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DekelOil - H1 2018 Results

Côte d'Ivoire palm oil producer DekelOil Public Limited (LON:DKL) has announced its interim results for the period ended 30 June 2018.

  • Revenue: €14.1m, -27.9% YoY (H1 2017: €19.6m)
  • EBITDA: €1.1m, -70.3% YoY (H1 2017: €3.7m)
  • PAT: loss of €0.5m (H1 2017: €2.4m)
  • Cash & Cash Equivalents: €0.98m (31 December 2017: €0.78m)
  • Crude Palm Oil (CPO) Production: 22,242t, -17.5% YoY (H1 2017: 26,947t)
  • Average CPO Price Realised: €549/t, -22.3% YoY (H1 2017: €707/t)
  • Dividend Suspended

VSA Comment

DKL has produced unsurprising results, given the previously revealed production figures in its 19 July trading update, that are in-line with our forecasts from our Initiation of Coverage note, released on 6 August.

As previously reported, DKL was impacted in H1 by a lower availability of fruit in the high season due to climatic issues as well as a lower global CPO price. With less fruit for processing in the region, gross margins were depressed (14.9% vs. 25.5% in H1 2017) as mills competed for product and paid higher and higher prices to smallholders.

The company attempted to mitigate these two factors through the increased purchase of palm kernels from mills without palm kernel crushing facilities of their own to process into palm kernel oil (DKL’s PKO production increased 9% YoY, compared with a 18% drop in CPO production) and a reduction in administration costs (SG&A costs fell by 7.1% YoY).

Looking forward, DKL previously reported that fruit availability in early July was higher YoY and in today’s release has confirmed that levels have “shown signs of stabilising” in Q3. However, given the depressed high season, the level of CPO stored at mills in the region is currently at a lower level than usual and as a result competition for fruit has remained high. Therefore, margins are being squeezed even lower than they typically are in the low season.

As we wrote in our initiation on 6 August we believe the inherent value in the stock is currently being obscured by climatic conditions and the low CPO price, two factors outside of the control of the company.

However, an inevitable normalisation of both of these factors in due course could mean that the current share price proves to be an extremely attractive entry price. Our conservative forecasts suggest a PAT of c€7m is possible for 2022, with the cashew project delivering an additional attributable profit of €3m, assuming the option is exercised. 

Our estimates for FY 2018 are for revenues of €20.2m and net loss of €2.3m. We maintain our BUY recommendation and target price of 12p.

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