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While digging around the FTSE 250 for potential income shares this week, I stumbled across one stock that’s been on an incredible run. Anglo-Eastern Plantations‘ (LSE: AEP) quietly become one of the year’s best performers, soaring 105% since January.
For a relatively small company with a market value of just over £325m, that’s no small feat.
Founded in 1985 and headquartered in London, Anglo-Eastern owns and operates palm oil and rubber plantations across Indonesia and Malaysia. It’s far from a household name on the FTSE 250, yet the business has been drawing attention after a dramatic rally over the past three months.
That kind of momentum naturally makes me wonder: is this a speculative surge, or does the company have real staying power?
Recent performance
The key driver may be a recovery in Crude Palm Oil (CPO) prices. Global prices have surged, and Anglo-Eastern has reaped the benefits. In its results for the six months ended 30 June, the group reported a 39% increase in revenue compared with the same period last year.
That was helped by higher sales volumes, stronger external crop intake and improved selling prices.
Profit before tax rose a hefty 78% year-on-year, with both higher selling prices and increased volumes doing the heavy lifting. That’s a striking improvement, and I think it helps explain why investors have piled in.
Despite the rally, the valuation still looks undemanding. Anglo-Eastern trades on a price-to-earnings (P/E) ratio of just 7.8, while its enterprise value to earnings before interest, taxes, depreciation and amortisation (EV/EBITDA) ratio sits at a modest 3.38. On these numbers, it doesn’t look overstretched.
Risks to consider
Of course, it’s not all good news. Anglo-Eastern operates exclusively in Southeast Asia, which exposes it to foreign exchange volatility. A weakening of local currencies against the dollar or sterling could quickly erode profits. Then there are the political and regulatory risks that come with operating in regions prone to sudden changes in trade or environmental policy.
Perhaps the biggest risk though, is the company’s heavy reliance on palm oil prices. If the stock’s rally loses steam, its earnings could drop sharply, and the share price might follow. It’s a reminder that while recent results look stellar, they’re tied closely to external market conditions the company can’t control.
Dividend potential
Income hunters may not be immediately impressed by Anglo-Eastern’s 2.9% yield. That’s lower than many other FTSE 250 income plays. But the growth in its payouts has been extraordinary. In just five years, the dividend’s risen from 1 cent per share to 51 cents. That 50-fold increase was fuelled by the earnings boom between 2019 and 2022.
If the board continues with this trend, Anglo-Eastern could soon emerge as a more serious dividend stock. Of course, that depends heavily on profits remaining strong.
Final thoughts
For me, Anglo-Eastern Plantations is one of those intriguing FTSE 250 names that investors might want to weigh up carefully. It offers a mix of value and income potential, but with considerable risks attached.
The share price could keep climbing if palm oil prices remain high, yet a reversal could be painful. Personally, I think it’s only worth considering as part of a diversified portfolio.