MP Evans Group PLC's (AIM:MPE) trading update on Thursday pointed to a year in which firmer pricing offset lower volumes, reinforcing the investment case for the Indonesia-focused palm oil producer while underlining the sensitivity of earnings to crop mix and production trends.
The group said average crude palm oil (CPO) mill-gate prices in the year were US$866 a tonne, up 5% on the previous year, reflecting a progressively stronger pricing environment.
Cavendish noted that the achieved price was ahead of its own expectations and that palm kernel prices were “particularly strong”, rising 42% to an average of US$748 a tonne.
That pricing strength came despite a 3% decline in CPO production to 360,800 tonnes. Analysts at Cavendish said volumes were lower than they had forecast, but highlighted that the reduction was partly the result of a deliberate strategy to reduce the use of third-party fresh fruit bunches (FFB).
Purchased FFB fell by 41% during the year, leaving independent crop accounting for about 15% of total fruit milled, down from around a quarter in recent years.
Panmure Liberum took a similar view, arguing that the lower production reflected a “continued restriction” of bought-in FFB, which it described as lower quality and more expensive.
It said higher prices had offset the volume decline, leaving its full-year earnings forecasts “essentially unchanged”.
Both brokers emphasised the benefits of MP Evans’ expanding milling capacity, which allows it to process the bulk of its own crop. Panmure Liberum said this improved production mix supported margins, with its forecast EBIT margin for the year rising to 37% from 33% previously.
Cavendish also pointed to the higher-margin nature of owned and smallholder fruit, noting that harvests from MP Evans’ own estates rose 8% year on year.
Cash generation remained a central theme. Cavendish estimated free cash flow of about US$118.4 million for the year, which funded dividends, debt repayment and acquisitions, leaving the group in a net cash position by the year end.
Panmure similarly forecast net cash of around US$89 million, underpinned by strong operating cash flow and a pause in share buybacks .
Looking ahead, both brokers struck a cautious but broadly positive tone. Cavendish said the new financial year had begun “encouragingly”, with mill-gate prices still averaging about US$850 a tonne, but added that it was too early to change forecasts.
Panmure highlighted structural factors in Indonesia, including biofuel demand and limits on new plantings, which it said were likely to support palm oil prices over the medium term.
Taken together, the research suggests that while MP Evans’ earnings remain exposed to production swings, disciplined control of crop sourcing and sustained pricing strength continue to underpin cash flow and balance sheet resilience.