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VSA Capital Market Movers - DekelOil

Published: 09:43 10 Oct 2019 BST

Dekeloil Public Ltd - VSA Capital Market Movers - DekelOil

VSA Morning Agri Comment, 10/10/19

DekelOil Q3 Production and Sales Update
 

Côte d'Ivoire palm oil producer DekelOil Public Limited (LON:DKL) has announced a production and sales update for Q3 2019.

Fresh Fruit Bunches (LON:FFB) Collected: 24,665t, -1.1% YoY (Q3 2018: 24,938t)

Crude Palm Oil (LON:CPO) Production: 4,803t, -10.6% YoY (Q3 2018: 5,371t)

CPO Sales: 7,138t, +30.5% YoY (Q3 2018: 5,471t)

Average CPO Selling Price: €456/t, -16.2% YoY (Q3 2018: €544/t)

VSA Comment

In what is typically DKL’s quietest quarter, the company has utilised the c.3,000t of CPO stock it carried over from H1 to boost its sales in the low season. Over the first nine months of the year DKL has produced 33,746t of CPO, an increase of more than 20% YoY. Depending on Q4 performance, DKL may record its highest ever year in terms of production in FY 2019.

With regional volumes low in Q3, DKL was willing to accept lower quality FFB from its smallholders in order to utilise mill capacity. Although this boosted production levels, its average CPO extraction rate fell to 19.5% during the quarter, well below its historical quarterly average of 22.6%.

Away from CPO, DKL’s decision to source palm kernels from third-party mills without kernel crushing facilities looks to have been a sound strategy with palm kernel oil sales increasing by more than 40% to 819t during the period. However, lower prices meant that quarterly revenue impact was similar at c.€400k.

International CPO prices came off in the second half of September as Indian demand tempered but have ticked up so far in October with the European benchmark at US$555/t and Malaysian benchmark at MYR 2,196/t (US$523/t). Data from Malaysia this morning showed palm oil production for September (and stockpiles) in that country increasing by a smaller amount than expected, partly due to dryness in key regions. This should provide some support for pricing as we enter the SE Asian peak season.

Encouragingly, DKL has reported that these international higher prices are now coming through in the local market, with its selling price above €510/t in late Q3 and early Q4 (12%+ ahead of its Q3 average selling price).

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.

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