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I have written a letter to AEP Plantations, which I copy in full here below: to urge them to return more capital to shareholders. If you would like to get in touch, or join my group of shareholders to campaign for improved shareholder value by better capital allocation. email me at stephen[at]realworthstocks.com. or DM me on X @realworthstocks

1 of 3: Executive summary:

AEP Plantations has by my calculations, about $300M of cash and equivalents that are surplus to the working capital needs of the business, as of 1/1/2026. I propose that this is returned to shareholders via a B share scheme, or by one or more of the other options I have outlined in more detail below. In 2026, AEP Plantations is likely to generate another $100M or so in cash profits, which can be used to acquire more plantation land and gradually expand the business. AEP Plantations has historically not been able to consistently generate an above-market return by reinvesting surplus cash in plantation assets (6.6% ROIC median 2015-2025), and cannot earn an above-market return by keeping it in cash and short term investments, therefore the best thing for shareholders is to return the surplus cash in a tax efficient way: and I have outlined several ways this could be done, in order of preference. This would still allow growth of the business through acquisition of plantation land through 2026 and future profits.

A return of surplus capital would realise tremendous value for shareholders, and would leave the business still priced at about 7x FY25 earnings (assuming the share price did not change) which is a very reasonable level. The operating business alone can justify the current share price - therefore the surplus capital is not being valued by the market, I think because the market does not believe that AEP Plantations will return it. If it were to be returned, this demonstration by the management that AEP Plantations is willing to pursue a shareholder friendly capital allocation policy, would probably also lead to a positive market response in the share price, further enhancing shareholder value.

I will now explain below in more detail how I came to this recommendation:

Current capital position of AEP Plantations:

At the last balance sheet date of 30th June 2025 in the interim results, AEP Plantations had:

- $245M cash and cash equivalents

- $105M other current assets, and $56M current liabilities, giving net current assets excluding cash and equivalents of $49M.

- Long term liabilities of just $14M, most of which are retirement benefits.

Therefore, none of the $245M cash and equivalents are required as working capital in the business. In your last letter, you said that a robust cash position was needed in order to:

a) protect the company during challenging times

b) acquire high quality plantation land.

By the date of this letter, AEP Plantations should have at least $50M more cash on hand, given that in H1 25 it made $48M in profits and is likely to have made more than this in H2 25; since the CPO price was 10%-20% higher than in H1 25.

Therefore, AEP Plantations should have about $300M cash and equivalents on hand at the end of 2025. Furthermore, the company has given guidance that CPO prices may be similar 2026 to 2025, due to the 50% biodiesel mandate of the Indonesian government, so AEP could mak

Market valuation of AEP Plantations:

Currently, the market cap. of AEP Plantations is £531M or at $1.34 = £1.00, $712M. The P/E ratio is 6.5x vs the trailing 12 month earnings (£82M). When the surplus cash of $300M or £223M is subtracted, this is a P/E ratio of (531-223) = 308/82 = 3.8x P/E for the operating business: which compares with 8.0x for a comparable company, M.P. Evans which has little to no surplus cash. Clearly, the surplus cash on the balance sheet is being valued at zero – I think because the market believes that it will just sit there and is not of value to minority shareholders. I call upon the board to take action to create value, not just from the plantations as it is doing very well, but all of the company’s assets including this surplus cash.

Calculation of hectares that could be bought with current cash reserves:

I have calculated how many hectares of high quality plantation land could be acquired with the existing cash reserves of $300M of AEP Plantations, assuming a figure of $12,600 USD/hectare. This figure per hectare, is calculated from M.P. Evan’s purchase of PT Setara Kilau Mas Adicita & PT Sumber Bumi Serasi for $35.1M in mid-2025. This represented 2750 hectares of company owned planted land. I consider this high quality plantation land, since it is planted and bearing fruit, and it is also in Kalimantan, where AEP Plantations has plantations.

With $300M, 23,800 hectares of high quality plantation land could be purchased. Currently AEP Plantations has 69,100 planted hectares, plus the 7169 hectares in the proposed purchase of PT Jaya Jadi Utama ("PT JJU"), which is a combined total of 100,069 hectares.

