Added fairly a bit to this and suppose it’s a greater alternative now than it has been for fairly some time on account of catalysts which seem not far away.
As of writing its a c5% weight.
Transient abstract, Anglo Jap Plantations is a household holding firm concerned in palm oil plantations which has had a generational change of administration, hopefully resulting in a change in technique. Lim Siew Kim held 51% and died on 14th July 2022. She was the daughter of the patriarch of the massive Malaysian Genting group (principally resorts).
The market cap is round £337m while it has c£223m in money / brief time period investments. There’s c£200m in plant and money (publish capex together with development capex) generated price c£69.5m – or c20% of the market cap, or to place it one other method c60% of the ex-cash market cap. That is primarily based on robust palm oil costs, that are roughly double potential lows on the 25 12 months chart… In addition they course of purchased in palm oil and have rubber plantations.
It’s troublesome to work out what that is really price. For those who take a look at worth per hectare MP Evans mentioned an impartial valuation put it at c$15’000-$20’700 / hectare. AEP has about 90’000 hectares (much less in actuality as not all can be utilized / planted), it additionally has planted 67’000 hectares (report P5). Placing it collectively offers a excessive worth of $1.4bn / £1.1m – so roughly c3x the present worth. I’ve my doubts as to this valuation – as it might imply that (primarily based on final years revenue, from a 12 months with excessive palm oil costs – we might be buying and selling at 10 PE (ignoring the money) – appears a bit excessive… (related multiples vs FCF). To place this in context, Indonesian rates of interest are 5.75%. By way of comparators 1961.KL trades at a PE of 24 however are a far bigger participant. Genting Plantations (GENP:KLS) is on a PE of 11 (with some debt), then once more Sarawak Oil Palms (SOP:KLS) is on a PE of 4.5, once more with some debt. Even when we worth earnings at 4.5x we get to £312m plus 223m money plus one thing for the plant I presume (£100m) – so virtually double present market cap… Finally, to me, it’s onerous to justify the present valuation.
After all there are various firms buying and selling under what they’re price, significantly primarily based in Asia with a dominant, household shareholder. The corporate has acted just about as an successfully lifeless holding firm for years, accumulating money, paying a minimal dividend and rising it’s personal ebook worth per share. In it’s defence a number of years in the past a lot of it’s timber had been younger / immature and over time they’ve step by step elevated their planted space – from 57’100 hectares in 2012 to 75’204 hectares in 2021 (P53). As oil palm timber take 6 years to develop into maximally productive we are able to count on some ongoing development in manufacturing.
I consider the change in administration will result in a change in how the corporate operates to a extra shareholder-friendly mannequin. Of their newest announcement they mentioned they’d think about shopping for again shares.
The Board has additionally been receiving growing requests from shareholders to purchase again AEP’s shares with the money steadiness. The Board has prior to now been reticent on share purchase backs due to the dearth of proof {that a} purchase again instantly ends in an elevated share worth, particularly with the dearth of liquidity of the Firm’s share and purchase backs might trigger the shares to be extra illiquid. Nonetheless, the Board has taken on board shareholders’ sentiments and can think about launching a modest purchase again programme in a well timed method and at a environment friendly worth. Additional particulars will likely be communicated to shareholders sooner or later. The final time AEP purchased again its shares was in 2007 with a purchase order of fifty,000 shares at £3.86 per share.
The dividend has additionally quadrupled to 25c per share (0.20 GBP) – giving a yield of c2.3%. There has additionally been a director purchase of £126k, from what I can see the primary transaction in lots of, a few years, previous to the dividend / buyback announcement. That is significantly vital because the exec shopping for shares will get paid $87k/£70k per 12 months by the corporate. It’s a little difficult for them to buyback shares as the key shareholder is already at 51% and their shares are somewhat illiquid.
One of many issues I like is that the entire board solely will get paid a number of hundred okay. I’m very very sick of managements being ridiculously paid, while taking zero threat and including little or no. It exhibits the benefit of a powerful, controlling shareholder – in stopping snouts going within the trough. Having mentioned that corruption is a downside in Indonesia and in the palm oil sector extra typically, although I’ve no proof / particular suspicion Anglo Jap is concerned.
I typically keep away from firms with such a dominant controlling shareholder however will tolerate it on this occasion, I typically favor a steadiness of energy amongst shareholders, I’ll look ahead to associated occasion transactions / different shenanigans.
My hope for that is that there will likely be extra shareholder pleasant actions – it doesn’t make sense to run this as a perpetual money accumulation machine, finally it both wants to accumulate / pay out money / each. I’m fairly completely satisfied that they preserve a retailer of money, even that they preserve a considerable money steadiness – I’m conscious it’s inefficient, from a strict perspective – however the issue with utilizing credit score is you might be all the time on the mercy of your collectors – and whenever you want cash no-one needs to lend. That is significantly a priority in agriculture which is topic to illness / local weather in addition to doubtlessly unstable pricing. Having mentioned this, the money is 3 years price whole bills (excluding palm’s purchased in for processing – very a lot a cross by / margin incomes enterprise). This can be a ridiculous quantity by any measure. I consider a considerable quantity may be returned to shareholders.
The worst case situation for me is that nothing occurs, on this occasion I’d counsel a probable worth could be within the 600p-900p vary. If the corporate is run in a extra rational, shareholder pleasant method its a probable double or extra, however at comparatively low threat, I’d hope it should occur in a 12 months or two. Some risk of a buyout/ commerce sale if the controlling shareholder needs it.
This could include a well being warning that a lot of my concepts haven’t labored significantly properly of late. I’m really solely down c4-6% ytd (S&P+10%, FTSE+5%) although it looks like I’m down much more. When issues have labored out for me – PTAL / KIST rises are very restricted and never sustained, when occasions have gone towards me falls are excesssive and sustained (GKP / JSE). One solution to play this could possibly be brief time period buying and selling – getting the 20% spikes the place doable and rapidly getting out on the first signal of bother. Nevertheless, the commodity producing shares I’m investing in of late are buying and selling at (typically low) single digit PE’s with robust steadiness sheets (typically) so I believe they’ll rerate considerably in time, doubtlessly very quickly. I’m not satisfied buying and selling is the way in which to go long run, hopefully this view will repay in the long term. The market actually doesnt like commodity producers, just about at any valuation, significantly non-ESG compliant ones.
As ever, views appreciated.
