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MP Evans’ interim crop and production update confirms that it has enjoyed a good interim period with crude palm oil (CPO) production similar to last year. Average mill gate prices have remained robust since the AGM a month ago and are +13% versus last year for 1H. Palm kernel prices are +71% higher. We upgrade our FY25 CPO price assumptions to US$800/tonne and include the benefit of the recent acquisition which completed in mid-July. Consequently, we upgrade our EPS (Dil. Adj.) forecasts by 14% to 186.7c from 164.0c for FY25E, by 4.8% to 157.1c from 149.9c for FY26E and by 5.3% to 163.0c from 154.9c for FY27E. We retain our 1500p target price, implying 20% upside.
M.P. Evans Group PLC
MP Evans has completed the acquisition of additional planted hectarage in East Kalimantan that was announced on 16 April. The acquisition is consistent with MP Evans’ stated strategy and is another low-risk acquisition at a sensible price. The US$35.1m acquisition is funded from existing cash resources and should be immediately earnings enhancing. The price is equivalent US$12.6k per hectare, which reflects the higher quality of acquired planted land compared with prior acquisitions. We believe the land value will increase as productivity improves and as scale benefits kick in. We leave our forecasts unchanged as the interim crop and production update is due towards the end of the month. We retain our 1,500p target price, implying 24% upside.
M.P. Evans’ AGM trading statement revealed it has enjoyed a good start to the year with crude palm oil (CPO) production similar to last year. Average YTD mill-gate prices are running 14% ahead and palm kernel prices an eye-catching 92% ahead of our forecast assumptions. We are upgrading our FY25 EPS (dil. adj.) forecast by 16% to 164c from 141.3c. We leave our CPO price assumptions unchanged ahead of the important summer cropping season and assume the palm kernel increase is a temporary spike. We retain our 1500p price target implying 46% upside.
The acquisition of new planted land in East Kalimantan is consistent with MP Evans stated strategy and is another low-risk acquisition at a sensible price. The US$34.2m acquisition will be funded from existing cash resources and should be immediately earnings enhancing. The price is equivalent US$12.5k per hectare, which reflects the higher quality of acquired planted land compared to prior acquisitions. We believe the land value will increase as productivity improves and as scale benefits kick in. We leave our forecasts unchanged and retain our 1,500p target price, implying 52% upside.
The 2024 prelims confirm PBT growth of 54% to US$116m, (beating our estimate of US$99m), a net cash position of US$46m and DPS growth of 17% to maintain a 30yr track record of at least maintaining or increasing the dividend. This performance was due to a combination of a higher mill-gate price of US$823 per tonne (2023: US$729) and lower favourable fertiliser prices which, when combined, more than offset lower production volumes of 2%. Based on a CPO price of US$800 in 2025 (i.e. a YoY decline) and CPO production growth of c4% as the weather improves, we currently expect PBT in 2025 to decline to US$113m. That said, with it trading on a 2025E PE rating of 7x and offering a dividend yield of c5.5%, we maintain our BUY recommendation and increase our TP to 1260p (1150p) to reflect the improved cash position.
MP Evans has delivered a record year, with EPS (Dil. Adj.) up 64% to US$161.6c. It enjoyed an excellent 1H when everything went well for the company – and 2H was even better. The new year has started well, with the CPO mill-gate price averaging US$870/tonne; it’s too early to change our US$750/tonne mill-gate average but we have increased our gross margin assumption to reflect a better cost environment. We have increased our EPS (Dil. Adj.) FY25E forecast by 5.8% to US$141.1c for FY25E and by 5.4% to US$149.5c for FY27E and we introduce a new forecast of US$154.7c for FY27E. Cash continues to pour into the business and build rapidly on the balance sheet. This gives MP Evans increasing optionality to increase returns to shareholders via dividends and share buybacks, and to fund new land acquisitions. We have increased our target price to 1500p (was 1400p), implying 57% upside.
The 2024 full year trading update has led us to upgrade our PBT from US$94m to US$99m due to a combination of higher CPO prices of US$823 per tonne (2023: US$729), against our expectation of US$800 and lower costs per production as fertiliser prices declined. This was offset by lower production volumes (i.e. 2%) which had previously been signalled due to a lack of rainfall. The trading update also confirmed it is committed to the dividend thus keeping a 30yr track record of at least maintaining or increasing the dividend – we expect dividend growth of c13% in 2024. It now trades on a 2025E PE rating of 8x and offers a dividend yield of c5% (2.6x covered). We maintain our BUY recommendation and target price of 1150p.
We have increased our FY24E forecasts for the third time this year, following today’s crop and production update, driven by a surging CPO mill-gate price which reflects, in part, a slightly lower than expected production outcome. The FY24 mill gate price of US$823 is 13% higher than last year and +2.8% ahead of our most recent forecast. Full-year CPO production fell 2% as output across Indonesia was impacted by dry weather conditions in late 2023. We increase our EPS (Dil. Adj.) by 8.2% to US$152.5c from US$141.0c for FY24E: we have left our FY25E and FY26E forecasts unchanged. We retain our 1400p target price, implying 46% upside.