As you are no doubt aware, there is a 100,000 hectare limit for any one company in Indonesia for planted palm oil area, under Permentan No. 98/2013. Therefore, it is my understanding that this puts a limit on the growth in size that AEP Plantations could reach. Given that:

- existing cash reserves right now, would allow it to reach that limit

- assuming that AEP Plantations would not actually be able logisitically, to use this case to expand its operations from the current 69000 hectares to 100,000 maximum limit, in a short period of time – probably this would take several/many years

- that it will continue to earn more profits, probably about $100M in 2026

Therefore AEP Plantations could distribute all of this surplus capital, and fund future plantation asset purchases to grow the company at a manageable pace, by using 2026 and future profits.

I urge the company to consider it’s strategy and capital allocation. The 10-year median return on invested capital for AEP Plantations is about 6.6%, which is a below-market return – assuming that a market return is 10%. I believe that the shareholders could find higher returns for AEP Plantations’ surplus capital than the company itself, and therefore that it should distribute all surplus capital.

Part 3 of 3: Ways to return surplus capital to shareholders:

Here are several ways to do this, which I have put in order of preference.

1. Return of capital via a B share scheme: in 2024 AEP Plantations had £442M shareholders equity ($592M), so could return $300M surplus cash by returning capital. Here is a link to an example of such a scheme: in short it involves issuing B shares to the current shareholders in proportion to their current shareholdings, reducing the capital of the company accordingly, then redeeming them for cash and cancelling them. hxxps://plc.quilter.com/4a9471/siteassets/documents/support-material/return-of-capital-guide-for-uk-shareholders.pdf

2. Launch a tender offer, to allow all shareholders to tender their shares for repurchase and cancellation in return for a cash payment

3. Payment of a special dividend

4. Increase share buybacks in the market, or by buying out part or all of the stake of a larger shareholder.

Option 1 would maintain liquidity of shares in the market, and can be done without needing negotiations with individual shareholders – rather just a vote of all, which if supported by the Genton Trust, would pass, so could be done more speedily and with a high chance of success, which is why I favour it. It also avoids immediate capital gains tax liabilities: these are only crystallised when shareholders choose to sell which allows them to plan their tax affairs.

Option 2 is possible but depends on the price set and how many shareholders elect to tender their shares, so may not return all the capital that is aimed to be returned, and it forces participating shareholders to crystallise capital gains when the tender offer occurs.

Option 3 is certain in terms of returning the capital but is less favourable from a tax perspective for the shareholders, since income /dividend taxes are generally higher than capital gains taxes in most jurisdictions.

Option 4 takes longer, and depends on negotiation with shareholders, and has a risk that not enough shareholders would be willing to sell in order to achieve the targeted return of capital.

In summary, I think that AEP Plantations could afford to return $300M to shareholders in total using one or more of the methods above, and I recommend option 1.

Cash and equivalents currency:

One of the things that you mentioned in your previous letter, was the translation of the cash reserves from rupiah into USD, which is required as the rupiah (INR) consistently loses value over time vs the USD. Would you please give an update on this, as to what percentage of the cash reserves are now in USD, and what the future plan on this is?

Please also let me know what AEP Plantations thinks of my proposal, and what it intends to do with its large amount of surplus capital.

Yours sincerely,

Stephen Gamble

Hi all, I am trying to figure out if when the B shares expire, 5 years after listing, if they will be converted into A shares, and so increase the ordinary share count, and dilute existing shareholders, or if they will be cancelled and the A shares unaffected. Does anyone have insight on this?

They have net current assets - total liabilities of £16M vs the market cap of £9M-£10M so they are priced very cheaply in the market, a Ben Graham net-net. You can subscribe to my website email list at www.realworthstocks.com where I will post updates about them sometimes if you wish.

Hi bunsenburner123, I wrote up a post on Orchard Funding Group here that should answer your questions: hTTps://realworthstocks.com/orchard-funding-group-a-premium-finance-lender-at-69-of-net-current-asset-value/

However: they have mostly very short term loans, less than 1 year duration, and they do a small amount of property bridging loans on properties at less than 75% LTV. They fund this partially with shareholders equity, partially with retained earnings, and partially with a finance facility (bank debt) from Toyota etc. They also have a small amount of corporate bonds. They have some cash, but their assets are the short terms loans financing insurance premium policies which are <10 months in duration, and are pretty safe since they are underwritten by the insurance brokers.

Hi Pete, I'm interested to discuss ORCH with you. If you would like to chat, please email me at stephengamble [at ] gambleinvests.com, Stephen

I agree with lemonade311, and am writing a letter to the board about this - the price significantly undervalues the company and the directors may leave themselves open to legal action if they do not increase it to a reasonable level.