Obtala# Acquires Forestry Business
African forestry and agriculture business Obtala Limited (LON:OBT) has conditionally acquired (subject to due diligence) the forestry business WoodBois International ApS (WBI) for US$14.8m.
• WBI consists of three operations – a wood trading business in Côte d’Ivoire, a sawmill operation in Gabon with 41,300ha of concessions and an under construction veneer factory in Gabon, which is due to be completed in H2 and should contribute to earnings from 2018 onwards. The group employs c150 people.
• The US$14.8m consideration will be paid in three tranches. OBT will pay US$3m cash and US$3.8m in new OBT ordinary shares on completion of due diligence (target: 30 June), US$3m 120 days after completion (or on 30 September 2017, whichever is earliest) and US$5m over five years in quarterly payments starting 30 September 2017 (conditional on the continued employment of the two founders).
• In FY 2015, WBI generated revenues of DKK 106.8m (then £10.4m), an EBIT of DKK 2.54m (then £0.25m).
VSA Comment
This acquisition represents OBT’s first major move since raising cUS$27m in 2016 and early 2017 as it looks to build a leading African forestry and agriculture business.
WBI has been starved of working capital in recent years and as such OBT will look to secure export finance to significantly expand WBI’s trading operations as well as investing cUS$500k to increase the output of its sawmill (current annual capacity 24,000m3 sawn timber) and complete construction of the veneer factory in H2 (planned annual capacity of 18,000m3 veneer).
This deal also provides OBT with an established trading operation for its existing hardwood operation in Mozambique to gain greater access to international markets, with WBI currently selling wood into more than 40 separate countries. Importantly for a trading business that relies on personal networks, the two founders of the business have agreed to remain with the company for a minimum of five years.
Management believe that with additional capital WBI could rapidly improve its financial performance, contributing an operating profit of more than cUS$12m to the group by 2019 under its base case scenario.
We maintain our BUY recommendation but place our target price under review while we assess the likely impact of this significant acquisition on the wider OBT business.
Wynnstay H1 2017 Trading Update
Wynnstay Group (LON:WYN), a UK manufacturer and supplier of agricultural inputs and retail group, has updated on trading for the six months to 30 April 2017.
• WYN’s pet business, Just for Pets (JfP), has produced a loss in H1, which will result in a non-cash goodwill impairment charge being booked. Excluding JfP, H1 group performance is ahead YoY. JfP restructuring plans to be announced in H2
• Group H1 reported profits will therefore be materially below those reported last year with its adjusted PBT (before the impairment) marginally below last year, due to the loss in JfP
• Interim results will be announced on 21 June 2017
VSA Comment
Following on from UK-listed agricultural peer Carr’s Group (CARR LN)# earlier in the year, WYN has delivered its own profit warning, despite generally improving conditions in its core UK agricultural business.
WYN has long discussed the challenging trading conditions in its pet business, as well as the below expectations performance of newly opened stores. WYN had been trying to address this through the launch of new concept stores and a focus on service sales (in-store vaccinations etc…), which has been the strongest performing sub-sector in the industry. (Earlier this year, industry leader Pets at Home (PETS LN) highlighted ‘Merchandise’ like-for-like revenue growth slowing to -0.5% YoY in its Q3 (14 Oct – 5 Jan) but ‘Services’ revenue growth continuing to show decent strength, +7.0% YoY).
The 25 JfP stores contribute a proportion of group profit in the low single digits and given the challenges and seemingly unrelated nature of the business have long been seen by investors as a potential target for disposal. We would expect this to be at least considered as part of its upcoming strategic review for this division.