M P Evans (LON:MPE)

13th Dec '24 by Mahad

15 comments 695 reads

M.P. Evans Group PLC is a producer of sustainable Indonesian palm oil. Business segments include palm oil plantations, processing mills and a 40% stake in a Malaysian property development business. Owns c.49,600Ha of oil palm in Indonesia, manages 15,900 hectares on behalf of its scheme smallholders and owns 6 palm-oil mills.

Performance highlights: 11% Group's average annual crop growth in the last decade. 23% rise in palm oil hectarage to 49,600Ha. Acquired more than 10,000Ha. 14% increase in smallholder hectarage to 15,900Ha. Doubled mill count from 2020 levels with 6th new mill.

Business model:

Palm oil - Once planted, the oil palm seedling takes about 2 years to mature into a tree. However, it typically takes an additional 3 to 4 years before the tree begins producing fruit. During this early phase, production is relatively low. The tree reaches peak productivity by its seventh year and maintains this high level of output until its 18th year. After that, the commercial lifespan of an oil palm tree is around 25 years, at which point replanting is necessary. the supply chain of palm oil is quite similar to the crude oil market. The palm fruit is separated into two parts: the fruit produces Crude Palm Oil (CPO), while the seed is crushed to produce Kernel Palm Oil (KPO). To produce high quality crude palm oil, processing takes place within 24 hours. For every 10 tons of CPO produced, only 1 ton of KPO is generated. The products then undergo refining and fractionation, which result in different grades of oil. Notably, most of the value created in palm oil production is captured by the palm plantations. For 2023, sales can be broken down into: crude palm oil (87%), Palk kernel (9%) and fresh fruit bunches(4%). $427 per tonne cost of production in 2023 up by 6% due to fertiliser inflation, with average CPO price of $729.
Mills – Doubled its mill count from 2020 levels to 6 with a market leading oil extraction rate of 23.4%, above the Indonesian average of 20%.

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Property development - 40% stake…

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Pat W

1st Jan

Very informative and insightful- thank you. Happy New Year

Mark Carter

I bought shares in MPE in May 2022 at 925p. It has a high StockRank, but it was a disastrous time to buy because palm oil was at a high price at the time. Lesson learned about commodity companies.

It's only relatively recently that I've broken even on them.

MPE seems well-run to me, and sits on a very modest P/FCF of 7.4.

Worth checking out are the palm oil prices: https://tradingeconomics.com/c...

Prices have gone up over the last year, with the shares doing likewise.

Looking at the 10yr chart, one can see a shift happening in 2020. Prices shot up rapidly until 2022, but then declined to a new higher range. One argument (which I agree with) is that we're at a new higher range forever on account of inflationary effects.

Demand for palm oil increases year-on-year.

Over the last 20 years the share price has been increasing at a rate of 9.2%pa. Slap on a dividend, and your annual return would have been over 10%pa over the last 20 years. Not shabby at all.

It is a company that seems to slip under everyone's radar; it seems so boring.

GloucesterBob

Excellent write up, and M P Evans (LON:MPE) may appear on Ed's NAP list.

Paul2148

I ran the NAPs screen last week and indeed it is. Highest consumer defensive stock, followed by Imperial Brands,

neilt

2nd Jan

Thanks Mahad, this really is a well written article. I've often thought of buying M P Evans (LON:MPE) , but never done so, I'm rather wary of commodities. Perhaps I should reconsider.

SheriffJEB

Thanks Mark for drawing attention to M P Evans (LON:MPE) on the Daily SM Report thread and cross referencing to this excellent post by Mahad. I've added some additional colour by way of a reply to your DSMR post.

smatthews1

3rd Jan

What a cracking article and very well put together. Hope to see more of your writing on here!

Chrisgsy

Really helpful article. I was looking at R E A Holdings (LON:RE.) for the deleveraging opportunity, but overall M P Evans (LON:MPE) looks far better quality. Much thanks.

Mahad

9th Jan

Thank you, that’s very kind of you!

To be honest, I share the same reservations about commodities since the share price is closely tied to the commodity price even if the firms profitability has risen with better management and greater output. I’ve been burned a few times too so I’ve just stuck to commodities that are very unlikely to go out of fashion like cement and the like.

Thank you, I'm glad you enjoyed reading it as much as I did putting it together!

Thanks!

It's easy to jump into a rising market without looking to deeply at how sustainable it is. I had this problem with Sylvania Platinum (LON:SLP) back in 2021 with prices at an all time high for PGM metals.

gmtrader

Nice review of the company. The community here could do with more individual posts on companies like this if for nothing else, it gives a place for people to chat on said particular boards

11th Jan

Thanks, I enjoyed putting it together. For smaller companies there's very little coverage in terms of posts which makes it more interesting to look at and ofcourse you can get into more detail.

M P Evans (LON:MPE)

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Mahad

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