REA Holdings Prefs

Following a poor trading statement in late August, the REA Holdings 9% pref has fallen to below par. REA Holdings are primarily a company specialising in palm oil and like most commodoties, is suffering from lower prices.

The pref is cumulative - I would appreciate any thoughts whether this represents good value against the risk. Preference shares have fallen of late in general due to potential changes in taxation but this specific share has fallen more than most.


  • I guess we don't have any experts on palm oil or the Indonesian economy on this forum which is probably as expected. Whilst a 9% yield always gets me interested, I tend to have a quick look at opportunities like this and then go back to something a little less risky and that I can better analyse/understand. I did buy some Raven Russia 11% Prefs a couple of years ago which with hindsight I should have left alone (they are yielding around 9% as well if you also happen to be interested in Russian commercial property/warehouses!). I guess anything like this is a bit of a gamble and is going to be volatile.
  • There is some discussion of this in the Preference Shares Sell-off thread in General Bond Discussion. It is in the wrong place of course as preference shares are stocks not bonds. My own contribution (made on Sep 7th) was as follows:

    Regarding the REA Holdings prefs, last month's disappointing results have had a significant effect. The preference shares are now yielding over 9%.

    The deferment of a decision on the 2015 dividend on the ordinary shares potentially removes the "prop" supporting payment of the next preference share dividend in December.

    However I believe it will be paid for the following reasons:
    1) It is cumulative, so there is no long-term benefit to the company in not paying the preference share dividend;
    2) The company is still profitable (if only just!)
    3) The company's financing plans still seem to have institutional backing
    4) The plans for expansion/cost reduction are still in place

    While I wouldn't want to risk buying the ordinary shares, IMO we have reached a "weak buy" situation on the preference shares. I say "weak" because the price may still drop further, and it would be a safer bet to wait until it becomes clear that the December dividend payment on the prefs will be made (although the price will probably rise as soon as this happens).

    Since I wrote this the price of RE.B has fallen again, as I thought might be the case. I am very tempted to top up but will probably wait until nearer the next dividend date.

    I am assuming that the plantations haven't been affected by the forest fires burning in Indonesia. If they had I would have thought an RNS would have been issued.
  • Following yesterday's Bond of the Week I was rung up by someone I know well who has been involved in placing REA bonds and prefs. He thought my piece was balanced and fair but pointed out a couple of errata. I am very happy therefore to make the following corrections:

    1) Dividends on the preference share have not been available in scrip form. However, the dividend on the ordinary share has been compulsorily paid 50% in cash and 50% in 9% preference shares (at par). Where investors have not wanted the preference share they have been placed in the market and the proceeds have been given to the shareholder.

    2) Provision was made for issuance of £40 million of the new REA Senior 8.75% 2020 bond and it was offered in exchange for the £34.5 million 9.5% 2017 bond. What happened is that only £26 million was exchanged and no additional amount was sold. Therefore the outstanding amounts are approximately £26 million 8.75% and £9 million 9.5% and there has been no net increase of senior debt bonds.

    I'll see if this can be added as an addendum to Bond of the Week.
  • Oliver,

    Thank you for an incredibly well researched, and well written article on REA Holdings Prefs. I bought some a few months back and was umm-ing and ahh-ing about buying a few more. I think I will hang on a bit to see where commodities in general and palm oil in particular are likely to head.

    I know your artciles are appreciated - not just here, but on other boards that refer to them, so please keep up the good work. What I like is the fact that you write when you have something to say, and don't just write because you feel you have to do so regularly.

  • Oliver, much appreciated
    I may take a punt in 3 months time, just before Xmas, at which time I would review
    a) The 2015/6 El Nino event (Secondly we are about to have an El Nino weather event which historically has led to a dryer climate)
    b) Crude Oil output from USA and its price
    c) Palm Oil price
  • If Oliver does not have anything to say about bonds he could say so in the column, and then have a rant about some other issue, it is usuallly very amusing!
    Alternatively, we could have a view on the Lloyds court case and their behaviour towards investors.
  • With palm oil prices increasing I thought I make a small purchase at 99p (yield 9%)
    Palm oil prices have risen from their low point of 480 to 852.

