MP Evans Announces Plans to Establish New Mill

Indonesia: MP Evans (MPE) celebrated its 150th anniversary in style, distributing an increased dividend of more than a fifth and setting a new milestone of processing 1.5 million tonnes of crops. The Indonesia-focused Palm oil producer also moved into net cash position. Although its profits have dropped due to one-off inflow from the sale of land used to inflate last year's result, they were additionally impacted by higher fertiliser costs.

Palm oil production rose by 9% to 342,000 tonnes in the last year, with production at the newest mill (Musi Rawas) up by 57%. The annual revenue increase was driven by both this increased production and the higher prices of Crude Palm Oil (CPO), which rose on average to $854 per tonne. Prices began moderating in the second half of the year due to Russia's invasion of Ukraine but have remained above $800 for contracts entered after year end.

Despite posting strong top-line performance, profitability declined for the period. The absence of a land sale inflow, coupled with the historic increase in fertiliser and fresh fruit bunches costs had a negative impact on earnings. Management shared that some categories of fertiliser saw an inflation rate over 100% but have since returned to historical figures. Gross margin dropped by 410 basis points, settling at 33.4%.

In 2021, the Roundtable on Sustainable Palm Oil (RSPO) certified 64% of the company's output as sustainable, up from the previous year's 55%. This increase in sustainability was reflected in the year-on-year sustainability premia which increased from $4.3mn to $7.5mn. Sustainability continues to be a key issue within the Palm oil industry and companies are striving to ensure their practices remain environmentally friendly.

MP Evans has increased their balance sheet firepower, which increases their net cash position. The new power gives them more options for exploiting sensible new land opportunities and raising returns to shareholders through dividends and share buy-backs.

For investors looking to invest in a company with solid sustainability credentials, MP Evans is an attractive option. The company is projected to process 1.8mn tonnes of crops by 2025. Additionally, analysts have assigned 10 times forward earnings value for the shares- a figure that is much lower than its 5-year average of 18 times. Overall, it looks like it could be a good purchase.