Following today’s unscheduled trading update, we are increasing our EPS (Dil. Adj.) forecasts for FY24E by 15% to US141c from US122.6c and for FY25E by 7.1% to US133c from US124.1c to reflect the recent strength of the CPO price. The H1 average CPO mill-gate price was 10% higher than our FY24 forecast assumption of US$700 and we increased our mill-gate assumption to US$750/tonne when it reported its interims in mid-September. Since then, the cif Rotterdam CPO price has surged by 25% to a recent peak of US$1,360 with little sign of an imminent decline and we have increased our FY24 mill-gate assumption to US$800. MP Evans enjoyed an excellent H1 when everything went well for the company, and it is increasingly apparent that the H2 outturn could be even better. We retain our 1400p target price, implying 50% upside.
Palm Oil prices have increased by c40% in 2024 to the extent that the current mill-gate prices are significantly ahead of our current forecasts. With M. P. Evans issuing revised guidance for 2024, we upgrade our PBT estimate by 16% for both 2024 and 2025 to US$94m and US$100m. We reiterate our BUY recommendation and price target of 1150p as it now trades on a 2025E PE rating of 9x, offers a dividend yield of 5.7% (2.5x covered), a FCF yield of c13%, is net cash and has a share buyback programme in place.
MP Evans has enjoyed an excellent H1, reporting an 81% increase in EPS to 44.9p. Everything went well for the company; volume and prices rose, costs fell, it crystallised a latent working capital benefit and even FX moved the right way. Consequently, we have upgraded our FY24E EPS (Dil. Adj.) forecasts by 10.9% to US$122.6c. This is less than one might have expected, given the strength of the first half, but palm oil is an agricultural product and there’s no escaping the negative impact of the weather on crop yields and harvest timings. We have increased our target price to 1400p (was 1300p), implying 64% upside, to reflect the minorities acquisition, reduced debt and a lower share count.
Following the publication of the interims we leave our full year PBT unchanged implying growth of 8% though the interims did confirm DPS growth of 20% (against an expectation of 5%) and a better performance from working capital. This has led us to improve our year end net cash forecast from US$4m to US$10m. Trading on a 2024E PE rating of 10x and offering a dividend yield of c6% (there is also a £8m share buyback programme in place), we re-iterate our BUY recommendation and target price of 1150p.
There can’t be many companies which can present a 30-year unbroken record of at least maintaining or growing the dividend. M.P. Evans can. What’s more, there is a share buy-back in place, the dividend yield is 5.4% and we expect it to be net cash. This is supported by a combination of increased production, maturing plantations, expanded milling capacity, increased extraction rates from its own mills and a focus on producing sustainable palm oil which attracts a pricing premium. Finally, demand growth for palm oil is at a time when government and sustainability initiatives have restricted the land available to grow palm oil. Accordingly, the palm oil price has increased by 17% since June 2023. Trading on a 2024E PE rating of 9.7x, we initiate coverage with a BUY recommendation and a target price of 1150p. 64% of production in 2023 was certified as sustainable. A key focus for M.P. Evans is the production of sustainable palm oil. All six of the Group’s mills have been ISCC certified with one mill expecting to secure accreditation to produce 100% certified output during 2024 (five mills have also attained RSPO accreditation with the remaining one expected to receive certification by the end of 2024). In addition, in their 2023 assessment of public disclosure on ESG, the Zoological Society of London gave M.P. Evans a score of 86.7%, an increase of 6.5% on the previous year, ranking it 13th out of the 100 palm oil companies that were assessed. Net cash by the end of 2024 – positive Q1 trading update. We expect M.P. Evans to move into a net cash position in 2024 (subject to further M&A activity) as free cashflow generation is expected to be over US$60m. This is despite the fact we expect it to continue the share buy-back programme in 2024 and to grow its dividend by 5%. In doing so, the dividend cover is still over 2x. The latest trading update confirmed continued progress with production of CPO up 10%, of which 96% was processed through its own mills, a mill-gate price of US$770 per tonne and an extraction rate of 23.4%. Target price of 1150p Assigning a valuation of US$12,000 to each planted hectare equates to a value of 1150p. However, should we assign US$15,000 to each planted hectare, it implies a target price of c1450p. Either way, the value is materially above the current share price and underpins our buy recommendation.
Today's news and views, plus announcements from: AZN, BOWL, BVIC, SONG, HTG, TKO, MPE, WHI, EARN, & DELT.
MP Evans is one of the most efficient producers of sustainable palm oil in Indonesia with a proven track record of developing valuable plantations and, more recently, buying plantations at excellent prices. The 2022 spike in the CPO price created a surge in FCF which has supported the execution of its development strategy, evidenced by the two acquisitions in 2023 and the commissioning of a sixth mill in February 2023. MP Evans is at the start of a ten-year cash flow window where maintenance capex for replanting older trees is limited as the average age of the palms is just 10 years. This gives it increasing optionality to accelerate returns to shareholders and to acquire further plantation assets. The new year has started well but it is too early to consider any upgrades at this stage. We reiterate our1300p target price, implying 56% upside.
FY23 results are much in line with overall expectations, helped by a much stronger H2 production and higher purchases of independent crops helping to fill the group’s rising mill capacity. A marginally higher than expected average CPO price mill-gate price of $729/tonne drove the revenue outperformance, but the change in production mix impacted gross margins while slightly higher than anticipated interest, tax and minority charges resulted in EBIT, PBT (Adj.) and EPS (Adj.) just below our forecasts. We have trimmed our EPS (Adj.) forecasts fractionally, with a lower GP margin being mostly offset by a lower forecast share count and tax charge. Strategically, MP Evans has made significant progress with new land acquisitions and a new mill, and we expect the scale benefits to flow into ongoing profit and FCF generation. We retain our 1300p share price target, implying 73% upside.
