MP Evans squeezes more profit from palm oil

Inflation in commodities pricing might be a headache for food retailers, but it has been a boon for palm oil maker MP Evans (MPE). The company’s operating profit of $41.3 million (£29.9m) for the first half was a six-fold increase on the same period last year, and was 32 per cent higher than its total profit for the whole of last year.

Crude palm oil prices have surged this year, up 72 per cent, including cost, insurance and freight, to $1,115 per tonne in Rotterdam. Although MP Evans’ mill gate price increase of 34 per cent to $724 per tonne was much lower (due to higher export levies and taxes paid in Indonesia, where its plantations are based), it upped first-half processing by 28 per cent to 702,300 tonnes and the higher volumes brought down costs.

Production growth has continued growth in July and August and mill gate prices have also edged higher to average $738 per tonne year to date, as global prices continue to climb and the Indonesian government cut the highest tier of its levy by $50 per tonne in July. Chairman Peter Hadsley-Chaplin said the strong palm oil market and its higher production rates “are likely to form the basis for an excellent result for the year”.

The company is doubling its half-year dividend to 10p per share and expects to pay a full-year dividend of 30p (22p in 2020).

Broker Peel Hunt lifted its full-year earnings per share forecast by 61 per cent to  90.9 cents. At this level, it trades at a p/e of about 12-times’ earnings. Additions to its crop growing estate and its mills should take capacity to 1.8m tonnes by 2025, a 50 per cent increase on last year, giving plenty of scope to continue profitable growth. Upgrade to Buy. 

Last IC View: Hold, 632p, 23 Mar 2021