MP Evans: Another bid seems to be the proverbial no-brainer

Perhaps ten years ago I first considered the Far Eastern plantations covering palm oil – MP Evans (LON:MPE) in Malaysia and REA (LON:RE.) in Indonesia. The latter was run by a Richard Robinow who struck me as extremely civilised when lunching at Drayton Gardens around that time. His family are what used to be known as White Russians and his father worked on at Rothschilds until he snuffed it at about 98. Richard, now in his seventies, has taken a back seat at REA but he continues to be very closely informed about events at REA.

Anyway, nothing very much happened for the next ten years. Until yesterday when MPE shot up 45% to 615p on a 640p cash bid approach from Kuala Lumpur Kepong (KLK). This was immediately roundly rejected by MPE on the grounds that it is “wholly inadequate”.

So now we are talking another bid. I have not heard any rumours as to a new bid level. But a purchase of MPE at 650p or less seems to me to be the proverbial no-brainer.

However, even more of a no-brainer is that REA will surely get an approach in due course. Basically, palm oil plantations are worth circa USD15,000 a hectare (and some say more). REA has 40,000 hectares (of which, admittedly, the last 6,000 have only been planted very recently). But it is reasonable to reckon the lot are worth $600m.

After deducting debt of c. USD200m, a net value of USD400m is arrived at. I doubt if tax is particularly important. As against that there are c. 38m ordinaries in issue now offered at c. 330p a share or USD150m for the lot. Some say that REA goes out at over 650p. (Do not be deceived by current results – they are artificially dampened by barmy accounting standards – this is covered in the half year results to 30th June 2016.)

Anyway, the Robinow family owns 28% of REA and Richard Robinow is on the board of MPE. He knows what he is doing.

Be it noted that purchases of agricultural assets have been seen as attractive for some years (after all, the world’s population grows and has more to spend per head). But nothing much has happened. However, just of late, there are stirrings emerging (think Gina Rinehart, nee Hancock, and her bid for S Kidman, cattle owners in Oz). It does not take much imagination to put REA on the shopping list.

Wealth warning: the REA dealing spread is wide and volume is not easily achieved.

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Enquiry so far into Vietnam-facing investment trusts has proved very frustrating. One factor is that they advise that they are taking 2% p.a. by way of management fees. More mutely remarked is that they are also on 20% of the uplift in the value of the portfolio. It is true that this 20% is ameliorated by a benchmark uplift of, say, 8% p.a. compound. But it is still a lot and explains why these investment trusts tend to be at a discount to net asset value – perhaps of the order of 15%.

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Some will remember Norman Hartnell. Anyway his surname has been given to the favourite for the Melbourne Cup (Flemington 1st November 4.00 a.m. or so). I am told he’ll p*** it. Now 4/1 and more.