VSA Morning Agri Comment, 30/05/19
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DekelOil: Equity Finance for Cashew Project
West African agricultural company DekelOil Public (LON:DKL) has announced a €1m investment into its investee company Pearlside Holdings from Hong Kong-based existing investor Concordia Corporation to assist with the development of its cashew processing project at Tiebissou in Côte d’Ivoire.
- Concordia has increased its stake in Pearlside to 32.9% for a €1m investment at a €6m pre-money valuation.
- DKL’s stake in the project will reduce to 37.8% from 43.8% as a result of the financing (with a partial conversion of a short-term bridge loan made to Pearlside from DKL during the transaction offsetting a small part of the dilution).
- DKL has retained its option to secure a majority stake in the project with a call option over an additional 17% of shares in place.
- First production from the facility remains on track for H1 2020. The cashew season starts in Côte d’Ivoire in February and runs to June. The project will stockpile nuts during the start of this period until the facility becomes operational.
VSA Comment
Existing project investor Concordia has increased its stake in the Tiebissou cashew project to c32.9% at the same nominal valuation that DKL made its own investment last December. However, due to DKL issuing shares at a premium to acquire its stake, its effective deal valuation was lower (c€4.2m). This additional investment further endorses the value of the project and will permit the drawdown of the already-agreed development loans.
We now estimate the project could deliver an additional c€2.2m in attributable profit to DKL by 2022 (assuming the option over the additional 17% is exercised).
Following the increased trading volume in the company’s shares last week we also note last night’s TR-1 announcement detailing the acquisition of c.13m shares (c.3.7% of shares outstanding) by a New York-based high net worth investor. This supports our thesis that the company is fundamentally undervalued at its current share price.
We maintain our BUY recommendation and target price of 12p.
Risers and Fallers (Last Close)
Risers
Market Cap (£m)
Last Close (£p)
Price Movement (£p)
% Chg
Harvest Minerals
11.71
6.30
0.20
+3.3%
18.55
2.15
0.05
+2.4%
DekelOil Public
10.57
3.00
0.05
+1.7%
Fallers
Market Cap (£m)
Last Close (£p)
Price Movement (£p)
% Chg
Equatorial Palm Oil
3.47
0.97
(0.10)
-9.3%
Sirius Minerals
745.46
15.54
(0.66)
-4.1%
66.23
163.50
(4.00)
-2.4%