Investor's Champion Blog
Provides refreshingly forthright, independent comment on predominantly small cap companies and specialist investment funds. Informed opinion, based on first-hand research, but pulls no punches in exposing management weaknesses.

M.P. EVANS (LON:MPE) – good numbers but how on earth do you value this one?

M.P. Evans, the AIM quoted Indonesian palm oil and Australian beef cattle business (great mix!) announced seemingly outstanding results for the year ended 31st December 2008. However, this is a tough business to value in its changing state.

There was a record profit for the year US$53m (2007 US$46.6m), with earnings per share for both continuing and discontinued operations (note the unusual inclusion of both, that’s significant!) of US cents 96.26 (2007 US cents 82.32 cents). At the current share price of 306p and market capitalisation of US$160m, this all looks very rosy! However, the year on year comparison is hard assess given the changing nature of this business with Malaysian estates being sold (profits from discontinued operations amounted to US$24.5m), Indonesian estates being planted (gain on biological assets of US$11.1m) and Beef cattle investments being added. Add to this the influence on the results of palm oil and beef cattle prices and it really is a tough business to get to grips with!

The group has now received a total of some US$100m for the sale of its former Malaysian estates leaving assets with an estimated value of some US$50m still to be sold. The sale proceeds have been used to fund the Group’s expansion within the oil-palm sector of Indonesia and the beef-cattle sector of Australia.

Of the 36,000 hectares of new land that has been secured to date in Indonesia 8,500 hectares in total is now planted with a further 3,500 hectares anticipated to have been planted by the end of the year, thereby bringing the total to 12,000.

With all this changing activity it’s probably best to fall back on simple asset values, however, even that isn’t easy.

At the year end the net asset value was US$261m (approx £176m) compared with the current market cap of £160m. There is no need to worry about the impact of intangibles with Goodwill at a lowly US$1.1m and pension obligations also apparently immaterial.

Assets largely consist of Biological assets (cUS$79m), Property, plant & equipment (cUS$47m), Investments (cUS$101m) and net Cash (cUS$35m). That little lot adds up US$262m, in line with the net asset value. The cash is reassuring but that is being ploughed back into new plantations so don’t count on any exceptional shareholder distributions and there was a net operating cash outflow of US$21.7m.

The non-current biological assets also comprise plantation bearer-assets which come with some unusual accounting treatment. The Group values these plantation assets using a discounted cash flow (we all know how reliable DCF is!) over the expected 25-year economic life of the asset. It’s worth reading the notes if you want to know more about this!

In support of asset values the groups 34.37% holding in the Australian beef cattle business NAPCo appears to be worth substantially more than the balance sheet value. However, this business seems to alternate between profit and loss each year so the current value to the bsuiness again is hard to assess.

To add to its quirkiness the group even has joint Chief Execs!

The recovery in the group’s share price from a low of approx 165p at the end of November 2008 to the current price of 306p has followed that of palm-oil which has recovered from a low of US$435 at the beginning of 2009 to the current level of around US$725 per tonne.

MPE remains an interesting one to follow!


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