the assets are backed up by cash flow. Their cash flow is mostly free, and their reinvestments were almost completely expansion investments. I don't consider this as an asset play, although at some point in the future, it could. numbers in 5 to 10 years : based on their expansions of the last decade and their maturity profile, I guess that only 2/3 of their hectares are mature and fully producing. Over the next 5-8 years, substantially all of their acreage will be mature and generate cash flow. This extra cash flow basically needs no extra investments, apart from a factory they are still building out in 2014. This extra revenue also is higher margin, because the cost to harvest, fertilize, and maintain a immature hectare is about the same as a fully producing and mature hectare. So I guess that at these palmoil prices, and exchange rates, a free cash flow of 1,1-1,5 £/sh should be possible over the next few years. Remember, this assumes no extra investments and no higher palmoil prices. Of course, it is very conservative to assume no extra investments. But in that case there is no need for the net cash of 1£/sh which they can return. So you're looking at a free cash flow of 1,1-1,5£/sh on an investment of 5,75£/sh. With higher or lower palmoil prices, this picture changes drastically of course... Sorry for the later reply i got lazy. :) So what is the reason for the recent decrease in Palm planted per ha relative to investments in PPE ? Change in economics ? or increase in Land prices ? That was the point i decided to stop looking. PPE purchase Plam Plannted (Ha) 2008 20 M 2242 2009 40 M 4479 2010 44 M 7580 2011 50 M 1900 * PPE investment in property from morning star conformed close enough numbers from annual report http://financials.morningstar.com/cash-flow/cf.html?t=AEP&region=gbr&culture=en-US&ownerCountry=USA * Ha planted from annual report 2008 to 2011 There are several reasons for that : - first as you state valuation for farmland has gone up a lot over the last few years. That's also why their current valuation is very cheap. However, that's a minor reason - more importantly, it has to do with the maturity profile of their expansions. A hectare of palmoil only starts to produce after 4 years and reaches maturity after 8 years. So they capitilize costs until at least the 4th year. These investments aren't completely made at the very first day of course. For example, the factory needed to crush the fruit, has only to be built just in time to start crushing when the trees start fully producing, thus in year 6-7 or so. So, suppose the company expands every year with 1000ha. After 5 years, the company not only has to invest in the planting of new trees of the current year 1000ha, but also some fertilizing of 4year old trees which costs are being capitilized or the building of the factory for the 5 year old trees which will start producing. This dynamic guarantees that according to the accounts, the investment cost/planted ha rises over the years, although in reality it's constant. To give an idea of the investment costs : - compensation + licenses : 1500$/ha - planting (biological assets) : 3000-3500$/ha - Infrastructure (road, bridges, living compounds,...) : 2000$/ha - factory : 2000-5000$/ha (mainly depending on subsoil, and environmental investments) Total : 8.500-12.000$/ha These are current figures I got from Sipef, but as I stated before, AEP has lower investment costs. Conclusion : there surely is an element of inflation, but the main reason is the maturity profile of their plantations. They are in the process of building 2 (first is now finished, second continuing) new factories because of maturing plantations, so this should explain it a bit.

I wasn't mentioned until the 2005 edition, where the chapter written was titled "A View From Vancouver...Lunch With Prem Watsa". Cheers! Thanks for the answer. Instead of buying the new edition, I'll wait for your own book to appear (or have you got already one?)... At least half of the guys on the picture have already a book to show, so I guess it's only a matter of time...

Hi Sanjeev, Looks like a pleasant company. Who are you on the picture? I just made myself a present with Guy's book. By the way, I read that you were mentioned in "of permanent value". Could you help me with the chapter where you are mentioned (i've got the 1998 edition)? I could re-read the book of course, but the book is quite a whopper, so I thougt it to be easier to just ask... ;)

There were some discussions here and on the Dairy Farm board on Jardine Matheson. Here's a recent article from the financial times on the company with some historical background. http://www.ft.com/intl/cms/s/0/225d1bd4-a8da-11e3-bf0c-00144feab7de.html#axzz2vgVBYPnR

This picture says it all : http://ir.eia.gov/ngs/ngs.html The picture was gone, so I posted the link.

I hope I succeeded in explaining why the assets are backed up by cash flow. Their cash flow is mostly free, and their reinvestments were almost completely expansion investments. I don't consider this as an asset play, although at some point in the future, it could. numbers in 5 to 10 years : based on their expansions of the last decade and their maturity profile, I guess that only 2/3 of their hectares are mature and fully producing. Over the next 5-8 years, substantially all of their acreage will be mature and generate cash flow. This extra cash flow basically needs no extra investments, apart from a factory they are still building out in 2014. This extra revenue also is higher margin, because the cost to harvest, fertilize, and maintain a immature hectare is about the same as a fully producing and mature hectare. So I guess that at these palmoil prices, and exchange rates, a free cash flow of 1,1-1,5 £/sh should be possible over the next few years. Remember, this assumes no extra investments and no higher palmoil prices. Of course, it is very conservative to assume no extra investments. But in that case there is no need for the net cash of 1£/sh which they can return. So you're looking at a free cash flow of 1,1-1,5£/sh on an investment of 5,75£/sh. With higher or lower palmoil prices, this picture changes drastically of course...

