Oil palm plantations operator MP Evans (LON: MPE) increased its interim dividend by 25% to 12.5p a share, as higher crude palm oil prices boosted profitability. The strong cash generation has moved MP Evans from a net debt to a net cash position.
MP Evans has maintained or grown its regular annual dividends each year for 15 years or more. Others on AIM that have done this include RWS Holdings (LON: RWS), Judges Scientific (LON: JDG) Brooks Macdonald (LON: BRK), NWF (LON: NWF), FW Thorpe (LON: TFW), Renew Holdings (LON: RNWH), Lok’nStore (LON: LOK), James Halstead (LON: JHD), Mattioli Woods (LON: MTW), Concurrent Technologies (LON: CNC), Oxford Metrics (LON: OMG), CareTech Holdings (LON: CTH) and Wynnstay Group (LON: WYN). There were some other companies that had a consistent record up until 2020, but the dividend was passed or reduced in that year.
Growing revenues
Interim revenues were one-third higher at $170.3m. There were some cost pressures, particularly in relation to fertiliser, but the higher revenues still helped to increase pre-tax profit by 53% to $61.2m.
This was achieved despite the changes in export rules and taxation during the period. Lower levels of independent crops were purchased.
The average crude palm oil price achieved was $1,035/tonne, up from $724/tonne in the same period last year. Total cost of production increased from $437/tonne to $598/tonne.
Crude palm oil production was slightly lower at 160,800 tonnes, but production has been increasing since the end of the half year.
Net cash was $13.5m at the end of June 2022. That provides the balance sheet strength to buy additional land, although the high palm oil prices have made it difficult to acquire land at realistic prices.
Although the crude palm oil price has fallen, it is well above the levels of two or three years ago and it is well above the average cost of production.
finnCap still values the company’s plantations at $20,000/hectare. That underpins the 1100p share price target.
Profitability will not be maintained at the level expected in 2022, which is between $110m and $120m. Next year is difficult to predict, but profit is likely to fall back below $100m. The cash pile will continue to grow after the payment of dividends and further capital investment.
