# R.E.A. HOLDINGS Strong production continues; deferred 1H pref. dividend

- Link: https://www.directorstalkinterviews.com/r-e-a-holdings-strong-production-continues-deferred-1h-pref-dividend/412785886
- Published: 2019-06-24T07:50:44+01:00
- Author: Giles Arbor

**REA Holdings Plc** (LON: RE.) FY’18 results showed a marked recovery in the group’s
FFB production, up 50.8% YoY, to a record level of 800,050mt; CPO production increased
by over 51%, to 217,721mt. However, revenue was up only 5.2%, to $105.5m ($100.2m);
crop growth was strong but results were significantly dampened due to commodity 
prices, with the palm oil price hitting a 10-year low, at $440/mt, in November 2018.
The CPO price suffered a 17% drop to an average $596/mt for 2018, and the PKO price
plunged 27.2% for the year. With the PBJ transaction completed, REA is focusing 
on raising production efficiency and planting out the remaining land bank should
funding become available.

 * **FFB production: ** Despite the slightly muted start to 2018, REA’s FFB production
   has recovered to record levels since 2Q’18 – partly due to FFB production pattern
   recovery, and partly due to REA’s much-improved harvesting process and fertiliser
   regime, started in 2H’16. REA expects FFB production of ca.900,000mt in FY’19;
   our expectation is slightly lower.
 * **PBJ and financing position:**  In August 2018, REA closed the sale of its PBJ
   estate to Malaysian operator KLK for $85m, or ca.$11,333/planted ha. The transaction
   transformed the group’s operation into a more geographically concentrated development
   project, as well as releasing some balance sheet pressure.
 * **Financing:**  Management recognises the need to deleverage REA’s indebtedness.
   Net debt, with the sale of PBJ, was $189.5m at end-FY’18, from $211.7m in FY’
   17. Net debt to equity was 72.5%, down from 76.5% in FY’17. A further reduction
   in cost of borrowings should help reduce some funding risk.
 * **Valuation:**  Palm plantation stocks have fallen out of favour with investors
   in recent years, due largely to weak commodity prices. The Asian Palm Oil Plantation
   Index fell 12.8% since Jan’18, while the Asian palm plantation sector saw an 
   18.8% valuation decrease, ending Jun’19 at $10,933/planted ha vs. $13,468/planted
   ha at end-Dec’17.
 * **Investment summary:**  For investors attracted by palm oil assets, now could
   be an opportunistic time to review this sector, with the sector valuation down
   ca.12.8% since the beginning of 2017. We expect REA Holdings to have ca.33,423
   mature ha by end-2019, as well as stronger agricultural production across the
   estates, and the plantations to be fully planted by end-2025.

[DOWNLOAD THE FULL REPORT](https://www.hardmanandco.com/wp-content/uploads/2019/06/2019.06_REA_Strong_Production_Continues_Final.pdf)

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