Wednesday, 11 January 2017

Dekeloil Research Notes:

NB: I don’t have a licence to distribute financial advice and therefore none of the below should be viewed as a recommendation to buy/sell stock.

General Information:

DekelOil is a low cost producer of palm oil in West Africa, with a market capitalisation of ~£28.5m. 

Feedstock for the Mill comes from several co-operatives and thousands of smallholders, with Dekeloil also owning nearly 1,900 hectares of its own plantations and a world-class nursery with a 1 million seedlings a year capacity. 

Most recently, Dekeloil has acquired the remaining 14.25% of their previously joint owned Ayenouan project, making them the sole 100% owner of the project.

In addition, recent investments have been made in Ayenouan in order to increase the margins of the project by at least 0.5%, increase storage capacity (thus allowing better price hedging) and a reserve boiler to mitigate potential breakdown risks.

Results Overview:

2015 FY (in thousands of Euros)

Revenues: 23,436

Cost of Revenues: (17,998)

Gross Profit: 5,438

General and Administrative: (2,518)

Operating Profit: 2,920

Net Income: 118

For the 2015 Full  year results, it is worth bearing in mind that at that point they only owned 51% of the Ayenouan project, as opposed to the 100% they own now. 


Most importantly for me has been Dekeloil’s full buyout of the Ayenouan project. The third quarter results (of which they had 85% ownership at the time of publication) suggest that revenues and production are set for another record year with Executive Director Lincoln Moore saying: “we remain on course to report another record full year performance in terms of CPO production.”.

Within the backdrop of rising palm oil prices (see chart below) and a now fully developed 100% working interest in the project, the net margin to Dekeloil should significantly increase in the next full set of results, but more importantly in the following quarterly updates, where we should begin to see this feed through into the underlying performance of the company.

Palm Oil Chart:

Moreover, selling produce in euros, they have been not only hedged against the weakened pound, but will be a beneficiary, as they have many administrative costs denominated in pounds sterling. Also now the company is in a state of gross and operating profit having been reached, the dilution risk here as a prospective shareholder seems low and I like the way the company is currently re-structuring its debts to achieve a lower level of interest due.

The move in palm oil of +18.7% since October and the move of only +3.5% in Dekeloil is a major indicator to me that the wider market has not acknowledged fundamental changes in the business in favour of Dekeloil.

Overall, the implied margin growth and thus expected profit increase from having ownership over 100% of the Ayenouan project suggest to me that the current market capitalisation of £28.5m undervalues the forward growth of the business. In addition, the upward trending prices do not 

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