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DekelOil battles through head-winds to post higher sales and profits

"The margin impact of lower volumes in Q4 now looks like a genuine aberration," said house broker Cantor Fitzgerald

Palm kernels
Once again, DekelOil is crushing it on the production front

Palm oil project operator Dekeloil Public Ltd (LON:DKL) drove its top line higher in 2016 despite a slide in crude palm oil (CPO) prices.

The Ivory Coast-focused group had a strong year, though it would have been stronger still but for the Nigerian currency crisis and lower than expected production of fresh fruit bunches in the fourth quarter.

Revenue in 2016 rose 13.7% to €26.6mln from €23.4mln the year before on the back of increased CPO sales, which clocked in at 39,498 tonnes, up 10.4% from 2015’s 35,773 tonnes.

The average price achieved per tonne eased 4.8% to €575 from €604.

The company said it is on course for further increases in sales revenue due to the improved CPO and palm kernel oil prices.

Underlying earnings, or EBITDA, rose 10.8% to €4.1mln from 43.7mln the year before, while reported profit before tax shot up to €1.36mln from €144,000 the year before.

Executive director hails continued growth in production and sales

"The year under review saw DekelOil maintain its unbroken sequence of annual CPO production and sales growth at Ayenouan in spite of weaker palm oil prices during the first half of the year,” said Lincoln Moore, executive director of DekelOil.

“At the same time we delivered on key corporate objectives which are vital to the roll out of our growth strategy.  Specifically, we completed the refinancing, on much improved terms, of debt that was obtained when DekelOil was just a pure development company; we completed the conversion of all outstanding capital notes into new ordinary shares of the company at a 10.4% premium to the prevailing market price; and importantly we secured 100% ownership of Ayenouan via a series of earnings enhancing acquisitions,” he added.

The company signalled its intentions to start paying dividends this year.

“We now have an excellent platform in place from which to expand our operations both at Ayenouan and elsewhere, including Guitry - our second project in the Ivory Coast. Having proven our business model and our management's ability to execute transactions on attractive terms, we are focused on scaling up our activities and transforming DekelOil into the leading West African palm oil producer we believe it can become," Moore said.

What the house brokers says about DekelOil

Joint house broker Optiva Securities said that growing production and profitability in 2016 in a low pricing environment demonstrated “real management credibility”.

The broker raised its target price for DekelOil from 32p to 34p; the shares currently trade at 12.8p, up 18% year-to-date but down 0.95p today.

“The introduction of the 60t/day kernel crushing plant … has added significant value to revenue streams and has delivered a payback period of less than 12 months. We also take comfort that the World Bank has commenced an initiative which subsidises the cost to buy DKL’s products to boost further palm oil plantations in the region, thereby enhancing DKL’s underlying revenues,” the broker said.

Optiva is expecting significant growth momentum in 2017, forecasting 45,590 tonnes of CPO production, with the kernel crushing plant contributing a further 7,500 tonnes of palm kernel oil and palm kernel cake.

It has pencilled in a CPO price of €690 per tonne of CPO and €850 per tonne of palm kernel oil.

These assumption lead to a forecast of substantially increased revenues of €31mln and more than doubled EBITDA of €10.6mln.

DekelOil’s nominated adviser Cantor Fitzgerald said the results showed the significant progress made in moving the mill towards full production while expanding its capabilities.

DekelOil said the mill is currently working at about 70% of its capacity.

“This year has also seen a significant financial simplification of the business leaving shareholders more clearly exposed to the growth potential of the company in our view. The margin impact of lower volumes in Q4 now looks like a genuine aberration and we remain confident in the underlying picture going forward,” Cantor said, as it reiterated its ‘buy’ recommendation and cut its target price to 25p from 29p.

“We have adjusted our figures for a lower CPO price but with a stronger balance sheet position our valuation is only modestly affected,” the broker said, explaining the cut in target price.

Quick facts: Dekeloil Public Ltd

Price: 1.84 GBX

AIM:DKL
Market: AIM
Market Cap: £7.78 m
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