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.
'Lacklustre rebound'
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 three-month horizon.
"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.
Kulim speculation
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 QSR.