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FR

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First Resources, Palm peer...
🎯🌴📈➡️ S$2.32

April 18th 2019
​⏰ 1 minute read
Palm oil 🌴
We are very optimistic on the palm oil sector. The reason is a supply slowdown from less new plantings in the last 4 to 5 years. Palm oil stocks have performed poorly in the last 5 years with declining share prices, matching the commodity price. Now we look for higher prices & share prices. How does FR compare?

Plantations 🌴🌴🌴
First Resources is one of the young plantation companies but like all the others, new plantings have slowed down significantly since 2015 to almost zero. FR has 180k hectaresbof nucleus & 30k of plasma. In 2009 almost all will be mature. Cost of planting measured by depreciation is the highest of all companies we cover.

Production 📈
FR has a very decent record of production. Fruit tons has increased by over 20% over the last 4 years. Like others this growth mostly came in 2018. Fruit yields have been close to 18 tons per hectare which is also among the highest in the sector. For 2019 we expect slower production growth of 6%.

Cash flow 💰
The strong production & yield has resulted in strong operating cash flow which has been always positive, but has been lower into 2018 from lower prices. We expect higher prices this year will mean a cash flow recovery which with less investment means less debt & plenty of cash to pay dividends.

Value ❓
FR is different to the other plantation companies in that it trades at replacement cost of $11-13k rather than below. As the ‘Palm Peer’ we value the company based on the operating cash flow which this year we predict will reach $180 or S$245, at a 15X multiple, this puts the target price S$2.32.

Lots of Cash

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