Friday, June 9, 2023
HomeValue InvestingNew Funding – Anglo Japanese Plantations (AEP.L) – Deep Worth Investments Weblog

New Funding – Anglo Japanese Plantations (AEP.L) – Deep Worth Investments Weblog

Added fairly a bit to this and assume it’s a greater alternative now than it has been for fairly some time as a result of catalysts which seem not far away.

As of writing its a c5% weight.

Temporary abstract, Anglo Japanese 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 accommodations).

The market cap is round £337m while it has c£223m in money / quick time period investments. There’s c£200m in plant and money (publish capex together with progress capex) generated price c£69.5m – or c20% of the market cap, or to place it one other approach c60% of the ex-cash market cap. That is primarily based on sturdy palm oil costs, that are roughly double potential lows on the 25 yr chart… Additionally they course of purchased in palm oil and have rubber plantations.

It’s tough to work out what that is really price. In case you 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 provides a excessive worth of $1.4bn / £1.1m – so roughly c3x the present value. I’ve my doubts as to this valuation – as it will imply that (primarily based on final years revenue, from a yr with excessive palm oil costs – we’d be buying and selling at 10 PE (ignoring the money) – appears a little bit excessive… (comparable 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 arduous to justify the present valuation.

After all there are numerous firms buying and selling under what they’re price, notably 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 couple of years in the past a lot of it’s bushes had been younger / immature and through the years they’ve progressively elevated their planted space – from 57’100 hectares in 2012 to 75’204 hectares in 2021 (P53). As oil palm bushes take 6 years to change into maximally productive we are able to anticipate some ongoing progress 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 might take into account shopping for again shares.

The Board has additionally been receiving growing requests from shareholders to purchase again AEP’s shares with the money stability. The Board has up to now been reticent on share purchase backs due to the shortage of proof {that a} purchase again instantly leads to an elevated share value, particularly with the shortage of liquidity of the Firm’s share and purchase backs might trigger the shares to be extra illiquid. However, the Board has taken on board shareholders’ sentiments and can take into account launching a modest purchase again programme in a well timed method and at a environment friendly value. Additional particulars will probably 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 notably vital because the exec shopping for shares will get paid $87k/£70k per yr by the corporate. It’s a little tough for them to buyback shares as the foremost shareholder is already at 51% and their shares are moderately illiquid.

One of many issues I like is that the entire board solely will get paid a couple of hundred ok. I’m very very sick of managements being ridiculously paid, while taking zero danger and including little or no. It reveals the benefit of a robust, controlling shareholder – in stopping snouts going within the trough. Having mentioned that corruption is a drawback in Indonesia and in the palm oil sector extra usually, although I’ve no proof / particular suspicion Anglo Japanese is concerned.

I usually keep away from firms with such a dominant controlling shareholder however will tolerate it on this occasion, I usually favor a stability of energy amongst shareholders, I’ll look ahead to associated occasion transactions / different shenanigans.

My hope for that is that there will probably 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 pleased that they hold a retailer of money, even that they hold a considerable money stability – 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 while you want cash no-one desires to lend. That is notably a priority in agriculture which is topic to illness / local weather in addition to doubtlessly risky pricing. Having mentioned this, the money is 3 years price complete bills (excluding palm’s purchased in for processing – very a lot a go via / margin incomes enterprise). This can be a ridiculous quantity by any measure. I consider a considerable quantity will be returned to shareholders.

The worst case situation for me is that nothing occurs, on this occasion I’d counsel a possible value could be within the 600p-900p vary. If the corporate is run in a extra rational, shareholder pleasant approach its a possible double or extra, however at comparatively low danger, I’d hope it should occur in a yr or two. Some chance of a buyout/ commerce sale if the controlling shareholder desires it.

This could include a well being warning that a lot of my concepts haven’t labored notably effectively of late. I’m really solely down c4-6% ytd (S&P+10%, FTSE+5%) although it seems like I’m down way more. When issues have labored out for me – PTAL / KIST rises are very restricted and never sustained, when occasions have gone in opposition to me falls are excesssive and sustained (GKP / JSE). One solution to play this could possibly be quick time period buying and selling – getting the 20% spikes the place attainable and shortly getting out on the first signal of bother. Nonetheless, the commodity producing shares I’m investing in of late are buying and selling at (typically low) single digit PE’s with sturdy stability sheets (usually) so I believe they may 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, notably non-ESG compliant ones.

As ever, views appreciated.


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