MPE LN

M.P. Evans is a vertically integrated producer of Indonesian crude palm oil and palm kernels. It cultivates, harvests and processes fresh fruit bunches (FFB) from its own estates and from associated scheme-smallholders, selling CPO and PK to local refiners. The platform consists of ~70,000 planted hectares under group management (including smallholders) and six company-owned mills that increasingly absorb internal crop; that mill coverage materially reduces reliance on third-party processors. The group is pushing to have all mills RSPO-certified in 2025; five of six were already certified, with the sixth undergoing audit. Management communicates that certified production now makes up three-quarters of total, a step-change versus earlier years.

The listed equity sits on AIM. At ~1,295p per share and ~52.2 m shares, market cap is about £676 m. The shares traded in a 12-month range of 866–1,395p; the retail-heavy register and AIM venue tend to make the name under-owned by global institutions that screen on liquidity and index membership—one reason mispricings can persist. On fundamentals, FY-2024 was an all-time record for gross profit (USD 116.6 m), and the H1-25 interim showed operating profit up 50% year-on-year, EPS up 60% and net cash at USD 70.5 m. The interim dividend was increased 20% to 18p, continuing a decades-long pattern of progressive distributions.

Where does pricing power plausibly exist in a commodity? Not in the benchmark, of course, but in the realized uplift and per-tonne margin: certified, traceable volumes command better netbacks; in-house milling and logistics reduce shrink and fees; and mix shift away from expensive purchased fruit protects the unit margin when prices dip. In H1-25, the cost of group palm product fell 3% to USD 446/t, while the group restricted higher-cost independent crop purchases by 39%, pushing more of its own FFB through its mills. This is textbook operating leverage for a planted-hectare portfolio maturing into its peak-yield years.

This is a cyclical, ESG-controversial small cap listed on AIM. Many global funds simply don't run the screen for AIM food producers; others hard-exclude palm. That keeps coverage light and the shareholder base skewed to long-only UK smaller-company funds and retail. Overlay the market's habit of extrapolating last quarter's CPO chart and you get periodic big moves that don't reflect multi-year estate dynamics. The second trap is conflating Evans with marginal producers that buy a lot of third-party fruit and rent mill capacity. Evans has spent the last decade building its own mills and deepening smallholder linkages, which is why certified sustainable production rose to 76% of total in H1-25 and why mix is now a tailwind, not a drag.

The team's pattern has been consistent: invest through-cycle in owned mills and adjacent planted hectares, work with smallholders to lift yields and certification, and return cash progressively. The board executed a £12 m buyback authorization in June, initially dedicating £2 m to steady purchases through mid-September while leaving £10 m for opportunistic block liquidity or follow-ons. That is a measured approach, signalling balance-sheet strength while avoiding liquidity distortion. Capital deployment remains disciplined: the July completion of two small plantation company purchases in East Kalimantan added 2,750 planted hectares near Bumi Mas for ~USD 35 m, right next to the group's mill—so utilization and certified-mix benefits can be realized without new mill capex.

Dividend policy is conservative but progressive, and the company has a 30-plus-year streak of maintaining or increasing payouts. With net cash building, the optionality for special distributions is real if the pipeline of attractive planted-hectare additions slows.

The levers are visible in the interim report. Group processed crop fell 3% to 738 kt because Evans curtailed purchases of independent fruit (expensive, lower quality) by 39%, while its *own* crop rose 8% to 474 kt and scheme-smallholder crop rose 13%—more of the "good" tonnes. Extraction rates held at 23.5% despite early-year wet weather, certified sustainable CPO output rose 10% to 131 kt (76% of total), and the average mill-gate CPO price realized was USD 868/t, up 13%. The kernel price (PK) rose far more (+71%), providing extra margin on a smaller tonnage. Costs were well behaved at USD 446/t for the group's own crop as fertilizer application slipped into H2 (timing), and the unit cost for purchased fruit remained structurally higher, another nudge to keep cutting it. Put simply, less purchased fruit, more own-crop through own mills, higher certification percentage, and a mill-gate uplift equals a 50% jump in operating profit and a 60% jump in EPS.

The balance sheet matters in a commodity. Net cash of USD 70.5 m at June provides flexibility for further mill-adjacent acreage, a seventh mill if Simpang Kiri scale justifies it, or accelerated buybacks if the shares lag value.

Two forces should keep realized prices constructive into 2026. First, domestic Indonesian demand, now anchored by B40, absorbs more CPO into biodiesel at the expense of exports. The government's 2025 biodiesel allocation sits at ~15.6 bn liters and policymakers signalled willingness to adjust export levies to maintain the subsidy—price-supportive at the mill gate and broadly positive for Evans' realized USD/t. Second, Europe's EUDR (application for large/medium operators from December 2025) resets traceability expectations; producers with fully documented, RSPO-aligned estates should be advantaged in premia and access. The Commission has reaffirmed the application date and is streamlining obligations rather than deferring them again; WRI highlighted that this "workaround" preserves the start date. That is favorable for a producer already at five out of six mills RSPO-certified and targeting the sixth in 2025.

