On 10 January Côte d'Ivoire agricultural company DekelOil Public Limited (LON:DKL) announced its production update for Q4 2018. At the end of 2018 it also announced that it was taking a 43.8% equity stake in the 10,000tpa (expandable to 30,000tpa) Tiebissou cashew processing project in Cote d'Ivoire, having previously owned an option over the project.
2018 Production in-line with VSA Forecasts
Although Q4 production was not as high as we had hoped it might be following the +15% YoY increase seen in Q3, DKL’s FY 2018 fresh fruit bunch (FFB) collection (146,036t) and crude palm oil (CPO) production (33,077t) figures were in-line with our forecasts. With palm kernel oil (PKO) sales and palm kernel cake (PKC) sales significantly higher than we had estimated, and DKL achieving a premium over the European benchmark CPO price in H2, we believe our previous financial forecasts for FY 2018 were too conservative (revenue of c€20m and net loss of c€3m) and have adjusted accordingly.
Although never guaranteed, in agriculture low production years are often followed by high production years. We are therefore hopeful that H1 2019 will be a positive one for DKL. Recent CPO price increases, if sustained, could also help deliver an improved financial performance in FY 2019.
Strong Start to 2019 for Crude Palm Oil Prices
CPO prices have increased early in 2019 as perceived progress in the China/US trade talks and weather worries in South America have lifted the edible oil complex. More specific to palm oil, we are now entering the low production season in South East Asia and there are signs that demand is picking up from key consuming countries. On the bearish side, the gasoil to palm oil premium has disappeared, reducing the attractiveness of palm-based biodiesel, just as Indonesia and Malaysia implement increased blending mandates.
Recommendation and Target Price
We maintain our BUY recommendation and target price of 12p.