Palm oil increasingly profitable for MP Evans

The simple story is that surging CPO (crude palm oil) prices drove MP Evans’ (MPE) revenue and profits upwards. But that shouldn’t obscure the strategic progress the Indonesia-focused palm-oil producer is making, with investment in new mills paying off. 

The knock-on impact from the invasion of Ukraine on global vegetable oil supply was reflected in a 43 per cent increase in MP Evans' average mill-gate CPO price to $1,035 (£894) per tonne in the half. Year-to-date, the average price was $915 per tonne, with the pricing situation complicated by the Indonesian government’s month-long export ban earlier in the year and a new export tariff on top of standard taxes.

Higher selling prices outstripped cost increases in the half, helping the gross margin rise by 500 basis points to 38 per cent. While crop production was flat due to seasonality and the export ban, the newest mill at Bumi Mas helped production at the company's mills up by 12 per cent. And the volume position has improved over this year, with total crops processed up 5 per cent for the 8 months to 31 August.

The company is now almost able to process all of its own crop. The development of the Musi Rawas mill in South Sumatra should be completed this year and this will leave the company with 6 mills in operation, processing all its crop with the exception of the small Simpang Kiri estate. Chief executive Matthew Coulson told Investors’ Chronicle that Musi Rawas represents “an extra step forwards in terms of margin”. 

finnCap analysts said that MP Evans “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”. The broker values the shares at 9 times forward 2023 earnings, an undemanding rating given the company’s robust cash generation - this drove it into a surplus cash position. Buy.  

Last IC view: Buy, 996p, 22 Mar 2022