Broker VSA Capital has started coverage on revamped African agriculture and forestry business Obtala Ltd (LON:OBT) with a ‘buy’ rating and a 28p price target, a day after the firm unveiled a fund-raising by a new investor.
In a 29-page note to clients, VSA’s analysts pointed out that Obtala “ has experienced a significant change in investor perception under new Chairman Miles Pelham, which has been evidenced by a share price increase of more than 140% since his appointment last April”.
WATCH: Obtala chairman delighted with Hong Kong investment …
They added: “With the business now funded to reach positive cash flow in both divisions, management is now focused on executing its business model of selling timber products from Mozambique and agricultural products from Tanzania into local, regional and international markets.”
The analysts noted that a 2014 assessment by Honour Capital had valued 11 of Obtala’s forestry concessions at £107.9m ln, using a 12% discount rate, well above the firm’s current market cap of around £50mln.
They added; “Since then, OBT has secured a further concession covering an additional 35,000ha, which has the potential to widen this mismatch even further.”
The analysts noted that their target price offers around 50% upside potential from Obtala’s current share price of 19.25p, which was 0.25p higher on the day.
VSA’s initiation comes a day after Obtala revealed it has raised £4mln through a share issue to a Hong Kong-based high net worth investor.
READ: Obtala raises £4mln …
Wealth Rank Limited will subscribe for 20mln new shares at 20p. Warrants at the same price exercisable over the next 18 months may raise an additional £4mln.
Obtala’s chairman said he was delighted by the investment from WRL, which underlines the attractiveness assigned to Obtala's substantial assets.
Obtala owns ten forestry concessions in Northern Mozambique, while its agriculture business is planting melon primarily but also butternut, onion and feed maize.