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MP Evans snaps up palm plantation, as threat of fresh bid looms

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MP Evans, facing the threat of the return of suitor Kuala Lumpur Kepong, revealed the $108m purchase of a plantation in Indonesia, squaring up to "pressure" to make good on expansion plans.

The group revealed agreed, for $88m in cash and the assumption of $20m in debt, to acquire Sunrich Plantations, which owns 8,240 hectares of plantation land in East Kalimantan.

The deal, MP Evans' first acquisition in five years, follows the $100m sale in January by the group of its 37% stake in Agro Muko, with the holding sold to joint venture partner Sipef, the Brussels-listed rubber-to-bananas producers.

After the Agro Muko sale, and with a share buyback coming to an end, "the pressure was on for MP Evans to deploy its excess cash into an attractive transaction with strong growth prospects to support its share price," said VSA Capital analyst Edward Hugo.

Indeed, MP Evans faces the prospect of a return of fresh interest from Kuala Lumpur Kepong, the Malaysia-based palm oil giant which last year tried, and failed, in an acquisition of the London-listed group.

"The end of the hands-off period for Kuala Lumpur Kepong is now only four months away," Mr Hugo said.

"We still expect it to return for a second try at acquiring MP Evans."

Expansion plans

As part of its rejection of the approach from Kuala Lumpur Kepong, also known as KLK, MP Evans had highlighted that it was "committed to a strategic plan for a significant increase in planted hectarage of oil palms as well as the construction of further palm oil mills".

In announcing the Agro Muko sale, the group underlined that it had, since 2010, "sought ultimately to divest its minority-held Indonesian estates, which are not managed by the group, in favour of acquiring or developing its own, directly managed new projects".

VSA's Edward Hugo said that it appeared that the Sunrich purchase "fits the criteria" investors required of MP Evans.

At Peel Hunt, analyst Charles Hall said that the Sunrich estate "is the perfect size for MP Evans, in terms of being large enough to be cost effective for a mill and material in group terms and small enough to fall under the radar of the larger players".

Mill construction

Indeed, MP Evans intends to spend roughly a further $30m developing the plantation, including construction of a palm oil mill, which will process the group's own fruit and that of surrounding "allocated" smallholder growers, spread over some 1,300 hectares.

The investment will raise to some $16,000 per hectare, from $13,200 per hectare, the group's investment in Sunrich, on Peek Hunt calculations.

However, this "compares favourably with the recent independent valuation of the company's existing Kalimantan estate of $21,532 per hectare", Mr Hall said.

Valuation comparisons

MP Evans sold its stake in Agro Muko, where Sipef operates two mills, for the equivalent of $13,860 per hectare, although minority stakes will typically lack the premium which goes with acquiring control.

VSA said that the $13,200 per hectare paid by MP Evans for Sunrich was "in-line with other recent transactions in the sector".

"However, it will take much longer for this project to replace the financial contribution lost as a result of the disposal of Agro Muko, given the early stage nature of the estate."

'Strong crop growth'

The bulk of the Sunrich land is planted with young oil palms, which are only now beginning to come into production, meaning that the acquisition will make only a small contribution to MP Evans' profits for now.

However, fresh fruit bunches at the project should exceed 270,000 tonnes "within 10 years", MP Evans said.

"MP Evans will bring its operating expertise to bear on this new acquisition, whose young palms can be expected to produce strong crop growth in the coming years," said Peter Hadsley-Chaplin, the group's chairman.

"Crop growth underpins the group's ambition to produce increasing volumes of crude palm oil and palm kernels at attractive margins."

MP Evans shares stood 0.6% higher at 739.5p in late deals in London.

By Mike Verdin

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