Palmoil

[maybe4less]

- 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.

 

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?

[skanjete]

- 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.

 

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...

[LC]

Another shade to the industry

 

http://m.spiegel.de/international/world/a-967198.html#spRedirectedFrom=www&referrrer=http://www.reddit.com/?count=25&after=t3_24okcb

[skanjete]

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!!

 

 

[paperwerks]

I've been following the palm oil market lately but not close enough to really understand it. This aquisition seems surprising as palm oil prices have been dropping hard and some analysts say they might touch cost of production before the bottom is in.

 

However, the aquirors must be viewing these plantations as expandable high quality infrastructure and financing them at low interest rates.

 

AEP is cheap and well run any way you look at it.

 

Thanks for bringing up this subject.