A purchase of plantation land at $23,300 a hectare has raised questions over the "pasting" handed out to palm oil shares in this month’s stockmarket sell-off, which has left REA Holdings looking particularly unfairly treated.
Shares in palm oil groups had already significantly underperformed average stocks, as measured by the Standard & Poor’s 500 index, this year, before further losses – some above 20% – in this month’s market liquidation.
While the drop reflects a decline in palm oil prices this year, values of the vegetable oil remain "firmly above" $1,000 a tonne, besides costs of about $375 a tonne, London broker Hardman & Co said.
"The marginal returns on productive palm estates make them some of the most attractive business assets under the sun," Doug Hawkins at London broker Hardman & Co said.
Indeed, palm oil groups have been "undeterred" by the market conditions, with many seeking investment into east Africa, which has the right climatic conditions, but where the sector currently has a relatively small presence.
"Outside the noise of the traded markets, the industry continues to invest for growth," Mr Hawkins said.
In Indonesia, the top palm oil producing country, sector heavyweight IOI Holdings has reportedly paid $23,300 a hectare for a 12,000-hectare plot in Sabah, "setting an interesting benchmark for the acquisition cost of land".
Indeed, it represents a 13% premium to the average value that investors attribute to shares in Malaysian palm oil groups, in terms of market capitalisation per planted hectare.
And it is more than 60% above the value that shares attribute to London-listed palm oil operators, on Hardman calculations.
‘Very good value’
Stock in London-listed REA Holdings appears to have suffered "anomalously" during this month’s market liquidation, which has taken its shares down by nearly one-quarter to a one-year low.
"At circa $10,000 per planted hectare, [the stock] looks very good value relative to its peers," Mr Hawkins said.
"It is well financed, has safe pairs of hands in management, high quality estates, a comparatively high level of palm oil yield – tick, tick, tick in every box," he told Agrimoney.com.
"What you tend to get after high levels of market disturbance are some anomalies which present opportunities for investors."
Shares in REA Holdings, which is considering a listing in Asian markets trading palm oil operators attributing higher multiples to palm oil operators, closed at 537.5p in London, up 0.7% on the day, but still within an ace of the one-year low of 532p hit earlier in August.
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