MP Evans looks ripe for the picking

Kuala Lumpur Kepong, known as KLK, is itself a palm oil plantation owner and submitted an improved 740p a share bid last year after its initial offer was rejected by the board and a host of institutional investors. MPE's board argued that the offer significantly undervalued the company and, as part of its takeover defence, got an independent valuation of its business which put a 1,082p price on its shares.

It's not too hard to see how the valuer came to a figure so far above the current share price. The 740p KLK bid valued MP Evans' majority-owned plantation assets at $12,250 per hectare yet quoted peers, according to broker finnCap, trade on a median level of $18,600 per hectare. This alone suggests that MP Evans' shares are undervalued in spite of the surge at the end of last year.

The company's recent sale of one of its minority plantation stakes also highlights the value potential. The sale of the 36.8 per cent stake in PT Agro Muko achieved $100m (£80m) in cash, prompting the group to announce a 10p a share special dividend with some of the proceeds being used to invest in substantial new palm oil projects. It also rebased the normal dividend upwards by 60 per cent and a $70m profit from the sale in 2017 is included in the forecasts in our table below.

MP Evans has just one remaining minority investment in the Indonesian palm oil sector and has said it will be selling its 38 per cent share of PT Kerasaan, which is majority owned by Sipef. The sale of this could mean another special payout, as well as realising the company's ambitions set out in 2010 to manage all its own plantations. Being fully in control of its acreage makes sense and comes at a fortuitous time given the rise by the palm oil price from a six-year oiw of $483 per metric tonne in September 2015 to $712 at the end of 2016.

Another under-appreciated aspect of MP Evans is its Malaysian property assets, which it owns through a share of Bertram Properties. Analysts at finnCap recently upgraded their valuation of these assets to $46m from $16.5m previously after an independent valuation report. Management's strategy of selling land once developed or with development permission enables it to command high selling prices, but means the realisation process is likely to prove slow.

Given the value on offer, it's not surprising that KLK is understood to be building its stake to launch another bid at the end of its 12-month regulatory Shut-out period. And there could be interest from other parties before then.