Obtala Limited#: Q2 2017 Business Update
African forestry and agriculture business Obtala Limited (LON:OBT)# has provided an update on its operations for Q2 2017.
The announcement is largely a reiteration of previously announced information, including the completion of the significant US$14.6m acquisition of African forestry business WoodBois International.
The most relevant new information:
• Six forestry management plans have now been approved over 153,500ha of its concessions in Mozambique
• The cutting season has begun, after a delay, but with better productivity due to new equipment, processes and procedures (250 logs per day vs. 90-180 logs per day last year). This is expected to increase even further as the season progresses
• The land has been purchased for OBT’s larger sawmill at Nampula and construction has now started
• The company has continued to make a number of important hires, including an experienced sawmill manager, Henning Visser, who will oversee production at Uape and the new development at Nampula.
• In Tanzania, the group has planted melons and its market garden. The packhouse renovation is now complete, which has increased its capacity and improved the cold room technology
• OBT has decided to plant mangoes for its first orchard crop
VSA Comment
A positive operational update from OBT and we continue to be impressed by the speed at which the company is progressing a number of separate, but related, operations, given the challenging countries in which it operates.
We see the Mozambique government’s continued efforts to restrict illegal logging, evidenced by the delay in issuing logging licences for this season and the recently announced first project under the Mozambique Forest Investment Project (MozFIP) framework agreement with the World Bank and the Food and Agriculture Organization of the United Nations (FAO), as positive for OBT, given OBT’s core focus on sustainability and its ability to produce and export added-value forestry products, not just unprocessed timber, from the country.
This first project will see the FAO providing technical support to develop a 20-year national strategy for the forestry sector, a revision of institutional frameworks for forest concessions to ensure greater transparency, accountability, equity and sustainability of forest production, and the establishment of 'model' concessions that implement best practices.
For FY 2017, our forecasts should be supported by the consolidation of WoodBois’ H2 results, an operation which recorded total revenues of US$9.15m in H1.
We maintain our BUY recommendation and target price of 36p.