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DekelOil makes seamless and profitable transition to production

DekelOil’s recent interim results gave a hint of the positive financial impact of its rapid move to palm oil production 18 months after construction began on its plant in the Ivory Coast. 

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DekelOil’s (LON:DKL) recent interim results gave a hint of the positive financial impact of its rapid move to palm oil production 18 months after construction began on its plant in the Ivory Coast.

In commission for just four months it churned out revenues of €4.5mln and made a modest operating profit of €300,000.

However, this is just the start, according to analysts, who suggest we are sitting at the base of the earnings hockey stick, with a sharp upward movement predicted in the next few years.

Before we assess Dekel’s potential, it is probably worth looking at just what the AIM-listed group has achieved since it began building the 60 tonne an hour plant early last year.

It has overseen the building of the operation, which was on time and on budget, while seamlessly knitting together a supply chain made up of 5,000 smallholders farming 27,000 hectares providing feedstock. The addition of further logistics hubs should make life easier for Dekel and its suppliers.

The company has also cultivated 1,900 hectares of its own estate, while it has a nursery filled with 1mln plants.

It expects to produce 16-20,000 tonnes of crude palm oil this year, but the state-of-the-art Ayanouan plant, two hours from the port of Abidjan, has the capacity to churn out 70,000 tonnes per annum. 

Dekel owns 51% of the operation and its share of the revenues is predicted to be €28.1mln next year, rising to €36.9mln in 2016.

This is likely to generate earnings before interest tax and depreciation (EBITDA) of €7.3mln, rising to €10mln, according to the City broker N+1 Singer.

“Production is accelerating, extraction rates are above industry average and the group remains on-track to meet full year expectations,” said analyst Andrew Brown. 

“After the success of the logistics hub expansion, it is assessing further growth investment opportunities. 

“The market dynamics of West African palm oil are attractive on the global stage for climate and agricultural reasons. 

“The region continues to attract interest from the larger global palm oil operators.”

The plan going forward is a fairly straightforward one. In the next one to two years Dekel hopes to expand its company owned plantations by a further 3-5,000 hectares, while work is expected to get started on a second 60 –tonne-per-hour plant.

Located near the city of Guitry in the Ivory Coast, it will be fed from its own palm estate, covering 24,000 hectares.

Dekel is also looking at establishing a presence in Ghana, where it is acquiring land, while it also expects to double the size of the operation at Guitry. 

The group is sailing into a perfect storm. Demand for palm oil, which is used in products as diverse as cereals, crisps, soap and cosmetics, is expected to double by 2020.

At the same time land in traditional growing countries such as Indonesia and Malaysia is becoming increasingly difficult to procure.

So, as chairman Andrew Tilley pointed out in the company’s last update: “West Africa continues to attract the attention of major palm oil developers looking to secure their future expansion in the industry due to the suitability of the climate, and the agricultural environment.”

The shares, up almost 60% in the past year, have enjoyed a decent run. But at 1.36p, N+1 thinks the stock is cheap. It has price target of 1.92p based on a “blend of peer group multiples”. 

The growth company specialist Beaufort Securities is also a fan, rating the stock a ‘speculative buy’.

It told clients: “The successful commissioning of the mill has substantially bolstered DekelOil’s future production prospects. 

“It is now in a more comfortable position to build on the mill’s positive revenue and earnings stream.

“The company’s future plan focuses on taking advantage of the lucrative business opportunities available in West Africa to build a diverse customer base and minimise the business risks.”

Quick facts: Dekeloil Public Ltd

Price: 2.1 GBX

AIM:DKL
Market: AIM
Market Cap: £8.88 m
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