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M.P. Evans Group PLC Petra Diamonds Limited
We are ceasing coverage of MP Evans due to prioritisation of resources. Our last published Recommendation was Buy, and our target price was 1,140p.
Today's news and views, plus announcements from: ORIT, FOUR, ROO, WIN, DFS, MPE, & AVCT.
M.P. Evans Group PLC Avacta Group PLC
Long-term value – Palm oil businesses are valued on a DCF given the long-term visibility over production and cash flow. The recent purchases extend MP Evans’ growth profile and profit potential. The shares are trading on a c.50% discount to historic NAV and are supported by a c.6% yield. We reiterate our Buy rating and 1140p TP.
We release new FY24 and FY25 forecasts, post the completion of the two packages of land in East Kalimantan on 27 November. Their impact is marginally earnings negative in FY24E with the acquisition benefits flowing from FY26E and we expect FCF and profits to accelerate over the next five years, at least driven by scale benefits and better management of the maturing plantations. Finally, we believe the land value will rise steadily in-line with yield improvements. We have increased our mill gate price assumptions to reflect a more stable than expected environment but reduced our gross margin assumptions to reflect more historic norms. In summary, our EPS (Adj. – US$c) decreases by -4.1% to 113.4c from 118.3c for FY24E and by -12.1% to 123.8c from 140.8c for FY25E. We retain our 1300p target price.
There has been some seasonality that has affected H1 crops and production performance, but production has rebounded strongly in July and August, the CPO price has declined slower than we anticipated, and fertiliser costs have fallen. Consequently, we leave our forecasts unchanged. It’s been an exceptional couple of years for profitability and FCF generation for MP Evans; this cashflow is being put to good use and is funding an ongoing programme of share buy-backs and acquisitions, with two announced to date. The Simpang Kiri acquisition was announced on 6 March, the conditional East Kalimantan acquisition was announced a few days ago on 7 September. We will update our forecasts when the deal completes, but the acquisition should be earnings enhancing and value accretive. We maintain our 1,300p target price.
1H profit was lower (as expected), but the strong start to 2H means that we make no change to our full-year forecasts. The company is continuing to add to its production potential, which should improve profits and cash flow. The shares are trading at a c.50% discount to historic NAV, which in our view represents compelling value.
Today's news and views, plus announcements from: BAT, MRO, GNS, CURY, GRID, HLT, MPE, EMIS, & ANIC.
M.P. Evans Group PLC British American Tobacco p.l.c.
The acquisition of new planted land in East Kalimantan is consistent with stated strategy and is another low-risk acquisition at a great price. Shorter term, MP Evans will improve its productivity; longer term the acquisitions add critical mass to Kota Bangun and gives a platform for growth further north. The acquisition price of US$60m, is excellent, equivalent to just US$9.0k per hectare, and we expect this land value to increase as productivity improves and as scale benefits kick-in. We leave our forecasts unchanged for now, pending the interims on Monday.
On strategy – this acquisition adds material hectarage in line with the company’s strategy of expanding near existing estates and utilising its milling capacity. Next news is the 1H results on 11 September.
Today's news and views, plus announcements from: AAL, III, AWE, PHAR, AEWU, CAU, NET, & MPE.
MP Evans’ interim crop and production update confirmed that it remained on track to achieve full-year forecasts. The tone is like the AGM statement: H1 CPO (Crude Palm Oil) production is +3% with higher yields and purchases from independent suppliers offsetting a lower harvest due to crop seasonality, which should reverse later in the year. CPO mill gate prices are -27% YTD, as expected, but have ticked up slightly in June. MP Evans’ share price is -16% YTD and seems to be following the CPO mill gate price, yet it is quickly moving towards a virtuous circle of rising free cashflow, helped by falling forecast capex. Debt has been reduced and the increased balance sheet firepower increases MP Evans’s optionality to exploit further sensible new land opportunities and raise returns to shareholders via dividends and further share buy-backs.
These numbers are very similar to those at the AGM in early June. As expected, the current price environment will mean profits will be lower than last year but operationally the company continues to deliver and the long-term value grows. The shares look attractive given they are trading on a c.50% discount to historic NAV.
Today's news and views, plus announcements from: ENT, VCT, GAW, SAFE, MPE, RST, & FDEV.
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MP Evans’ AGM trading update is more complex to interpret than usual but, on balance the positives offset the negatives, so we leave our forecasts and 1300p target price unchanged. After a good start to the new year, processing of fresh fruit bunches (FFB) has moderated slightly due to crop seasonality, which should reverse later in the year. Crude palm oil (CPO) mill gate prices fell by 28% to US$779/tonne, but this remains comfortably above out FY23 forecast assumption of US$710/tonne. The oil extraction rate remains excellent, the new mill will improve gross margins as volumes grow, and declining fertiliser costs should help from H2.
As expected, the current price environment will mean profits will be lower than last year but operationally the company continues to deliver and the long-term value grows. The shares look attractive given they are trading on a c.50% discount to historic NAV.
MP Evans has delivered another strong year driven by an excellent crop and production performance and the continuing strength of the CPO price. However, profits are a tad below our top-of-range forecasts due to higher-than-expected cost pressures, namely fertiliser and the cost of buying in fresh fruit bunches (FFB), but cashflow and the dividend is better than forecast. Current trading is encouraging with production performance and the CPO price ahead of our assumptions. FY22 cashflow performance remains exceptionally strong. The debt has been reduced and the increased balance sheet firepower increases MP Evans’s optionality to exploit further sensible new land opportunities and raise returns to shareholders via dividends and further share buy-backs. We have edged down our gross profit and PBT (Adj.) for FY23E and FY24E, but our EPS (Adj.) forecasts are essentially unchanged due to lower share counts.
