Dekel Oil’s (LON:DKL) bullishness following a profitable first quarter of production reflects its confidence that the business will continue to grow.
Chief executive Youval Rasin greeted investors at the company’s AGM after a year in which the company was transformed into a revenue generating crude palm oil (CPO) producer, after establishing one of West Africa’s largest mills on time and on budget.
As production through the mill, which extracts crude palm oil from palm fruit, continues to ramp up Dekel is expecting to see a number of important milestones in the coming twelve months.
Dekel has told investors that the mill is performing well, and the recently reported 23.8% extraction rate was above expectations and was “among best in the industry”.
Investors clearly welcomed the update, as Dekel shares advanced around 15% to trade at 1.18p.
City broker Optiva repeated a ‘buy’ recommendation and a 2.04p price target for the share.
“The palm oil operator in West Africa has continued to move ahead of expectations,” Optiva analysts said in a note.
“With the construct of the mill ahead of expectations and on budget, DekelOil is now generating positive EBITDA, which makes the 60 tph mill a cash cow.”
Production has been impressive, the broker adds, while also pointing to the further expansion of logistics operations and enhanced sales routes as drivers for Dekel’s continued growth.
“We expect further logistic hubs to become operational by the end of 2014 which will continue to drive production higher.
“Above all, DekelOil has secured numerous off-take agreements which shows growing confidence in the quality of the CPO they are producing as well as the strong demand for palm oil in West Africa.
“With the conversion of loan notes earlier in the year DekelOil should have reduced debts which are likely to improve the company’s leverage.”
In its efforts to ramp-up production a second logistics hub is now operational and Dekel says it will continue to implement initiatives to deliver more fruit to the mill for processing.
Dekel’s vertically integrated operations are located in Ayanouan, in Ivory Coast, just two hours from the international port of Abidjan.
The facility is fed by hundreds of locals whose small holdings cover 27,000 hectares, which is further supplemented by Dekel’s own expanding estate; in the longer term it is anticipated that the company will provide more feed into the mill, with between 25-30% of the fruit eventually coming from Dekel’s plantations.
Ayanouan is Ivory Coast’s second largest CPO operations, behind Palm-CI, part-owned by Wilmar, the world’s largest palm oil company.
“West Africa is becoming a major hub for the palm oil industry and thanks to the achievements of the last twelve months DekelOil is now a vertically integrated palm oil company covering all key stages from seed to oil,” Rasin said in a statement.
“The next twelve months will see us build on this platform and, combined with our ongoing evaluation of corporate opportunities and potential transactions, look to bolster our presence in the West African region and become a leading producer of CPO."