BENSO OIL PALM PLANTATION: A WONDERFUL COMPANY HIDING IN PLAIN SIGHT.

I am a strict adherer to the philosophy of value investing. However, I think the term “value

investing” is a bit of a misnomer. All investing is value investing. Investing at its core is trying

to figure out the value of what something is worth (it can be anything; real estate, a stock or

even a Birkin bag), buying it for less than what it is inherently worth and hopefully if all goes

well realising a satisfactory return on the capital invested. Thus, investing was defined in 600

B.C. by Aesop (a saying that has been used several times by Warren Buffett); “a bird in hand is

worth two in the bush”. What we are trying to figure out as allocators of capital is how to get

the two birds out of the bush using the one in hand.

I would admit, Ghana has had its fair share of macro-economic concerns over the past few

years. Ghana’s economy entered a full-blown macroeconomic crisis in 2022 on the back of

pre-existing imbalances and external shocks. Large financing needs and tightening financing

conditions exacerbated debt sustainability concerns, shutting-off Ghana from the

international market. Large capital outflows combined with monetary policy tightening in

advanced economies put significant pressure on the exchange rate, together with monetary

financing of the budget deficit, resulting in high inflation. These developments interrupted the

post COVID-19 recovery of the economy as GDP growth declined from 5.1% in 2021 to 3.1%

in 2022. The 2022 fiscal deficit was well above target at 11.8%. Public debt rose from 79.6% in

2021 to over 90% of GDP in 2022, as debt service-to-revenue reached 117.6%. This would

scare the average investor, but investors are not economists, our mandate is to look for, buy

and hold easily understandable great businesses at fair prices over the very long term. Great

businesses create enormous wealth over long holding periods across market cycles, even

during negative macro headlines about high inflation, rising interest rates, geopolitical

tensions, weak macroeconomic data points, and political uncertainty.

I believe Benso Oil Palm Plantation Plc (BOPP) is one of these great businesses. BOPP is

engaged in the cultivation of oil palm plantation and the production of Crude Palm Oil (CPO)

and Crude Palm kernel oil (CPKO), which is supplied to consumer goods manufacturing

companies such as Unilever Ghana and Wilmar Africa. A handful of corporate groups

dominate the processing and trade of palm oil due to the high capital investments required to

set up processing and transport facilities of which Wilmar International is one of them. They

also capture the largest portion of value generated. BOPP commenced in 1976 as Joint

Venture between United Africa Corporation International (U.A.C.I) and the Ghana

Government. The Ghana Government Shares were divested to the public in 2004 and the

company got listed on the Ghana Stock Exchange with Unilever Ghana being the majority

shareholder and having management control. In March 2011, Wilmar International, the

largest agribusiness company on the Singapore Stock Exchange, through its Wilmar Africa

Subsidiary acquired the shares of Unilever Ghana and the shares of other shareholders to

become the largest shareholder (they currently own 76.6% of the company) with

management control of BOPP. The Plantation is situated at Adum Banso 42 km (26 miles) north

of Takoradi and 267 km (166 miles) from Accra.

BOPP is a company that deals in the export of commodities, that is they produce the raw

materials used to create the products consumers buy. Apart from processing of palm oil to

CPO and CPKO, the value added is quite minimal. As an investor, this is not what you want.

You want a company that makes a product for a pesewa and sells it for a cedi. That added

value can be realised through a strong brand, high quality of product or significant pricing

power. However, as investors we also must look at the quality of business that we are buying
BENSO OIL PALM PLANTATION: A WONDERFUL COMPANY HIDING IN PLAIN SIGHT.

into and sometimes have a contrarian view as to what would create long-term value. BOPP

operates in a unique environment. It is a company that mainly exports most of its products.

This means it operates in the local currency (the GHC) and exports in US dollars (the worlds

reserve currency). Global palm oil production is dominated by both Indonesia and Malaysia

whose combined output represents 85%-90% of the total number. Ghana is not a significant

player in the global production of palm oil products. However, The Ghanaian cedi has

depreciated sharply against many currencies, particularly the U.S. dollar since the start of

2022. When a currency falls in value, imports become more expensive, but the country’s

export become more competitive on the global market. This is very advantageous for a

company that operates in the local currency and exports in the stronger foreign currency in

terms of profitability.

In the fiscal year 2022, BOPP recorded revenue growth of 59% and managed its costs

prudently, which resulted in a growth in profit after tax of 73.6% (GH¢160.354 million

compared with GH¢92.423 million the previous year). Total Palm Fruits processed during the

year under review was 124,769 metric tons, which was 15% below its 2021 production.

Despite the 15 percent decline in crop production, the main driver of its profitability was the

increase in palm oil prices and the depreciation of the cedi. The world market price of Crude

Palm Oil (CPO) increased from an average of US$1,108 in 2021 to US$1,332 in 2022,

representing a 20 percent increase in dollar terms. The price at which Palm Kernel Oil (PKO)

was traded however, declined from an average of US$1,393 in 2021 to US$1,108 in 2022,

representing 20% drop in dollar term. Thus, the combined effect of the CPO trading prices,

and the cedi depreciation accounted largely for the growth in turnover of 59% for the 2022
BENSO OIL PALM PLANTATION: A WONDERFUL COMPANY HIDING IN PLAIN SIGHT.

financial year as against the prior year. The company has no significant debt on its balance

sheet as of the fiscal year 2022 and has been cash flow positive over the last five years.

This unique situation BOPP finds itself has rewarded investors quite satisfactorily. The

company’s stock price rose from GHC 2.00 per share in 2021 and is currently trading at GHC

19.93 per share. Thus, if you had invested GHC 100 two year ago, your holding would now be

worth about GHC 996.5. That was almost ten times your money. However, we are not

gamblers we do not give much credence to changes in the stock price. As I have already stated

in this article, we as investors are only interested in owning a wonderful business at a fair price

by trying to figure out the intrinsic value of the business and letting the company do the heavy

lifting for us with regards to capital appreciation. I believe, BOPP is still significantly

undervalued, by some 75% from its current trading price. I do not see management taking on

any debt to fund any significant operation, so I expect a healthy balance sheet moving forward.

Commodity prices would fluctuate as they tend to do but this should not be our concern,

whether prices remain at elevated levels in 2023, the attractive fundamentals of an export-

driven business in Ghana would be in BOPP’s favour. Management has proved adept at

managing costs which is crucial for a commodity-based business. For example, in 2022, the

company reviewed its stock cover policies for major materials such as fertilizer to mitigate the

impact of the Cedi depreciation and global supply shortages on prices of the materials. This

makes me have some faith in the ability and quality of management to be rational in the

operation of the business. The company is also in a very capital-intensive industry that

operates as barrier to entry, thus high level of domestic competition is not a concern in this

regard. I expect profitability levels to increase somewhat significantly by year end of 2023.
BENSO OIL PALM PLANTATION: A WONDERFUL COMPANY HIDING IN PLAIN SIGHT.

There are risks as with every investment and as fellow investors I must make you aware of

some of them. BOPP is exposed to shocks in the global commodity market and the

performance of the local currency as products are sold to consumers at prevailing global prices

in USD. The company is also exposed to changes in weather conditions, which can influence

the yield derived from the company’s oil palm plantation located at Adum-Banso. So, I urge

you, the earnest investor to take these into consideration as well as your own discernment

when analysing the stock.