MP Evans has had another good year, with a healthy improvement in crops, helpful pricing and continued development of assets. The recent land acquisition will continue the theme of increasing crop volumes and asset value. The impressive long-term track record on dividends continued with a 21% increase in the normal dividend to 42.5p. The shares are trading on a c.45% discount to historic NAV and offer a 5% dividend yield.
On strategy – This acquisition fits with the company’s strategy to expand close to its existing estates, with the added benefit of being able to add a mill. The acquisition is also at an excellent price per hectare.
The commissioning of MP Evans’ sixth palm-oil mill at its Musi Rawas estate in South Sumatra allows it to increase its own milling capacity. The new mill should increase palm oil extraction rates from the current 20.4% for the estate towards the group average of 23.1%. We leave our forecasts and 1250p target price unchanged, implying 52% upside.
MP Evans has had another good year, with a healthy improvement in crops, helpful pricing and continued development of assets. The company intends to continue to pay an attractive and growing dividend. The shares are trading on a c.30% discount to historic NAV.
Reflecting lower palm prices After seeing very strong palm prices in 1H, the level has moderated in 2H due to an increase in supply combined with weaker demand given the economic environment and performance of other vegetable oils. As a result, 2H profits will be lower than forecast previously and we adjust our numbers accordingly. We expect volume performance to continue to be positive given maturing plantations and more helpful seasonal growing patterns. The shares are trading on a c.30% discount to historic NAV for 2021 and offer a 4.4% yield. Charles.Hall@peelhunt.com, Andrew.Ford@peelhunt.com 2-page note
MPE has reported record H1 results for the 6-month period ended June 2022. CPO production was flat on a very strong comparative period, but exceptional mill gate prices increased revenues +33%, PBT +53%, interim dividend +25%. Net debt has been eliminated. MPE has hit a virtuous circle of strong operating cash flow and Capex falling, leaving the business well placed for further dividend expansion and investment in growth. A July/August mill gate CPO price hiatus as the market cleared following the May/June export ban results in a slight trim to our FY2022E forecasts, other years are unaffected. Our price target remains 1,100p/share.
Strong 1H performance The strong performance continued in 1H, with a 49% increase in operating profits to US$61.7m, in line with our expectations. This was driven largely by pricing, with mill-gate CPO +43%. Volumes were flat in the period, but a strong performance in July and August means that volumes are now +5% YTD. Pricing has pulled back over the last few months alongside numerous changes to the Indonesian tax and export regime. This looks to have now stabilised, which should give a more helpful background going forwards. Cash flow has been very strong and the company is now in a net cash position. The dividend was increased by 25%. The shares are trading on a c.35% discount to historic NAV for 2021 and offer a 5.6% yield. Charles.Hall@peelhunt.com, Andrew.Ford@peelhunt.com 3-page note
Strong 1H performance We expect 1H profits to be up >50% due to high pricing in 1H. Volumes are similar to last year, but have strengthened through the period and should continue to improve as comps become easier and the plantations mature. CPO and millgate prices have been volatile recently as Indonesia has made a number of changes to the tax regime. The latest iteration looks more sensible and should deliver healthy pricing in 2H. The higher profits will also ensure strong cash generation and so potential for higher dividend payments. The shares continue to look highly attractive in our view given the 36% discount to historic NAV and c.5% dividend yield. Charles.Hall@peelhunt.com, Andrew.Ford@peelhunt.com 2-page note
Upgrading following strong start to the year Profits YTD are well ahead of last year, given strong pricing (+51%) and similar volumes. As a result, we are increasing our FY22E forecasts by 20%. Volumes have strengthened through the period and should continue to improve as comps become easier and the plantations mature. Pricing is likely to remain firm given the situation in Ukraine. The higher profits should also ensure strong cash generation and therefore the potential for higher dividend payments. The shares continue to look highly attractive to us given the 23% discount to historic NAV. Charles.Hall@peelhunt.com, Andrew.Ford@peelhunt.com 3-page note
An exceptional year The full-year results show an exceptional performance with profits more than trebling. Pricing continues to be strong, which ensures a good start to the current year. Cash flow has been stellar and net debt reduced by US$73m last year. We are materially upgrading our forecasts to reflect higher pricing, but see potential for further upside. The shares continue to look highly attractive, given the c.25% discount to historic NAV for 2021 and 4% yield. We have increased our target price from 1,080p to 1,140p and reiterate our Buy recommendation. Charles.Hall@peelhunt.com, Andrew.Ford@peelhunt.com 3-page note
MPE has reported full-year results for the year ended December 2021. These are an excellent set of results driven by robust (+13%) growth in crops, strong (+37%) CPO price, more milling capacity coming on stream and operational gearing. Revenues are in line with recently upgraded expectations, adjusted PBT is +7.5% ahead. Dividends are 5p/share ahead of expectations. MPE has hit a virtuous circle where operating cash flow continues to grow strongly, Capex is falling and loans to smallholders are nearly unwound. This leaves the business well placed for further dividend expansion and investment in growth. We further upgrade FY2022 expectations and increase our price target by 50p to 1,100p/share.
