A sell-off in London-listed palm oil producers triggered by an opaque Indonesian government announcement on export controls looks increasingly like an overreaction, with both REA Holdings and M.P. Evans now trading at valuations that bear little relation to their underlying earnings power.
Shares in MP Evans Group PLC (AIM:MPE) fell 28% and REA Holdings (LSE:RE.) dropped 12% after Jakarta announced that exports of palm oil and other natural resources would be routed through a state-owned enterprise.
The announcement, framed as an effort to tackle under-invoicing of commodity exports that has cost the government tax revenues and foreign exchange, left critical details unresolved, including whether the scheme is mandatory or voluntary, whether it will use pricing formulas, and whether it will erode producer margins.
However, neither REA nor M.P. Evans exports palm oil directly.
Both companies sell to domestic Indonesian refiners, which then either export or sell into the local market, meaning any immediate direct impact on the two London-listed producers would appear to be limited.
Panmure Liberum, which rates both stocks as 'buys', noted that a subsequent government press conference to clarify the proposals suggested the new body could function merely as a recording mechanism, taking no margin or commission, with the real target being companies that engage in transfer pricing to reduce their tax liabilities.
As producers rather than traders, neither REA nor MPE engages in transfer pricing, leading Panmure to conclude that the share price reaction is disproportionate to the potential earnings impact.
Following the sell-off, REA trades on just 4.8 times 2026 estimated earnings with a free cash flow yield of 26%, while MPE sits on 8.6 times with a 5% dividend yield and an 11% free cash flow yield.
Panmure has left its full-year 2026 forecasts unchanged for both companies, noting that mill-gate prices achieved in the first five months of the year are comfortably above its full-year assumption of $830 per tonne, providing a built-in margin of safety.
The broader supply and demand dynamics of the palm oil market remain firmly supportive.
Indonesian government intervention in 2025 led to the confiscation of large areas of plantations allegedly planted illegally, while planting moratoriums in both Indonesia and Malaysia continue to constrain new supply.
At the same time, domestic demand is rising sharply after Indonesia introduced a B50 biodiesel mandate requiring a 50% blend of palm-based fuel, up from 40% previously, a move estimated to divert 5 million to 8 million tonnes away from global export markets at a time when demand is growing at 3% to 4% a year.
Indonesia produced approximately 50 million tonnes of palm oil in 2025, representing around 58% of global supply.
Panmure noted that prior to the government announcement, both companies had been on track for potential earnings upgrades given the strength of year-to-date pricing, and that should the new export arrangements prove benign for producers, those upgrades could yet materialise when both companies report in June.