Panmure Gordon hailed the income credentials of MP Evans Group PLC (AIM:MPE), the sustainable palm oil group listed on the LSE.
In a note initiating coverage, the broker said: "There can’t be many companies which can present a 30-year unbroken record of at least maintaining or growing the dividend.
"MP Evans can. What’s more, there is a share buy-back in place, the dividend yield is 5.4% and we expect it to be net cash [positive by the year end].
"This is supported by a combination of increased production, maturing plantations, expanded milling capacity, increased extraction rates from its own mills and a focus on producing sustainable palm oil which attracts a pricing premium."
Panmure rates MPE stock "buy" with a target price of 1,150 pence. This valuation is based on the value of MPE's planted hectares and assumes continued positive market conditions.
It assigns a value of $12,000 to each planted hectare to get to its target. If the figure increased to $15,000 per hectare, the target price would rise to 1,450p, Panmure noted. In late morning trade, the stock was flat at 872.56p.
A further kicker is the rising demand for palm oil due to limited land availability for cultivation, driven and sustainability initiatives. This has led to a 17% increase in palm oil prices since June 2023.
Panmure said MPE is well-positioned to benefit from these trends, given its focus on sustainable practices. In 2023, 64% of its production was certified as sustainable, with all six of its mills receiving International Sustainability and Carbon Certification (ISCC) sign-off.
The company received an 86.7% score from the Zoological Society of London for public disclosure on environmental, social, and governance (ESG) practices, ranking 13th out of 100 palm oil companies. This score represents a 6.5% increase from the previous year.
MPE's financial outlook is strong, with expectations of generating over $60 million in free cash flow in 2024, Panmure said.
This positive cash flow supports continued dividend growth and the share buy-back programme, with the dividend cover remaining over two times earnings.
The company's latest trading update reported a 10% increase in crude palm oil (CPO) production, with 96% processed through its mills. The mill-gate price for CPO was $770 per tonne, with an extraction rate of 23.4%.