Markets
Europe
The FTSE-100 finished yesterday's session 0.03% higher at 7,526.54 whilst the FTSE AIM All-Share index was down 0.03% at 1,020.08. In continental Europe, the CAC-40 finished 0.15% higher at 5,394.80 whilst the DAX was 0.08% higher at 13,013.19.
Wall Street
In New York on last night, the Dow closed 0.72% higher at 23,441.76, the S&P-500 added 0.16% to end at 2,569.13 and the Nasdaq was up 0.18% at 6,598.43.
Asia
In Asian markets this morning, the Nikkei was up 0.09% at 21,825.64 and the Hang Seng was 0.65% higher at 28,339.15.
Oil
In early trade today, WTI was 0.08% lower at $52.43 per barrel, while Brent was 0.12% higher at $58.4 per barrel.
Headlines
Current account switching at new low
The number of people switching their current account to another provider has fallen to a new low, according to industry figures. Just 57,779 used the seven day switching service to move accounts in September, the lowest number since the scheme was launched four years ago. The drop came in spite of an advertising campaign during the month, designed to raise awareness. Adverts were placed on TV, radio, in national newspapers and online. The reluctance to move also comes in spite of the potential savings on offer, and financial incentives being offered by the banks. The Clydesdale and Yorkshire banks are currently offering account holders £250, for example, while HSBC is offering £200 if people move and stay loyal for a year.
Company news
DekelOil Public Limited (LON:DKL, 9.62p) – Buy
The operator and 100% owner of the profitable and vertically integrated Ayenouan palm oil project in Côte d'Ivoire, over the past two days has released two new pieces of news. Yesterday it advised shareholders of a minor restatement of its Q3'2017 accounts; while on Monday it announced plans to increase the capacity of its crude palm oil extraction mill, which is one of West Africa's largest, by 25% to 75 tonnes per hour ('tph') from 60tph. The accounting restatement identified is a minor, if uncomfortable, accounting oversight; as a result of a cash transaction being agreed before, but not actually by produced by, end-September, a €1m portion of product sales has had to be shifted to the current quarter instead. This means the Q3'2017 Product Sales (excl. nursery) figures was actually €5.4m compared with €6.5m in Q3'2016. A little unfortunate, even if it actually makes no difference to Beaufort's full year projections for this 2017E and 2018E. More positively, the increased Mill capacity will allow DekelOil to optimise production during the peak harvesting season in Côte d'Ivoire, which typically runs from mid-February to early June. The Mill's current 60tph capacity is made up of two lines each capable of processing 30tph of fresh fruit bunches. As part of the planned upgrade, one of these lines is to be increased to 45tph to bring total capacity up to 75tph. This matches the Mill's total press capacity, which is comprised of five presses, each of which is capable of pressing 15 tonnes of sterilised fruits per hour. The upgrade is therefore expected to increase the volumes of CPO produced at Ayenouan in the peak harvesting season. For example, in March and April 2017, the Mill produced approximately 6,500 tonnes and 5,000 tonnes of CPO respectively. Had it not been necessary to slow down the presses to prevent and deal with the previously announced bottlenecks in the kernel separation process, the Directors believe production during the month would have reached between 7,000 and 8,000 tonnes. Following the upgrade, the Mill will be able to produce up to 9,000 tonnes of CPO in a peak month. The estimated cost of the upgrade, including installation, is less than €100,000. An order for the required equipment has been placed with PalmitEco Engineering Sdn Bhd (formerly Modipalm Engineering), the leading Malaysian engineering company which constructed the Mill. The work will be completed in time for the peak harvesting season in 2018 without any disruption to normal operations.
Our view: One thing DekelOil's Q3'2017 restatement underlines, is that its accounting scrutiny is rigorous, and that management adheres to a policy of transparency. The slip-up in last week's update is unfortunate, but in no way should distract from the clear progress being made. One such step is the proposed increase in Mill capacity. In terms of the risk/reward trade off, the investment case for this upgrade is clear. This non-disruptive, low cost upgrade will help avoid bottlenecks that can arise when processing high volumes of fruit, and as a result it will materially increase peak production capacity. This will allow DekelOil to take full advantage of the peak harvesting season, thereby increasing production and revenues. Maximising cash flows at Ayenouan will help fund further expansion of the business as well as the Group's progressive dividend policy. As such, this validates management's ongoing strategy to maximise value from each fruit processed, which will also utilise the remainder of the low season to embark on further value-adding initiatives in time for the start of the next peak harvesting period. Having proven its business plan, management is now keen to roll-out its vertically integrated model, which includes a state of the art nursery, mill, and company-owned estates, elsewhere in the region. At Guitry, operations have already formally commenced, and the Board remains in discussions to acquire an interest in Norpalm Ghana Limited ('NGL'), a vertically integrated palm oil producer in Western Ghana which has approximately 4,000 hectares of mature palm plantations under ownership and produces some 15,000 tonnes of CPO a year from a 30t/hr mill. In addition to the revenue it generates from selling this produce into the domestic Ghanaian market, NGL also operates a palm kernel oil press which produces approximately 2,000 tonnes of PKO. There can be no guarantee current discussions will result in DekelOil acquiring NGL, but they nevertheless demonstrate management's confidence in its ability to replicate success already achieved. Having proven both the operating model and ability to implement it, shareholders should be reasonably confident of further progress as DekelOil seeks to transform itself into a leading West African palm oil producer. Indeed, Beaufort considers DekelOil is capable of producing as much as £2.0m free cashflow during 2017E, followed by around £5m the year after. Importantly this demonstrates management's willingness to move its ambitious planning forward without directly exposing shareholders to a higher risk profile. Based on modestly revised 2017E and 2018E revenues estimates of €31.1m and €35.8m, delivering fully-diluted earnings 1.60p and 2.20p respectively, the shares now trade on forward multiples of just 6.4x and 4.6x respectively while offering yields of 1.7% and 1.9%. Beaufort retains its Buy recommendation on DekelOil, while repeating its price target of 23p/share.
Beaufort Securities acts as corporate broker to DekelOil Public Limited
Hummingbird Resources (LON:HUM, 37.25p) – Speculative Buy
Hummingbird Resources, the gold exploration and development company with assets in Mali and Liberia, announced today that Aggreko PLC has fully commissioned the 7.4MW diesel power facility to provide power to the newly installed mill at Yanfolila. Aggreko generators are the most efficient in their class and their modular set up offers further flexibility and efficiencies. As part of its seven-year contract, Aggreko offers a complete turnkey solution with operations and maintenance teams on site or the duration of the contract.
Our view: We continue to be encouraged with the progress being made at the Yanfolila and eagerly anticipate full-scale mining operations, plant commissioning and production in Q4. We look forward to the next milestone which the Company states will be the commissioning of the water supply and testing of the now fully installed mill. In the meantime, we maintain a Speculative Buy rating on the stock.
Beaufort Securities acts as a corporate broker to Hummingbird Resources plc