On price context, Malaysian CPO futures remain in the 4,300–4,400 MYR/t area with a 52-week span of 3,685–5,390 MYR/t; Rotterdam spot values are consistent with a long-term band well above pre-pandemic levels. The tightness of alternative oils (soyoil policy in the U.S., weather effects in South America) still matters, but the heavier hand in this cycle is Indonesian policy plus a multi-year under-investment in new plantings across the industry.

I keep this deliberately simple and scenario-driven in line with your agriculture modelling prompt. For FY-2025 I anchor realized CPO at USD 830/t (Cavendish takes the same), total group revenue at ~USD 365–370 m, and adjusted EBITDA at USD 150–155 m. With D&A around USD 25 m, tax at 22–23%, and minimal net interest on a net-cash balance sheet, adjusted EPS lands close to USD 1.95, which is exactly where broker forecasts sit (195.3 US¢). I translate to a GBP P/E near 9–10× at 1,295p depending on GBP/USD; Cavendish shows a 9.0× PE and ~5½× EV/EBITDA at 1,295p with net cash rising into year-end. I get a similar EV/EBITDA range using today's market cap, their EBITDA and the USD 70 m net cash reported at the interim.

Free cash flow is the swing factor. On my base inputs—EBITDA USD 155 m, cash tax ~USD 28 m, sustaining plus development capex ~USD 55–60 m, and limited working capital build—I get FCF to equity of USD 75–85 m. On a ~USD 875–900 m equity value at GBP/USD ~1.30, that's high-single to low-double-digit FCF yield. Cavendish's framing of "circa 12%" is plausible if capex lands toward the lower end and if kernel pricing stays buoyant; the important point is that this is no longer a low-yield, high-beta commodity proxy—the cash generation is there to fund both growth and returns.

The SOTP sense-check is helpful for downside. An independent valuer pegged plantations at ~USD 18,700 per owned hectare at end-FY24; the current share price implies ~USD 15,600/ha, i.e., a 15–20% discount to private-market marks even before placing value on associates and net cash. That suggests tangible asset support under the equity, which is not always the case in this sector.

I translate the qualitative views above into three explicit paths:

Mechanically, a USD 100/t move in realized price across ~350 kt of CPO-equivalent volumes drives roughly USD 35 m revenue delta; with a high fixed-cost base, I assume ~70% incremental margin to EBITDA (USD 25 m swing)—that's the core sensitivity. Assumptions flagged: I'm using Cavendish's CPO and volume anchors, the company's own cost run-rate from H1-25, and a conservative capex envelope; where uncertain (kernel price stickiness into H2, and the speed of RSPO-premium capture under EUDR), I bias toward mid-points.

A decisive turn lower in global vegetable oils—e.g., a bumper South American soybean crop alongside weaker biodiesel demand or a reversal of Indonesian policy—would compress realized prices and put my 1,500–1,650p base target at risk. I'll watch domestic Indonesian biodiesel drawdowns and levy settings; Reuters' coverage of allocation and levy changes is the right real-time source. Weather remains the wild card: prolonged wet could dent extraction rates, while fertilizer-timing benefits in H1 reverse in H2 as applications catch up. The counterweight here is Evans' mill control and smallholder integration, which historically smooths per-tonne economics.

Certification and traceability are execution risks too. Evans has five mills certified and aims to complete the sixth in 2025; if that slips, the EUDR premium thesis weakens. I will track progress on RSPO audit completions and any EU guidance tweaks; both have been public and quite specific on timelines.

Balance-sheet and flow risk are low. The group is net-cash with no refinancing cliffs; on the contrary, it has a buyback live and a progressive dividend, which together put a floor under the equity if the register turns illiquid. If I turn wrong, it will likely be because the commodity sensitivity dominates mix gains; if Rotterdam CIF slides and stays sub-USD 750/t while kernel premia normalize, EV/EBITDA could drift back toward ~7× at the same price. The hedge is straightforward: a partial offset using short exposure to FCPO futures or a basket of more levered, higher-cost palm producers that underperform on downshifts.

I'm long. At ~1,295p I'm getting a net-cash, increasingly self-determined palm platform on ~9–10× this year's earnings and ~5½× EBITDA, with improving asset quality, rising certification share, and tangible capital returns. The entry zone I like is 1,250–1,350p where the buyback should be active; I size the position mid-single-digits of a diversified book given commodity beta and AIM liquidity.

The signposts I'll watch are mill-gate realizations vs. Rotterdam, the proportion of own-crop and certified output (targeting >80% in 2026), the cadence of the buyback and dividend declarations, and the EU's EUDR implementation mechanics as we cross into H2-2025. If CPO cracks below USD 700/t for more than a quarter, or if RSPO completion slips a year, I reassess, and I would cut toward neutral if execution wobbles while the commodity softens. Conversely, if H2 shows sustained USD 900/t realized pricing with certification complete and smallholder volumes ramping, I see scope for 1,750–1,850p and would let it run.

Bottom line. I think the way to win here is to own the improving unit economics and self-help while the macro is decent rather than spectacular. The market is still treating M.P. Evans as a linear CPO beta. It isn't. It's a progressively more integrated, certified, net-cash operator that is retiring stock while adding planted hectares next to its own mills. That combination is why I'm long for the next year.