Indonesia adjusts levy Unsurprisingly Indonesia has responded to the surge in palm prices by adjusting its levy system to reflect the new prices levels. The top level is now a tax & levy of US$575, which compares to US$375 under the previous system. This is probably already reflected in millgate prices, which continue to be materially higher than prior levels. MP Evans’ latest tender resulted in a US$1,080 millgate price, which is 33% ahead of the US$810 average secured last year. The full-year results are due tomorrow, when we will increase our numbers to reflect the sharp increase in prices. Charles.Hall@peelhunt.com, Andrew.Ford@peelhunt.com
Stellar 2021 and good start to current year The company has confirmed both strong volume growth and highly attractive millgate prices. As a result, we are increasing our 2021E by c.10%. Pricing continues to be strong, which ensures a good start to the current year. Cash flow has been excellent and net debt has dropped by c.US$70m. The company reiterated that it intends to pay a dividend of at least 30p and has announced an additional 5p special dividend. The shares are trading at a c.30% discount to our forecast NAV for 2021 and yield 4.4%. Charles.Hall@peelhunt.com, Andrew.Ford@peelhunt.com 3-page note
Strong profit & cash performance MP Evans is having a great year and there is a lot more to come given the production profile. We are increasing our forecast by 14% for the current year to reflect the higher palm price. The attached podcast with Peter Hadsley-Chaplin and Matthew Coulson runs through some of the key themes, with a particular focus on the growing emphasis on sustainability and the long-term growth opportunity. We are increasing our target price from 906p to 1,080p to reflect a potential increase in NAV to c.1,200p. Charles.Hall@peelhunt.com, Andrew.Ford@peelhunt.com To listen to our podcast, please click on the image below. 2-page note
MPE has reported interim results for the six months to end June 2021. These are an excellent set of results driven by robust growth in crops, strong CPO price, more milling capacity coming on stream and operational gearing. For the third time this year, we are significantly upgrading FY2021 profit expectations. MPE has hit a virtuous circle where operating cash flow continues to grow strongly, Capex starts to fall rapidly and loans to smallholders continue to unwind. This will leave the business well placed for further dividend expansion and investment in growth.
Wow! We knew 1H results would be good, but these numbers are exceptional, in our view. Volumes of crop processed improved by 28%, there was a sharp increase in realised prices, and the cost per tonne of own crops reduced. As a result, operating profit increased from $6m to $41.3m, well ahead of our forecast of $28.5m. We are increasing our 2022E PBT by 57% and 2023E by 21%. The improvement is delivering strong cash flow and we expect healthy dividend payments to continue. We see the shares as offering excellent value on a 33% discount to historic NAV and a yield of 4%. We reiterate our Buy and 906p TP. Charles.Hall@peelhunt.com, Andrew.Ford@peelhunt.com 4-page note
Continuing to deliver strong volume growth The 1H update shows a strong performance, with total crop +28% and average CPO price +34%. This will also improve free cash flow and underpins the intention to recommend a 30p dividend for 2021. We currently forecast gross profit to be >$30m for 1H, compared to $9m last year. We think the shares continue to look excellent value given the visibility of strong volume growth, the >4% yield and 37% discount to NAV. In addition, KLK continues to increase its stake with the latest purchase in March taking it to 23.25%. Charles.Hall@peelhunt.com, Andrew.Ford@peelhunt.com 3-page note
CEO to step down Tristan Price is to leave the company at the end of July, having joined MP Evans as CFO in 2006 before becoming CEO in 2016. MP Evans has performed strongly over this period as the business has focused on its core Indonesian plantations with the sale of the Malaysian estates and beef investments in Australia. Peter Hadsley-Chaplin will assume Tristan’s responsibilities prior to the appointment of a new CEO. The company also has a strong team in Indonesia led by Chandra Sekaran, who is joining the board on 1 August. The company is enjoying a strong performance in the current year with rising volumes and higher pricing, which should ensure healthy profits and cash generation. The company has also developed a reputation as a leading player in the industry on sustainability. We do not anticipate a strategic shift with these changes and Tristan leaves the business well positioned to continue to deliver strong growth. Charles.Hall@peelhunt.com, Andrew.Ford@peelhunt.com
Helpful tax change The Indonesian government has confirmed it will reduce its export levy on palm oil (CPO), having increased taxes in December. The change is a reduction of $100 at the top end reducing to $50 at lower price levels. At the current price the reduction is $80. This should prove helpful for millgate prices, albeit there is not a direct correlation between the reference price and the millgate price. We recently upgraded our forecasts due to strong volume growth (+28% for own fruit in 5m to May) and high pricing. H1 profits should be sharply higher than last year and we see our forecasts as a base level for the full year. The shares continue to look excellent value given the visibility of strong volume growth, the c.4% yield and 35% discount to NAV. In addition, KLK continues to increase its stake with the latest purchase in March taking it to 23.25%. Charles.Hall@peelhunt.com, Andrew.Ford@peelhunt.com
Strong volumes and prices We are upgrading our forecasts to reflect a very strong start to the year in both volumes and pricing. As a result, H1 profits should be sharply higher than last year and we see our new forecast as a base level for the full year, with additional upside if prices remain firm. The shares continue to look excellent value given the visibility of strong volume growth, the c.4% yield and 33% discount to NAV. In addition, KLK continues to increase its stake with the latest purchase in March taking it to 23.25%. Charles.Hall@peelhunt.com, Andrew.Ford@peelhunt.com 3-page note
MPE has released an AGM trading statement covering the first five months of the financial year (to end May 2021). The statement highlights a very strong start to the year both in terms of CPO production and CPO prices. As a result we are upgrading FY2021E EBIT, PBT and EPS by c12%. Our price target, based on EV/ha multiples, remains at 1,000p.
