- Palm oil price up 40%
- ‘Significant’ boost to profitability
- Further acquisitions on the agenda
Shares in M.P. Evans (MPE:AIM) cultivated a 7.5% rise to £10 in early dealings, marking a new two year high, after the Indonesia-based sustainable palm oil producer upgraded year-to-December 2024 profit guidance off the back of surging palm oil prices, which have risen some 40% year-to-date.
A more favourable pricing environment for CPO (crude palm oil), the company’s main product, combined with the AIM-listed firm’s ongoing focus on cost control, means revenue will be higher than previously envisaged and M.P. Evans expects to benefit from ‘a more significant impact on anticipated profitability’.
SIGNIFICANT STRENGTHENING
While M.P. Evans still expects total crop processing for this year to be flat on 2023 at 1.6 million tonnes, rather than fall as had been expected, CPO prices have actually strengthened significantly since the interim results in September in response to a tightening of global vegetable oil supplies.
M.P. Evans said it has consistently achieved mill-gate prices higher than the eight-month average such that the average for the first ten months of the year has increased to approximately US$800 per tonne, while some group sales in November have topped $950 per tonne.
WHAT’S DRIVING DEMAND?
The rising price of palm oil has been driven by lower combined CPO production volumes in Indonesia and Malaysia, which between them account for around 85% of global production, following a prolonged dry period in 2023 and 2024, as well as increased demand for palm oil as a substitute for other vegetable oils.
Other factors have included increased demand in Indonesia for palm oil as a feedstock for biofuel, as well as a moratorium on planting new land for palm oil production.
THE PANMURE LIBERUM VIEW
‘With M.P. Evans issuing revised guidance for 2024, we upgrade our pre-tax profit estimate by 16% for both 2024 and 2025 to $94 million and $100 million,’ said Panmure Liberum.
The broker reiterated its ‘buy’ recommendation and £11.50 price target for M.P. Evans, highlighting its lowly single digit price to earnings (PE) multiple and attractive dividend yield.
Panmure Liberum expects M.P. Evans to move into a net cash position this year supported by free cash flow generation of $80 million, which takes into account a further share buyback programme and the continuation of the company’s impressive 30 year track record of growing or at least maintaining the dividend.
‘As to what M.P. Evans will do with the cash remains to be seen but M&A is certainly on the agenda with it having recently increased its portfolio by 10,000 hectares through a series of acquisitions,’ added the broker.
