Sceptre Group Limited asks – Should you invest in palm oil?

A staggering one-in-10 products on the supermarket shelf now contain palm oil (from soap and toothpaste to chocolate and muesli) – a fact too attractive for investors to ignore.

A host of recent flotations has made this market easier than ever to access.

Equatorial Palm Oil became the latest company to join the bright lights of London listings after raising £6.5 million for its palm oil operations in Liberia, West Africa.

The newly AIM-listed company follows hot on the heels of Asian Plantations, which joined AIM in November, and New Britain Palm Oil, which floated in December 2007.palm_oil

It now sits among the ranks of REA Holdings, MP Evans, Anglo-Eastern Plantations and Narborough Plantations, which have notched up average gains of over 110% in share price over the past five years.

Alex Martinos, analyst at Mirabaud Securities, says: “Global palm oil consumption has surged in recent decades, driven both by growing demand for cooking oils from Asian economies, and also by increased usage in the west, where it is seen as a healthier alternative to hydrogenated fats in food products.”

One of the better known UK-listed companies, New Britain Palm Oil, has seen its shares rocket since the start of 2009 and have already increased by over 20% since the start of this year.

Testament to its growing presence, the FTSE 250 company recently snapped up an 80% stake in CTP, a Papau New Guinea plantations group, for $175 million – crucially adding over 160,000 metric tonnes of new production in 2011.

In April the company will unveil a new refinery in Liverpool, England, which has already struck a supply deal with United Biscuits.

From biscuits to bread, it is estimated that a growing number of goods are reliant upon the oil.

The oil is remarkably efficient – producing an annual yield of 3.5 to four tonnes a hectare compared with just an average 0.5 tonnes for rapseed or soy. For businesses, its attraction comes in the form of a much more purse-friendly price tag than its aforementioned counterparts.

John Beaumont, analyst at Matrix Group, says palm oil is very efficient compared to other oil crops. He adds: “The other straightforward attraction for businesses is that growing demand will call for increasing prices. There are only a set number of growers globally which makes this business very profitable.”

Beaumont believes the success of companies will rely not upon their abandoning of palm oil, but on their ability to produce it sustainably.

Just recently, Anglo-Dutch group Unilever bowed out of acquiring palm oil from Indonesian supplier Duta Palma amid growing fears of rainforest destruction. The decision comes just months after the FTSE 100 group suspended a $33 million supply contract with producer PT Smart.

The consumer goods giant currently buys 1.4 million tonnes of palm oil annually – 3% of the total global supply of palm oil. However, a spokesman confirmed the group’s committment to buying 100% certified sustainable palm oil by 2015.

This is where the likes of New Britain Palm Oil have done their homework. “New Britain Palm Oil has done so well because all of its fields are sustainable,” says Beaumont. “This makes an excellent selling point and appeals to investors both from a financial and environmental sense.”

Recognising the growing concerns, an organisation by the name of Roundtable on Sustainable Palm Oil was launched in 2004 in an effort to stave off unethical practices and cites the likes the Cadbury and Tesco as members.

To read this article in full, visit http://www.moneywise.co.uk/news-views/2010/03/05/should-you-invest-palm-oil

For more information on investing in sustainable palm oil, please visit www.sceptreinternational.com

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