Profits, cash and dividends ahead of expectations Profit was 24% ahead of our forecast, cash flow was better than expected and the company is to pay a full-year dividend of 22p vs our forecast of 17.75p. The current year has got off to a strong start with volumes +c.20% and higher prices. As a result, we are increasing our 2021E by c.12%. The company also announced an intention to pay a dividend of 30p for the current year, which is a dividend yield of 4.7%. We reiterate our Buy recommendation and 906p target price, which is based on a c.20% discount to NAV. Charles.Hall@peelhunt.com, Andrew.Ford@peelhunt.com 3-page note
MPE has reported an excellent set of FY2020 results. Crops and CPO production were ahead of our expectations, compounded by operational gearing and a lower- than-expected tax rate such that adjusted EPS was 43% ahead. FY2021E is upgraded by a similar amount but our price target remains 1,000p/share.
MPE has provided a crop and production update for the year ended 31 December 2020. Own FFB crop, +9% y-o-y, is in line with expectations. CPO-equivalent production, +17% y-o-y, is 3% ahead of our expectations. We are upgrading FY2020E PBT by +11% and FY2021E PBT by +6% due to the strong CPO price.
Strong end to the year The company has reported that the level of crop processed last year was +21% to 1.2mt, which is 6% ahead of our forecast, reflecting a strong period in November and December. In addition, CPO prices have continued to firm and are now over $1000 per tonne. As a result, profits are likely to be materially ahead of expectations and we increase our 2020E by 27%. We are not changing our 2021E at this stage, but current production and pricing means the company will be enjoying a strong start to the year. Charles.Hall@peelhunt.com, Andrew.Ford@peelhunt.com 2-page note
Raising medium-term expectations MPE has provided greater granularity on its volume trajectory which is now expected to reach c.1.8mt in 2025, an increase of c.80% vs 2019. The mill programme will be completed by then, which should increase margins materially. MPE has set out an illustrative scenario showing EPS of 85p, but this could just be a staging post given ongoing production growth and cautious assumptions. Based on 85p, the shares are trading on just 7.5x PE and would potentially yield c.9%. The 1,101p NAV reported for 2019 would also increase materially. KLK clearly sees potential as it continues to add to its holding and now owns over 22%. Charles.Hall@peelhunt.com, Andrew.Ford@peelhunt.com 8-page note
There is a popular misconception that Palm Oil is ‘bad’. We would contend that Sustainable Palm Oil (SPO) is actually ‘a very good thing’. SPO is the world’s most efficient and useful vegetable oil, requiring one fifth of the land to produce versus soybean oil. MPE, a leading proponent of SPO, operates in an environmentally sustainable manner, taking great care of natural resources, while its social outreach policies are second to none. Scoring highly on the finnCap ESG scorecard, we can recommend MPE as a financial investment and as an ethically sound investment.
Strong production growth continuing MPE has issued a production update to coincide with its investor event, which will focus on growth and sustainability. Volumes in own plantations (including smallholders) grew by 7% in the 10 months to the end of Oct and overall volumes increased by 19% due to a substantial increase in bought-in fruit. Palm prices recovered to pre-pandemic levels due to recovery in demand and subdued supply. Higher prices combined with strong volume growth should translate into materially higher profits and cash flow. The shares are still trading at a 45% discount to historic NAV, which is far too high, particularly as KLK continues to add to its position (now 22%). Charles.Hall@peelhunt.com, Andrew.Ford@peelhunt.com 3-page note
IQGeo Group (IQG): Corp | M.P. Evans (MPE): Corp | PCI Pal (PCIP): Corp |Surface Transforms (SCE): Corp
MPE SCE PCIP IQGLF
MPE has reported interim results for the period ending June 2020. The operational performance is strong (CPO-equivalent production up +31%) but gross margins are lagging our expectations. Despite upgrading our CPO price expectation +8%, we are trimming our FY expectations by c10%. Our price target – which is not driven off volatile short-term earnings – remains at 1,000p/share.
M.P. Evans (MPE): Corp AGM update: excellent start to the year | Somero Enterprises (SOM): Corp Trading update
M.P. Evans Group PLC Somero Enterprises, Inc.
MPE has reported excellent results for the year ending December 2019. Total crop handled by MPE exceeded one million tons for the first time and exceeded our expectations by c9%. As a result, revenue was c10% ahead of our expectations, adjusted PBT c30% ahead. We are upgrading FY2020E adjusted PBT by c12% but this could prove conservative as we see significant potential deflation on the cost base while tension appears to be entering the CPO market. We expect MPE to maintain its dividend in FY2020E and we maintain our 1,000p price target.
MPE has announced H1 2019 results to end June 2019. H1 2019 was always going to be a difficult reporting period, simply because the average CPO price in H1 2019 is down 20% on H1 2018. Further, some of the plantations have taken a bit of a ‘growth pause’ after exceptional growth in 2018, while MPE has accelerated some field and mill maintenance tasks (and associated costs) in H1 2019. While H2 is likely to be much stronger due to a stronger CPO price and helpful seasonality with plantation harvests, we find it necessary to trim forecasts. However, our price target of 1,100p/share is unchanged as it looks through short-term earnings volatility.
