KBC Peel Hunt today drew investors’ attention to the strong upward trend in palm oil prices, which has prompted it to up its price target for one of the key players in the sector.
Palm oil futures have recently hit 27 month highs, making a significant impact for the broker’s forecasts for New Britain Palm Oil (LON:NBPO).
Peel Hunt hiked its pre-tax profits forecasts for the company for 2011 by 43% to US$200 million and its 2012 estimate by 47% to US$230 million.
The share price target was upped to 950 pence after the company cleared the previous target of 700 pence, currently trading at 760 pence.
According to Peel Hunt, the soaring palm oil prices should not be viewed as a reuslt of a temporary imbalance in the market as the market fundamentals suggest that the supply/demand dynamics will continue to be favourable for the prices.
The latest data from Oil World forecasts growth in consumption of vegetable oils of 4.7% in 2010/11, way ahead of the estimated supply growth of 3.9%.
The decline in the growth of palm oil supplies is attributed to reduced acreage expansion, the age of oil palms and climatic conditions.
At the same time, Asian demand continues to grow and usage for biofuels is becoming a material driver of growth.
The broker sees the average palm oil price at US$825/tonne in 2010 and US$900/tonne next year, expecting New Britain to sell forward as much as 50% of next year’s volumes in 2010.
The current price stands at US$1,085/tonne.
Unlike New Britain Palm Oil, which has a market capitalisation of £1.15 billion with KBC estimating its enterprise value (EV) at £1.26 billion, smaller companies focused on palm oil don’t get as much attention.
Even though their business has the same level of exposure to the surging palm oil prices, it is debatable whether it is fully reflected in their share price, the broker said.
The AIM listed Equatorial Palm Oil (LON:PAL) appears to be flying under the radar, widely unnoticed by investors despite the increased attention to the palm oil market.
Seymour Pierce analyst Andrei Kroupnik examined Avocet Mining’s (LON:AVM) ‘exceptional’ quarterly results.
The company upped total gold output by 28 percent in the third quarter from the second, to produce 67,792 ounces of gold.
In the three months ended 30 September 2010, Gold output grew in both the South East Asia operation and the Inata mine in Burkino Faso. In Asia production rose 26 percent to 27,331 ounce of gold, whilst Inata produced 40,461 ounces.
“We anticipate the next few quarters to provide plenty of catalysts for further share price strength,” Kroupnik said.
“Our expectation is for strong operating performance at Inata, coupled with consistent positive news flow from the company’s exploration activities in West Africa as well as possible divestment from South East Asia to drive to stock well beyond the 200p level.”
Fairfax mining analyst John Meyer also covered the results.
“A successful quarter for the company should see the share price do well,” Meyer said.
“We are encouraged that expansion plans for Inata are progressing rapidly that will reduce the impact of the hedge book.”
“It is also encouraging to see improved performance from the company’s Southeast Asian assets which should help with securing a trade sale.”
FinnCap analyst Keith Redpath looked at Dechra Pharmaceuticals' (LON:DPH) first quarter interim management statement.
“The year seems to be off to a good start,” Redpath said.
“Despite a drop in sales in the US, a result of the already semaphored manufacturing and supply issues, profits in that territory are ahead of last year - a result of the growth of higher-margin Vetoryl.”