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Dekeloil Public Ltd: DEEP DIVE

DekelOil readies itself for a big 2017 as production continues to grow

The palm oil producer has made several moves in the past year that should stand it in good stead this year
palm oil kernels
OVERVIEW: DKL The Big Picture
DekelOil has set monthly production records for January, February and March so far this year

A year of great progress…

The past year or so has seen Dekeloil Public Ltd (LON:DKL) make several significant changes – all of which should stand it in good stead as it moves forward.

On the business side of things, it refinanced its expensive €7.6mln, 10.5% project development loan and replaced it with a new €8.4mln unsecured loan at 6.85%, which will reduce the average cost of debt and should improve profitability.

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Aided by the reduced costs, Dekel then spent the best part of €1mln beefing up its palm oil facilities in the Ivory Coast ahead of this year’s March to June harvest season.

The two decisions will make the company a more efficient organisation both financially and in terms of production moving forward, and if that wasn’t enough, it also took full ownership of its Ayenouan palm oil project in Côte d'Ivoire at the start of 2017.

Then there was the divi…

Shortly after taking full ownership at Ayenouan, DekelOil pleased investors no end by confirming that it intended to pay out its first ever divi.

It’s adopt an aggressive dividend policy over the coming three years after it converted all of its outstanding capital notes into new shares.

“Joining the dividend list is a major achievement for any company, let alone one that only came to market in 2013,” said executive director Lincoln Moore.

It won’t be a massive pay-out – likely around 0.002p a share – but the determination to get itself in a position to reward its investors speaks volumes.

Production continues to grow…

The introduction of a dividend has been largely influenced by performance both on the ground at its Ayenouan palm oil project in the Côte d'Ivoire as well as in the boardroom.

Production grew again in 2016 and that fine form has carried over into this year as well.

DekelOil generated revenues of €9.7mln in the quarter to 31 March, an increase of almost 37% compared to the same period in 2016.

The firm sold 11,900 tonnes of crude palm oil during the three months (Q1 2016: 12,100 tonnes) after producing 16,400 tonnes at Ayenouan (Q1 2016: 15,100 tonnes).

DekelOil also sold 895 tonnes (Q1 2016: 851 tonnes) of the 996 tonnes of palm kernel oil it produced in the period (Q1 2016: 983 tonnes).

In fact, the AIM-listed group posted record monthly production in January, February and March. On top of that, April is also on track to post another set of record-beating figures, DekelOil recently said.

What the brokers are saying...

“DekelOil’s first quarter output statement shows strong overall growth with total sales up 36.6%,” said Cantor Fitzgerald analyst Adam Forsyth.

“Prices are well ahead and while this has had a demand response on crude palm oil sales this is expected to be short lived.

“Recent operational improvements are beginning to be felt and shareholders will now benefit from 100% ownership of the Ayenouan mill.”

Forsyth repeated his ‘buy’ recommendation and 29p target price.

Palm oil prices…

A casual observer would see few or no clues that crude palm oil prices hit their lowest point for the best part of a decade in 2016.

Truth be told, prices have been subdued for the past couple of years.

In 2016, DekelOil achieved an average of €575 a tonne, a continuation of a downtrend which ran throughout 2014 and 2015.

Dekel weathered this tough operating environment though, and it looks like it’s going to reap the rewards as prices recover.

One of the driving forces behind the company’s strong performance in the first three months of this year was down to (much) improved prices.

A tonne of crude palm oil sold for an average of €736 during the period, significantly higher than the average price of €532 achieved in the first quarter of last year.

The average palm kernel oil price also increased by more than a third year-on-year to €1,008 a tonne (Q1 2016: €743).

The share price…

Last summer the shares hit their highest level for more than two years although they fell away slightly as the year wore on.

The positive news flow towards the end of 2016 and into 2017 though, with the share price creeping back towards those multi-year highs and up more than 25% for the year to date.

Towards the beginning of April, shares were changing hands for around 13.15p to give DekelOil a market value of almost £50mln.

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Dekeloil Public Ltd Timeline

January 17 2017
January 16 2017

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