DekelOil Public Limited# - H1 2019 Results
Côte d'Ivoire palm oil producer DekelOil Public Limited (DKL LN)# has announced interim results for the period ended 30 June 2019.
Revenue: €14.6m, +3.5% YoY (H1 2018: €14.1m)
EBITDA: €1.4m, +27.3% YoY (H1 2018: €1.1m)
Loss Before Tax: €0.1m (H1 2018: €0.5m)
Cash & Cash Equivalents: €0.93m (31 December 2018: €0.26m)
Average Crude Palm Oil (CPO) Price Realised: €505/t, -8.0% YoY (H1 2018: €549/t)
Average Palm Kernel Oil (PKO) Price Realised: €589/t, -34.0% YoY (H1 2018: €893/t)
CPO Production: 28,934t, +30.1% YoY (H1 2018: 22,242t)
VSA Comment
In line with the trend reported by other palm oil producers over the past few weeks, H1 2019 saw increased production offset by lower CPO prices. However, given DKL’s ability to attract a premium over the benchmark European CPO price, it mitigated this price impact to some extent, recording a premium of 9.4% in Q1 and 6.5% in Q2. As a comparison, fellow London-listed palm oil producer REA Holdings (RE/ LN) saw its average CPO and PKO selling prices fall by 22% and 40% YoY in H1, respectively.
DKL has also mitigated the impact of lower CPO prices through a further reduction in its SG&A costs, which fell to €1.5m during the period, -6.3% YoY, the third YoY decrease in a row and making up c.10.5% of its revenue in the period.
Post-period end there has been a significant increase in CPO prices with the European benchmark closing at US$568/t last week, c.20% higher than its mid-July lows. This has occurred as a result of strong Indian, Chinese and domestic demand for palm oil, with recent crude oil price movements also providing support. It should be noted that the European CPO price is still significantly below its 10-year average of c.US$800/t.
We are now seeing a ‘second-round’ impact of African Swine Fever (ASF) in China, with fewer soybeans available, due to lower demand for animal feed and the US/China trade war, leading to less soybean oil ‘by-product’ being produced, and hence more demand for palm oil as an edible oil of choice. China imported the most palm oil in more than six years in August (c.590,000t) and its imports over the first eight months of 2019 were nearly 60% higher YoY. This trend is likely to become more pronounced as the US/China trade war drags on and ASF continues to have a major impact.
As we enter the higher production months in South East Asia, palm oil exports and domestic demand will need to remain strong to support pricing. However, DKL’s decision to carry over 3,000t of stock from H1 for sale in the low season looks like a smart decision given the recent palm oil price increase.
Post-period end also saw DKL move forward with several important operational developments including the opening of a second nursery site in Côte d'Ivoire and a €7.2m debt refinancing & €2.45m equity fundraise led by African impact investor AgDevCo. It also saw the commencement of construction at its 37.8%-owned cashew project (with an option on an additional 17%), which is expected to begin production in June 2020.
We view AgDevCo as an important partner for DKL as the company looks to execute its multi-asset, multi-commodity strategic plan. Given its high-profile status as an impact investor, AgDevCo’s involvement also increases confidence in the company’s environmental, social and governance (ESG) practices for outside investors, an increasingly important theme that is particularly relevant for companies operating in the agricultural sector.
The company has also recently announced its decision to change its company name to Dekel Agri-Vision Limited to reflect its strategy of becoming a multi-commodity producer.
With a potentially record year in terms of CPO production, a second agricultural project coming online within the next 12 months, refinanced debt with a supportive long-term financing partner and higher CPO prices in H2, we maintain our BUY recommendation and DCF-derived target price of 12p.