Bumitama Agri Ltd Share Price Is Down By 12.4% In 12 Months: Here’s Why

Over the last 12 months, Bumitama Agri Ltd (SGX: P8Z) has seen its share price fall by 12.4%. Why could that be the case?

Before we touch on the possible reasons, let’s first have a few quick words on Bumitama’s business for some context later.

The business

Bumitama Agri’s primary business activities are the cultivation of oil palm trees, and the harvesting and processing of fresh palm fruit bunches (FFB) into palm oil and palm kernel oil for sale to refineries.

Its operations are mainly located in three provinces in Indonesia, namely, Central Kalimantan, West Kalimantan, and Riau. With that, let’s go back to why Bumitama Agri’s shares have fallen. 

Reasons for declines

There are many reasons why a company’s share price could go down. But, the reasons can be classified as business-performance-related or investor-sentiment-related.

The former deals with how a company’s business has performed or is expected to perform in a given period. And by business performance, one of the really important numbers would be the company’s profit.

Meanwhile, the latter is about the overall mood of market participants – are investors more greedy than fearful, more pessimistic than optimistic et cetera. In general, negative emotions (fear and pessimism) tend to drag down the prices of stocks while positive emotions (greed and optimism) tend to push up stock prices.

The specific case with Bumitama Agri

When it comes to Bumitama Agri, one possible reason that might have contributed to the decline in its share price is its weaker business performance.

Two snapshots from the company’s latest quarterly earnings presentation help clearly illustrate the point. The first snapshot is the company’s production metrics:

Source: Bumitama Agri 2016 second-quarter earnings presentation

As you can see, most of the company’s production metrics have fallen hard in the second-quarter of 2016 as compared to the second-quarter of 2015.

The next snapshot is Bumitam Agri’s revenue and profit picture:

Source: Bumitama Agri 2016 second-quarter earnings presentation

Again, you can see that there were big declines in the firm’s top- and bottom-line.

Given the year-to-date weaker performance, what can investors expect going forward? In Bumitama Agri’s latest earnings release, it commented:

“Palm oil prices will continue to be affected by slowing global economy. Therefore the Group will continue to focus on yield and productivity improvement as well as cost management. After suffering from low production during the first half of this year due to severe drought last year, we expect our production to start to recover in the second half of this year.”

Turns out, Bumitama Agri’s production levels in the the first-half of 2016 were affected by a severe drought that happened in 2015. The company expects its performance to improve in the latter half of 2016 when the effects of the drought clears.

At its current share price of $0.705, the company has a trailing price-to-earnings ratio of 13.5.

If you like what you've seen, you can get even more investing insights and analyses from The Motley Fool's weekly investing newsletter Take Stock Singapore. It's FREE, so do check it out here.

Also, like us on Facebook to follow our latest news and articles. The Motley Fool's purpose is to help the world invest, better.

The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Lawrence Nga doesn’t own shares in any companies mentioned.