Palm oil has become important in the production of many consumer items, from biscuits to lipstick. Yet the environmental impact of palm oil production remains contentious. Growers have cut vast swathes out of South East Asia's rainforest to make way for palm plantations, destroying the natural habitat of endangered species, such as the orangutan.
- Sustainable credentials a competitive advantage
- Production and extraction rate on target
- Expansion of UK refining capacity
- Strong fundamentals for palm oil price
- Rising production and shipping costs
- Strengthening local currency
But not all palm oil producers are unscrupulous. New Britain Palm Oil has spent 14 years developing a more sustainable approach to palm oil production; investment that puts it significantly ahead of most rivals. All of its plantations will be fully certified by the year end.
This matters. First, it enables Papua New Guinea-based New Britain to charge a small but useful premium for its output, in the region of $20-$40 per tonne of crude palm oil. Second, it gives New Britain a huge competitive advantage in winning new business, because major food producers that use palm oil want to demonstrate their own 'environmental' credentials.
That's helped New Britain win major contracts with the likes of United Biscuits and, more recently, European confectioner Ferrero. Such relationships give New Britain assured revenues and already half of this year's production has been sold at $1,075 a tonne. Quite likely, further sales this year will be at a higher price - global stocks of edible oils stand at record lows, exacerbated by a poor South American soya harvest. So palm oil prices have risen 10 per cent this year, despite a bumper harvest.
NEW BRITAIN PALM OIL (NBPO) | ||||
|---|---|---|---|---|
| ORD PRICE: | 855p | MARKET VALUE: | £1.24bn | |
| TOUCH: | 845-855p | 12-MONTH HIGH: | 1,000p | LOW: 705p |
| DIVIDEND YIELD: | 2.2% | PE RATIO: | 10 | |
| NET ASSET VALUE: | 417p | NET DEBT: | 25% | |
| Year to 31 Dec | Turnover ($m) | Pre-tax profit ($m) | Earnings per share (¢) | Dividend per share (¢) |
|---|---|---|---|---|
| 2009 | 324 | 200 | 95.3 | 14 |
| 2010 | 461 | 377 | 170.7 | nil |
| 2011 | 780 | 59 | 52.8 | 30 |
| 2012* | 774 | 250 | 121.5 | 30 |
| 2013* | 818 | 270 | 130.9 | 30 |
| % change | +6 | +8 | +127 | nil |
Normal market size: 3,000 Market makers: 9 Beta:0.4 *Liberum Capital forecasts £1=$1.57 | ||||
New Britain also has scope to improve its efficiency. Having spent £30m on a new refinery in Liverpool last year, it now plans to double capacity there to 300,000 tonnes a year. An adjacent bakery fats plant will be finished shortly, driving market share gains in the UK.
Meanwhile, the integration of Kula, a mature 25,000-hectare plantation bought for $175m in 2010, is progressing well - new mills have been built, helping to lift production and extraction rates, which hit 28.2 per cent last year, on course to achieve the company's 30 per cent target. The resulting increase in palm oil volumes will mean New Britain benefits from increasing economies of scale, helping it to overcome higher shipping and production costs and the strengthening local currency.
