A revival in shares in New Britain Palm Oil stalled after
they suffered a brace of downgrades by brokers concerned over the impact of low
palm oil prices – if not by rains of more than 1 metre in a month on its plantations.
Shares in New Britain - which is listed in London, but whose
operations are based in Papua New Guinea – had remained relatively unmoved by
its revelation on Friday that this year had started out even wetter than last
year, when poor weather left the group's performance short of initial hopes.
However, the stock tumbled 7% on Monday after Peel Hunt cut
to "hold" from "buy" its rating on the stock, while Shore Capital reduced its
recommendation to "sell" from "hold".
Both brokers cited as reasoning behind their downgrades the
depressed palm oil prices which, even while rising on the Kuala Lumpur futures
exchange on Monday for a fourth successive session, by 0.4% to 2,564 ringgit a
tonne, remains among its lowest levels in three years.
Shore Capital analyst Phil Carroll cut to $850 a tonne, from
$900 a tonne, his assumption for palm oil prices this year, while estimating
that the premium of some $50 a tonne for palm kernel oil will disappear.
"The lacklustre rebound in the crude palm oil price from its
lowest in the fourth quarter of 2012 is likely to see further in consensus
expectations" for New Britain profits, he said.
At Peel Hunt, Charles Hall flagged the uplift of "only" $70
a tonne, from current levels of $850 a tonne, that markets are pricing in on a
"Palm oil prices have continued to be depressed and trading
at a discount to crude and soya," he said, attributing the gap to "high
production levels in Indonesia", the top palm-producing country.
"As New Britain typically sells three months forward, around
33% of the year's production will be locked in at the current low levels."
'Much better prepared'
The brokers remained relatively unmoved by New Britain's revelation
on Friday that rainfall on some of its estates last month had topped 1,000mm,
57% higher than in January 2012, during what was itself a sodden quarter.
"Thus far, this [rainfall] does not appear a significant
issue as the company is better prepared than last year, with labour in place to
catch-up the lost production," Mr Hall said.
A person familiar with the company told Agrimoney.com: "They
are much better prepared for it, and have got the right people onside for
mending bridges and roads."
New Britain reported a 12.1% drop in palm oil output in the
first quarter of last year, blamed on rainfall 60% higher at its West New
Britain plantations than in the same period of 2011.
New Britain shares recovered some ground to closed at 520p in
afternoon deals, a drop of 6.3% on the day.
Nonetheless, the stock remains nearly 10% above a low
reached during November, after the group revealed a 74% slump to $76.1m in
pre-tax profits for the first nine months of 2012.
The shares have been helped in part by talk that Kulim, the
Malaysian palm oil group which owns a 49% stake in New Britain, may increase
its stake, using proceeds of the sale of its 59% stake in restaurants group