I can't agree. Once a hectare of palm is mature, most of the cash flow is free. There's only some depreciation from the factory that has to be accounted for. Purchase under investing activities is the investment in (mainly new) palm oil plantations : infrastructure, trees, crushing factory,... You're correct that the reinvested most of their cash flow in the business. But these investments were mainly expansion investments. In the 10 years from 2003-2012, they invested about $287m in the business. In the same period however, they expanded their plantations from 22724 ha to 58977ha. So they developed 36.253ha at a cost of less than 8.000$/ha. The actual expansion cost will be somewhat lower, because the 287$ also include replacement investments. This 8000$/ha is very efficient, if you compare it to competitors who need about 15.000$/ha to develop. It's one of the reasons I stated that AEP is one of the best operators. The investment is also financially attractive if you compare it to the 1.250$ of cash flow a mature ha of palm produces. Granted, the cash flow doesn't come from the first day, but the investment of 8000$/ha is also spread over some years. PS. It also gives an idea of the valuation of AEP at 6.500$/ha. In view of the cost to develop a ha of palm, the valuation of competitors at 15.000-20.000 seems to make more sense.

Sorry, Green King, I only now saw your response. About the supply situation. I've been following the sector and it's different companies for at least 10 years. And if you list up the expansion investments all these companies did over the last 15 years, they all have some common things : - first a period from 1998-2002 after the Asian crisis during which there were very few expansion investments. During this period, palmoil prices were relatively low and in combination with the bank sector problems at the time there was no money to invest in expansion. - from 2003 on, palmoil prices started to firm, not coïncidentally 5-6 years after the period of under-investment. The plantations started to get higher cash flows, loans got refinanced and expansion planting started again. - this continued until 2008, and with the crisis, expansion basically stopped in 2009. Things picked up a little bit again in 2010, but from then on, there was a lot more restrictive regulation because of environmental concerns. Companies didn't get no permits to expand and some farmland previously destined for palmoil such as peatland got there permits revoked. It's a lot thougher at the moment to expand plantations, even as the cash is available (consider Anglo Eastern with lots of net cash). This thing is not company specific, but can be identified industry-wide. So, as we know that a tree takes 5 years to start producing and 8 years to fully mature, the palm grow cycle induces that production will level off from about 2015, and that should be supportive for palmoil prices. Thanks for the reply My first investment was on Agricultural commodity sector. Most of the profit is generated is when you plant at the point where the prices for your commodity is the lowest and the finance for expansion is non existent. Rest of the time marginal return is produced. You're correct. That's the general rule in commodity businesses. But in one of my first posts on this threads, I explained why I think that the palmoil sector (as a sector then) has a competitive advantage in comparison with other vegetable oils like soy, canola, coconut or sunflower (5-10 times as productive and thus cheaper to produce). So their returns are protected by this competitive advantage and are certainly not marginal. The fact that the palmoil sector has procured some really big companies, starting out of pure palmoil production, says something.

I did comment/speculate somewhat on the supply side of palmoil for the coming years. But I immediately agree that this is no sure fact. As I said in a prior post, there's the biofuel factor to consider as well. However, lately, palmoil prices seem to agree with my estimation. Luckily, for an investment in Anglo Eastern Plantations, you don't need a rising palmoil price. It is cheap any way you look at it, under any circumstance. They are valued at roughly 6.000$/hectare while (listed) Indonesia plantations are valued at about 20.000-25.000$/ha. In Malaysia, it's even higher. Also from a cash flow point of view, it's interesting (cfr. my previous post) with P/FCF of 6 and E.V./EBITDA of less than 4.

Yes they have some palmoil investments, but that's only a small part of their total investments. I also think that plantations in Indonesia are a lot more productive and profitable than in Malaysia in recent years. Labour and farmland in Malaysia got a lot more expensive than in Indonesia. Malaysia started a few decades earlier with their palmoil investments. In fact, in Malaysia, a lot of industrial activity and other value-added industries got derived from a start in palmoil. So much so that former agricultural areas are now developing in industrial and residential areas. A company like Bertam Bhd was formerly a palmoil plantation, but gradually sold off all their farmland as residential land and evolved into a real estate business. Of course this process generated a gigantic surplus value. The proceeds got partly reinvested in palmoil land in Indonesia by the way.

Sorry, Green King, I only now saw your response. About the supply situation. I've been following the sector and it's different companies for at least 10 years. And if you list up the expansion investments all these companies did over the last 15 years, they all have some common things : - first a period from 1998-2002 after the Asian crisis during which there were very few expansion investments. During this period, palmoil prices were relatively low and in combination with the bank sector problems at the time there was no money to invest in expansion. - from 2003 on, palmoil prices started to firm, not coïncidentally 5-6 years after the period of under-investment. The plantations started to get higher cash flows, loans got refinanced and expansion planting started again. - this continued until 2008, and with the crisis, expansion basically stopped in 2009. Things picked up a little bit again in 2010, but from then on, there was a lot more restrictive regulation because of environmental concerns. Companies didn't get no permits to expand and some farmland previously destined for palmoil such as peatland got there permits revoked. It's a lot thougher at the moment to expand plantations, even as the cash is available (consider Anglo Eastern with lots of net cash). This thing is not company specific, but can be identified industry-wide. So, as we know that a tree takes 5 years to start producing and 8 years to fully mature, the palm grow cycle induces that production will level off from about 2015, and that should be supportive for palmoil prices.