The local firm with a stake in the palm oil business
The effects of this year’s El Niño may be of little concern to most firms in Tunbridge Wells but one of the town’s companies will be keeping a close eye on its impact.
With roots dating back over 130 years, and a market capitalisation of more than £200m, AIM-listed MP Evans Group is not a typical Tunbridge Wells company.
The business, which counts Europe’s biggest investment firm Aberdeen Asset Management as its largest shareholder with a 16 per cent stake, has interests in more than 45,000 planted hectares of oil-palm plantations in Indonesia.
It also has a stake in property developments in Malaysia and owns 34 per cent of one of the biggest cattle companies in Australia, which controls 5.8m hectares, equivalent to a quarter of the UK.
Today, MP Evans is due to settle a deal to dispose of £13m of assets in Australia to the Chinese Fucheng Group.
But palm oil is the mainstay of the group, which was founded in 1870 as a London-based brokerage firm by Matthew Pennefather Evans.
And the El Niño, a series of climatic changes, is a concern, said managing director Philip Fletcher.
He explained: “It will have an effect. If it really takes hold it could be very dry for two or three months. Possibly more. It will affect (palm oil) crops in the short term.”
But the firm is confident it will weather the storm, as limited supply would put upward pressure on the prices.
“The prices will go up as the output goes down so it’s a balance,” explained finance director Tristan Price.
It is broader movements in the commodities market which pose a bigger threat, with the economic slowdown in China and oversupply of other vegetable oils pushing down prices.
The price of palm oil slumped during the second half of 2014, from an average £590 to £444 per tonne.
This hit the company’s bottom line, with gross profit from palm oil production during the first half of 2015 falling by almost 50 per cent to £5.9m compared to the first half of 2014.
But the slump is not expected to last, Mr Fletcher said, adding: “When looking at palm oil you can’t look at it separate from quite a complex market.
“At the moment there is plenty of soy as in the main places it’s grown, they have had good harvests.
“But with prices coming down, it’s likely they will plant less as they are annual crops, so supply and demand tends to sort itself out reasonably quickly.”
Another concern for the company is perception of the environmental impact of growing palm oil.
Mr Price said: “We find it frustrating there hasn’t been a sense of an objective debate about it in this country. We take it very seriously.
“People tend to get the sense you can either have palm oil or orangutans. This is simply not the case.”
The company’s website adds: “The group ensures any new plantation development is undertaken only in heavily degraded areas, which would not be suitable habitats for orangutans or other major endangered mammals.”
Sustainable Palm Oil (RSPO), promotes using of certified sustainable palm oil. Apart from producers, consumers and environmental groups such as the World Wildlife Fund are represented within the organisation.
Chairman Peter Hadsley-Chaplin added: “Palm oil accounts for 40 per cent of the production of all vegetable oils but only about five per cent of the land used for growing vegetable oils.”
And Mr Hadsley-Chaplin believes there is a lot of potential for the future of the company.
He said: “We will be increasing production and doing more of the same. We’ve really gone for it over the past ten years, so the average age of our crop is very young.
There’s an awful lot of promise with what’s already in the ground let alone what we’re looking to plant and new acquisitions of land.”
Brokers have been giving MP Evans the thumbs-up for many years.
FinnCap, a brokerage firm which specialises in AIM-listed companies, produced a report on the company this month titled ‘Four Reasons to Buy MP Evans’.
Senior analyst Raymond Greaves believes the company could be undervalued by as much as 40 per cent and recommends a ‘buy’ rating.
He said:” Commodities, and the companies that produce them, may be deeply unfashionable, but we still feel compelled to highlight the appealing blend of value, growth and stability offered by MP Evans.
“In our view, there are four reasons to buy MP Evans: Palm Oil price likely to rally due to El Nino; a compound annual growth rate of 12.5 per cent in output; a lack of debt coupled with strong cash ﬂ ow and deeply undervalued versus peers.”
What is palm oil?
Palm oil is derived from the pulp of oil palms. It is one of few highly saturated vegetable fats and is semi-solid at room temperature but contains very little cholesterol.
It is an important source of calories and a food staple in poorer communities, MP Evans states its main markets are in Asia. But the company also has a big market in Europe, where palm oil is deemed a relatively inexpensive product and can be used as a base for the production of margarine.
It is also used in some cosmetic products owing to its purported health beneﬁ ts and antioxidant properties and forms the basis of some soaps.
During the industrial revolution, it was highly sought-after as it was used as an industrial lubricant for machinery.