M.P. Evans (MPE): Corp Prices and volumes under pressure in H1 | Omega Diagnostics (ODX): Corp VISITECT CD4 ERPD clearance
M.P. Evans Group PLC Cambridge Nutritional Sciences PLC
MPE has announced the purchase of minority shares in its 14,500ha of Sumatra-based plantations from ANJ. This is a win-win for MPE: it increases ownership of the plantations from 80% to 95% (retaining a 5% local shareholder), bringing ownership into line with its other plantations; effectively acquires a further 2,200ha of planted and well managed land for a very attractive price, and; achieves earning accretion and better deploys the strong balance sheet. In FY2020E our earnings increase 4% while our sum of the parts (coupled with weak Sterling) increases to 1,100p. We increase our target price accordingly.
MPE has reported excellent results for the year ending December 2018. Operationally there was strong growth with total crop increasing 27% y-o-y to 829,100 tons (1% ahead of our expectations) while CPO-equivalent production increased 25% y-o-y to 192,500 tons (inline with our expectations). With costs of production lower than our expectations, EBIT and PBT were well ahead of our expectations. Going forward, the plantations seem to be well on track but unfortunately the CPO price remains weak. We are dropping our CPO price assumption for FY2019E by US$100/ton, which drives material earnings downgrades. Our sum of the parts-driven price target is unchanged at 1,000p.
M.P. Evans (MPE): Corp Robust 2018 production data | Mothercare (MTC): Corp Q3: Strategic progress despite continued UK challenges | Shoe Zone (SHOE): Corp Delivering upgrades; step-change in confidence in growth
MPE SHOE MTC
MPE has had a good start to 2018, with strong growth in crops and CPO production and solid work with bringing the recent Bumi Mas acquisition up to group operating standards. The fly in the ointment is the H2 weakness in the CPO price. Based on the H2 average price of US$575/ton, MPE will be facing a 13% price headwind for the full year and we are now trimming FY2018 forecasts accordingly. We, and the industry, look through this volatility by valuing the business on an EV/ha basis, the assumptions for which are unchanged hence our target price does not change, implying c30% upside from current levels.
ClearStar (CLSU): Corp Medical business delivers positive EBITDA in H1 | M.P. Evans (MPE): Corp Plantations performing to plan in H1 | Surface Transforms (SCE): Corp Expecting a transformative year | Tri-Star Resources (TSTR): Corp Interim results
MPE SCE TSTR CLSU
MPE is a bit like an iceberg: a great deal of the potential lies below the surface. In a detailed review of the business we can conclude with a high degree of conviction: (i) based on what is already planted in the ground, output of Oil Palm fruit should grow at 15% compound to FY2023E; (ii) the MPE plantations are world class in terms of operational KPIs and environmental sustainability and should be valued at least in line with its Asian-listed peers at US$18,000/ha, which increases our share price target to 1,000p; (iii) a strong balance sheet and rapidly increasing free cash flow should provide the business with a great degree of strategic flexibility going forward, including growing the dividend.
MP Evans (MPE LN), the Indonesian palm oil producer with residual Malaysian property interests, has released its annual results for the period ended 31 December 2017 (FY 2017).
In August, we downgraded our FY2017 forecasts as the CPO price did not appear to be recovering as we expected this year. Only one month later we find ourselves in the surprising position of upgrading FY2017 forecasts, albeit for totally different reasons. Interim results have highlighted an unexpected development: following the construction of a new mill at Bangka in 2016, management have managed to find considerably more FFB from outside providers to optimise loading of the mill while the associated plantation ramps up production. While this outside FFB will eventually be largely replaced with own production (FY2019), it does produce a useful bump to CPO production in FY2017 and FY2018. We upgrade FY2017 EBIT by 20% and FY2018 EBIT by 10%.
MP Evans (MPE LN), the Indonesian palm oil producer, has announced interim results for the period ended 30 June 2017. Revenue: US$57.5m, +89.4% YoY (H1 2016: US$30.4m) | Adjusted Operating profit: US$15.9m (H1 2016: US$3.4m) | Fresh fruit bunches (FFB) processed (own, majority-owned estates): 213,800t, +25.5% YoY (H1 2016: 170,300t) | Crude palm oil (CPO) produced: 70,500t, +55.6% YoY (H1 2016: 45,300t) | Interim dividend: Increased to 5.0p (H1 2016: 2.25p)
Indonesian palm oil producer MP Evans (MPE LN) has acquired a privatelyheld Singapore-based company whose local subsidiary holds 95% of a 10,000ha oil palm project in East Kalimantan.
MP Evans (MPE LN), the Indonesian palm oil producer with residual Malaysian property interests, has released its annual results for the period ended 31 December 2016 (FY 2016).
Hardide* (HDD): Positive trading update (CORP) | MP Evans (MPE): Strong results given El Nino in 2016 (BUY)
M.P. Evans Group PLC Hardide plc
Just as it looked like Indonesian palm oil producer MP Evans (MPE LN) had seen off the hostile intentions of Kuala Lumpur Kepong (KLK MK) for at least 12 months, KLK has begun a stakebuilding process by looking to pick off willing sellers. First to go was Fidelity, an unsurprising sale given its removal from the Board supporters list on the improved 740p bid from KLK. Having picked up additional shares in the market since then, KLK now holds 11.19% of the company.
MPE Share Buy-back Programme VSA Comment
M.P. Evans Group PLC R.E.A. Holdings plc
Ultimate Products—The Telegraph reports Jim McCarthy, former chief of Poundland has been appointed Chairman of Ultimate Products ahead of a £100m listing in H1 2017. Ultimate Products owns the Beldray cleaning brand and the licence to sell Russell Hobbs and Salter electrical products in the UK.
