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Tougher second half for MP Evans

Palm oil producer MP Evans enjoyed an excellent first half, but lower palm oil prices and dry weather are now starting to hit trading
September 15, 2014

High production levels, low costs and buoyant prices nearly doubled profits from palm oil production at MP Evans (MPE) in the first half. But the outlook for the second half, and into 2015, appears less rosy.

IC TIP: Hold at 468p

That's for two reasons. First, the price of palm oil has fallen to a five-year low of $700 a tonne, compared with an average of $895 in the first half. Second, a dry-weather spell at the start of the year is expected to hit yields. Consequently, management has cut the full-year production estimates for its majority-owned estates by 9 per cent to 385,000, and by 8 to 10 per cent for 2015.

Still, chairman Peter Hadsley-Chaplin remains upbeat about the group's prospects, pointing out that MP Evans benefits from low-cost production processes and high extraction rates - particularly following the launch of a new mill. That means it would still achieve a healthy profit margin even if production were to fall and prices to weaken further.

Elsewhere in the business, negotiations to sell off the Woodlands cattle operation in Australia are at an "advanced stage", while the other cattle business, Napco, narrowed its losses as the value of the herd increased and export demand picked up. The group's share of profit from the Malaysian property division nearly doubled to $2.1m.

Broker Peel Hunt expects pre-tax profit of $38.5m for the full year, giving EPS of 54¢.

MP EVANS (MPE)
ORD PRICE:468pMARKET VALUE:£259m
TOUCH:457-480p12-MONTH HIGH:500pLOW: 430p
DIVIDEND YIELD:1.8%PE RATIO:15
NET ASSET VALUE: 658¢NET DEBT:0.6%

Half-year to 30 JunTurnover ($m)Pre-tax profit ($m)Earnings per share (¢)Dividend per share (p)
201338.48.616.22.25
201447.515.430.82.25
% change+24+79+90-

Ex-div: 24 Sep

Payment: 4 Nov

£1=$1.62