VSA Morning Agri Comment, 09/07/19
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DekelOil# - Cashew Project Construction
Côte d'Ivoire agricultural company DekelOil Public Limited (LON:DKL) has begun construction of its cashew processing project at Tiebissou in central Côte d'Ivoire, which is due to become its second operational agricultural project in-country.
- Construction expected to take 12 months, with first processing of smallholder-produced cashews expected in June 2020.
- DKL holds 37.8% of the project with an option to acquire a further 17.0% to take it to c.55%.
- Project will employ approximately 300 employees once operational.
- The cashew project will be exempt from corporation tax for a 10-year period and exempt from 75% of this tax for the subsequent five years. It also has a full exemption from customs duties for all imported materials during the construction phase, which should save c.€350k. These benefits are in-line with a new tax code in the country. DKL’s existing palm oil project was built on the old tax code, which included a 13-year full corporation tax exemption and a 40% customs exemption for imported materials.
VSA Comment
DKL’s FY 2018 demonstrated the risk of being exposed to one agricultural commodity. Therefore, we believe that diversification into the cashew sector is a shrewd one that should help the company deal with any subsequent difficult years in its palm oil business.
With construction now underway, we look forward to first production next June. Although this represents the end of the cashew season in Côte d'Ivoire, DKL will be stockpiling cashews from smallholders in the months prior to opening for subsequent processing by the facility.
Assuming DKL exercises its option to gain a c.55% stake in the project, we estimate that the project could deliver an attributable profit of €2.2m by 2022 to the group.
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
11.23
6.50
0.25
+4.0%
Salt Lake Potash
100.51
41.00
1.50
+3.8%
DekelOil
10.74
3.05
0.05
+1.7%
Fallers
Market Cap (£m)
Last Close (£p)
Price Movement (£p)
% Chg
Harvest Minerals
10.04
5.40
(0.30)
-5.3%
344.62
206.50
(8.50)
-4.0%
182.92
461.50
(10.50)
-2.2%