MPE ABZA KOOV HMI STEL SUN HUW AVO RAD
KLK’s Bid for MPE has 12.9% Acceptance VSA Comment
Following our 2 November 2016 note “The valuation genie is out of the bottle”, a great deal of new information has been disclosed about MPE (particularly on the non-core assets), while the company has re-based the dividend, announced a special dividend and announced the sale of major associate PT Agro Muko for US$100m. We now take all this new information into account and update our forecasts accordingly. As a result, we are increasing our price target from 815p/share to 835p/share.
MP Evans is an AIM-listed palm oil producer with operations in Indonesia. Despite a short-term climate-driven trading setback, the strategy of expansion and development of its core business is on course, with a strong balance sheet further reinforced by recent non-core disposals. Management, with support of 41% of shareholders, has rejected a 740p hostile approach by KLK, a Malaysian plantation company, on the grounds that it very substantially undervalues the shares.
KLK increases its all-cash offer for MPE to 740p/share. We still expect management to reject this offer, but will shareholders?
Following its initial offer of 640p (plus the 2.5p interim dividend – now paid by MPE), which was made public on 25 October and swiftly rejected by the MPE board and the majority of its investors, South East Asian palm oil producer Kuala Lumpur Kepong (KLK MK) has returned with an increased offer of 740p per share, a 74% premium to the pre-bid last closing price.
KLK's offer for MPE is 640p per share in cash, representing a 50% premium to the pre-bid closing price. In many bid circumstances this would likely be a knock-out blow, virtually guaranteeing success. However, in this case, all it serves to do is highlight the extreme under-valuation of MPE prior to the bid. In our view, KLK would probably have to increase its bid by another 50% to be offering something closer to the true value of MPE.
MP Evans (MPE): The valuation genie is out of the bottle (BUY) |4imprint (FOUR): Organic growth on track, target price raised (BUY) |Avacta * (AVCT): CAR-T collaboration with Memorial Sloan Kettering Cancer Centre, US (CORP)
MPE FOUR AVCT
Yesterday, Malaysian-listed £5.1bn market cap palm oil giant Kuala Lumpur Kepong (KLK MK) made public a bid it made for Indonesian palm oil business MP Evans (MPE LN) on 11 October, which was rejected by the MPE board two days later.
M.P. Evans Group PLC Carr's Group PLC
MP Evans (MPE LN), the Indonesian palm oil producer, has announced interim results for the period ended 30 June 2016. Revenue: US$30.4m, -20.2% YoY (H1 2015: US$38.0m) Attributable PAT: US$16.7m, +13.2% YoY, including US$4.7m contribution from associated companies and US$11.7m from discontinued operations (including profit on NAPCo disposal). (H1 2015: US$14.8m, including US$3.0m contribution from associates and US$8.8m from discontinued operations). Fresh fruit bunches (FFB) processed (own, majority-owned estates): 170,300t, -9.0% YoY (H1 2015: 187,100t) Crude palm oil (CPO) produced: 45,300t, +1.6% YoY (H1 2015: 44,600t) Interim dividend: Maintained at 2.25p (H1 2015: 2.25p). Special dividend of 5.0p paid on 17 August 2016.
Indonesian palm oil producer, MP Evans (MPE LN), has announced that the sale of its 34.37% stake in Australian cattle operator NAPCo has now completed, with funds to be received shortly.
Indonesian palm oil producer, MP Evans (MPE LN), has announced a trading update alongside its AGM, which is being held today, for the first five months of 2016.
Indonesian palm oil producer, MP Evans (MPE LN), has announced the sale of its 34.37% stake in Australian cattle business NAPCo to the Queensland Investment Corporation (QIC).
At the rumoured price (A$400m), MPE would receive cA$135m (cUS$100m) for its 34.37% stake, well ahead of our expectations and the latest NAV on the MPE balance sheet (cA$65m (cUS$50m)).
M.P. Evans (MPE) recently released its FY 2015 results, which were broadly in line with our expectations. We are not materially changing our FY 2016E forecasts or target price. However, we have reassessed the investment case and remain enthusiastic for the following reasons: 1) the industry should get a tailwind from the CPO price in 2016 for the first time in four years; 2) MPE’s Palm Oil output should grow 18% in both 2016 and 2017; 3) MPE is in a position of net cash, enjoys strong cash flow, and is valued at a considerable discount to its Indonesian peer group.
This month, the Australian Government blocked the proposed sale of cattle business S Kidman & Co, which operates a herd of 185,000 cattle across 11 cattle stations (a similar size to NAPCo, which has 200,000 cattle across 13 cattle stations and is 34.37%-owned by MP Evans (MPE LN)). Chinese groups Genius Link Group and Shanghai Pengxin were reportedly engaged in a bidding war for Kidman with a rumoured price of more than A$350m.
Commodities - Agriculture
Commodities, and the companies that produce them, may be deeply unfashionable, but we still feel compelled to highlight the appealing blend of value, growth and stability offered by M.P. Evans. In our view, there are four reasons to buy M.P. Evans: CPO price likely to rally due to El Nino; visibility over 12.5% CAGR in CPO output; ungeared balance sheet coupled with strong cash flow; deeply undervalued versus peers. We reiterate our Buy rating and 12-month price target of 550p.
MP Evans: H1 2015 Results
MP Evans: FY 2014 Results
