MP Evans Sells NAPCo Stake
Indonesian palm oil producer, MP Evans (LON:MPE), has announced the sale of its 34.37% stake in Australian cattle business NAPCo to the Queensland Investment Corporation (QIC).
• US$79m attributable to MPE, US$64m after tax and costs, compared to the last reported NAV of US$52m
• Proceeds will be used for MPE’s ongoing capex programme and to potentially acquire additional land for development, preferably near to its existing areas of operation
• MPE will also consider a special dividend of 5p, details of which to be announced once the deal is completed
• The acquirer has also reached agreement with NAPCo’s largest shareholder, the Foster Family, to acquire its 61% stake on the same terms, for a total deal size of slightly more than A$300m (cUS$230m)
VSA Comment
The long awaited NAPCo disposal has finally taken place, albeit at a lower price than was originally rumoured in the media (which would have delivered gross proceeds of more like US$100m to MPE on a total acquisition price of US$300m (A$400m)). The deal is dependent on various statutory conditions, which will be concluded in the next three months with settlement occurring shortly after. As QIC is a domestic buyer, there is of course no foreign investment review issue, which has caused problems with some attempted deals, with similar-sized Kidman & Co being the most prominent in recent weeks.
MPE is planning to spend cUS$75m over the next couple of years (50% on planting, 50% to fund construction of the Bangka and second Kalimantan mill). Clearly this transaction provides a significant boost to MPE’s coffers for the next few years of development, although it of course removes the PAT contribution from these operations on its P&L in future years. In FY 2015, the NAPCo contribution was US$11.0m (a record profit, although mostly driven by non-cash herd revaluation).
However, we welcome the move to become 100% focused on palm oil (with residual Malaysian property interests). Despite Australian cattle being very much in vogue at the moment, with elevated prices, this disposal should be placed into context of a number of difficult years for NAPCo, from when MPE began to build up its stake in 2005.
We maintain our view that MPE provides the best current opportunity for investors to gain large-scale palm oil exposure on the London market and specifically highlight its, soon to be significantly increased, net cash position, compared to some of its highly leveraged peers.