On 13 September Côte d'Ivoire palm oil producer DekelOil Public Limited (DKL LN)# announced interim results for the period ended 30 June, reporting revenue of €14.1m (H1 2017: €19.6m) and a net loss of €0.5m (H1 2017: profit of €2.4m).
Results As Expected After July Production Update
DKL’s interim results were disappointing given its record of improvement since the Ayenouan mill begun processing crude palm oil in 2014. However, operations during the period were impacted by regional-specific climatic issues and lower CPO prices, both factors which are outside of the control of management. The lower availability of fruit for processing also led to increased competition from mills, which impacted margins.
However, we were encouraged by management’s aggressive move to acquire additional palm kernels for processing into palm kernel oil (PKO production +9% YoY, compared with a 18% YoY drop in CPO production) as well as a YoY reduction in general and administrative costs of more than 7%, which helped partially offset some of the financial weakness arising from the factors that the group could not control.
Early Positive Signs for Future Fruit Levels
With a difficult 2018 high season behind it (albeit FY 2018 results will of course be impacted) DKL can now look forward to 2019. In this regard, an elevated high season tends to follow a lower one, as last seen in Côte d'Ivoire in 2010/2011. Therefore, we are hopeful that this will indeed be the case in H1 2019, although it is by no means guaranteed. Early July production was previously reported ahead YoY and in its interim results DKL has stated fruit levels have “shown signs of stabilising” in Q3.
Recommendation and Target Price
We initiated on DKL with a BUY recommendation and a target price of 12p on 6 August 2018. Following these results, we maintain both our recommendation and target price.