    Previous write-ups

    Been a long time since October 2015 (my last comment on this security)
    I appreciate some risk with this holding, however I suspect their may be an opportunity for a capital gain over a 2-3 year period, the coupon income would also be welcome for that period. The holding is less than my usual quota at just 1% of total portfolio.
    I suspect there is some price correlation with crude oil (bio-fuels)
  • No recent comment on this Pref , however the price has been reducing to 78p, therefore offering a yield of 11.5%. Fortunate that I exited back in April 2018 after they had announced 2 years of losses. Possible future investment opportunity?
    Any additional comment?
  • Thanks for the heads up Shaunm-very interesting. I have just returned from 2 weeks hols/business in Costa Rica which is a smallish producer in the palm oil business but is growing rapidly. Interestingly the people of C.R. are quite 'green' in their outlook and not sure of the sustainability of palm production being mono thus not good for other plants/animals. This appears to be a worldwide picture but we could say the same about Prosecco producers in Italy grubbing out ancient pastures for new production.
    So ethically Palm is a bit of a bad boy now but there again so is IPF and Provi. !
    Yield of 11.5% tempting but needs to be reviewed and watched over rather than invest and forget i guess.
  • Suzssexmade,
    I totally agree with your assessment. With normal oil prices not that high, less need for greater bio-fuels (less substitution). Keeping clear of Rea Holding at present. Regarding IPF, I'm taking up the exchange, but likely to sell shortly afterwards, my guess
    (finger in the air) some bad news will arrive this autumn regarding the Tax issues (then buy again on the lower bond price)
  • Thanks Beekey for the news. As normal if 'something appears to be too good to be true....'
    Just hope it's not the case for IPF as i have also exchanged and indeed applied for more new stock. Oh well too late now.
    Shaunm indeed IPF need watching carefully but even if we can get 6 months at 7.75% p.a. that would be pretty good though i would be delighted to get 4 years out of it, just hope my nerves are strong. !
  • Suspension of the Dividend not good news for current holders, but could become a future investment opportunity (at high risk). Being a cumulative pref, the ordinary shareholders would naturally like a future dividend themselves, therefore some pressure to re-instate once the company cash-flow improves. Perhaps periodic (6 monthly) review of "palm oil prices" would be in order to access the situation
  • The latest annual report shows Share Capital of £132m made up of £116m of Prefs and £17m of Ords. Net Assets are £261m. CPO price yesterday $506.
  • Over the years the group has issued an increasing number of Preference Shares, hence the struggle to pay the Pref Dividend, perhaps no longer a future investment opportunity .
  • shaunm: I have a few of these. Consider the number of Prefs to be unbalanced against the Ords. Some comfort in the Net Assets number. However, this is now a bet on the COP price IMV. Company appear to consider that a price recovery should come in due course as demand outstrips supply. No indication given as to price needed to reinstate payment - $600+.? Share capital needs restructuring. Not so long ago Prefs price was 110ish. Too late to sell now.There may be an opportunity to top-up but this will always be a risk on the CPO price. One to watch, very closely.
  • However, this is now a bet on the COP price IMV
    dandigirl, yes that or a merger with one of the financially stronger producers
  • hind: quite right. If the industry view is that demand will outstrip supply that would make sense. CPO price today $504.
  • A question: If one buys today, what is the position regarding the missed dividend payment? When paid, assuming it is, should it be paid to the holder on the ex-div date or the buyer?
  • It would make sense that the dividend is paid to the holder at the time the new dividend is declared, ie the current holder. Therefore if there are 2 missed payments payments and company makes 3 payments say on June 2020, then the holder at that date receives all 3 divs. It would be difficult/illogical to pay "old shareholders"?
  • shaunm: thank you for your thoughts.
  • edited June 2019
    Surprised the RE.L holders not sold to buy these as if company reaches profits again in the 2 years they state, these will be decent capital appreciation and 18% interest due. Not sure RE.L will do that
  • On the basis that one could purchase at today's price 60p, and that in 2 years time they reinstated the dividend and say at a price of 90p, then one would make 87.5% profit over the 2 years.
    1000 units @ 60p = £600 initial cost
    Dividend payment 1000 * 5 (payments) @ 4.5p = £225
    Sale at 90p provides £300 profit
    Total Profit = £225 + 300 = £525 (525/600) = 87.50%
    Hind, I agree with your assessment, Pref Holders are likely to be better off
  • On the matter of who receives the last dividend payment, it seems that the ex-dividend date is the key. The payment goes to the holder before the ex-div date. If you bought ex-div that it how it is, the divi is excluded. CPO price down to $486. SP 142.
  • SP has fallen to 105. CPO is 484. Prefs 71. Hmmm.

    Interims due late September should make for an interesting read.
  • CPO price not looking good, however if tensions between US & Iran boil over then oil and CPO likely to rise in step as a substitute over a longer period.
  • Having fallen to the low 90s, SP is now 160.
    CPO up at 570 having been a little higher.
    Prefs 73.50 having fallen into the 60s.

    Did have a small top-up in the mid 60s.

    Happy to see our paper losses diminish but given that CPO is still below 600, unwilling to top up more at this price.
  • Post on The Lemon Fool reads: """Sold out of these this morning. Noticed that the half-yearly report was published last week A grim read. It informs that the December divi will be deferred too. There are too many references to funding requirements including the need to raise £31.9m to refinance notes falling due next August. It goes on to inform that it is intended to submit "proposals to deal with the arrears of pref shares divi and to resume payments in cash dividends" provided CPO prices continue to recover whilst recognising the need for additional equity. My read is that it is proposed to address the divi arrears by offering more of the same. Too much uncertainty for me with almost total dependence on the CPO price increasing much faster that it is""".

    I have sold today.

  • REA issued a trading statement last Friday. I was interested to read the following words.

    "The group is now working on arrangements regarding refinancing of the £30.9 million nominal of 8.75 per cent sterling notes 2020 that fall due for repayment in August 2020.

    "Provided that substantially all the sterling notes are successfully refinanced, crops continue to achieve budgeted levels and the CPO price is at least maintained around current levels, the directors intend to resume payment of cash dividends on the group's preference shares in 2020. The directors also plan progressively to catch up the arrears of dividend on the preference shares, commencing in 2020 with a payment of 1 per cent per share at the end of March 2020."

    This sounds encouraging and should help the share price to recover further.
  • I wouldn't at this stage for anybody to climb aboard and take a punt. Too many unknowns at present, with normal oil (Brent Criude) prices slipping, thus less need for bio-fuels. Will Palm oil be in more demand due to the Covid-19 virus (I suspect not). China is a big importer
    1. India: 9.2 million tonnes

    2. Indonesia: 7.3 million tonnes

    3. EU 28: 7.2 million tonnes

    4. China: 5.8 million tonnes

    5. Malaysia: 2.9 million tonnes

    6. Pakistan: 2.5 million tonnes

    7. Nigeria: 2.3 million tonnes

    8. Thailand: 1.7 million tonnes

    9. Bangladesh: 1.3 million tonnes

    10. USA: 1 million tonnes

    Transportation is going to be a big issue for the next of years for many types of goods, with ships not being allowed to dock due to restrictions, or delayed due to 14 days quarantine. It's not just the boats, it's the crew, many of whom are Chinese
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