Indonesian palm oil producer M.P. Evans (MPE:AIM) was marked up 3.6% to 580p on Friday following news of a surprisingly strong start to 2020.
Investors welcomed news that the global pandemic has had ‘little effect’ on the group’s operations thus far, with the company ‘confident’ that longer-term crop growth will act as the foundation for improving results.
Today’s annual general meeting update highlighted a very strong start to the year for M.P. Evans, a long-standing member of the Roundtable of Sustainable Palm Oil (RSPO).
Preventative measures have been introduced to protect the group’s employees, including putting its Jakarta office onto remote working. M.P. Evans also assured investors that ‘all estates and mills have been working normally during the last three months’.
CULTIVATING CONFIDENCE
For the five months ended 31 May, M.P. Evans’ crop of oil palm fresh fruit bunches harvested from the company’s estates amounted to 275,900 tonnes, some 16% higher than the 238,600 tonnes recorded for the same period last year.
With a £10 price target for M.P. Evans, implying some 70% upside from current levels, broker FinnCap lauded this as an ‘excellent result driven by relatively young estates continuing to climb up their yield curve’.
This harvest also represents 36.5% of the broker’s full year forecast. With the usual seasonal second half weighting expected in 2020, this suggests the plantations are on track or slightly ahead of the broker’s expectations.
Meanwhile, crops harvested from the smallholder co-operatives associated with M.P. Evans’ new projects increased by a tasty 17% to 70,300 tonnes.
‘Overall, the group’s crops continue on an upward trend resulting from the young average age of the group’s plantations with yields increasing as they mature,’ explained the company.
By the end of May, crude palm oil (CPO) production totalled 106,000 tonnes, up 35% year-on-year and boosted by high levels of bought-in fresh fruit bunches to increase the utilisation of the company’s mills.
CPO PRICE PICK-UP
After a rally in the fourth quarter of 2019, COVID-19 pulled the CPO price all the way down to US$500 per tonne in May. The good news for producer’s such as M.P. Evans is a subsequent bounce-back to US$600 per tonne.
‘Our assumption for the year average remains US$600 per tonne,’ said FinnCap, although then brokerage stressed that estimate could easily prove conservative.
POSITIVE CASH FLOW
M.P. Evans, which hasn’t had to tap investors for fresh funds during the pandemic, insisted it has the financial resources to deliver its planned investment programme thanks to the strength of its balance sheet and positive operational cash flows.
‘Over the next three years, the group expects to commission new mills in Kota Bangun, Bumi Mas and Musi Rawas to maximise the oil obtained from its growing crop of fresh fruit bunches at the lowest cost,’ said the company.
‘The increasing maturity of its planted areas and the application of high operating standards means the board is confident in its ability to deliver crop growth which is the foundation for improving results.’
