West African palm oil producer DekelOil (DKL:AIM) is in demand after reporting 36.6% sales growth for the first quarter to 31 March.
Sales prices for crude palm oil (CPO) and palm kernel oil (PKO) are significantly higher year-on-year too, news which sends shares in the micro-cap counter spinning 6% higher to 13.38p.
DekelOil is the 100% owner and operator of the low cost Ayenouan palm oil project in Cote d’Ivoire.
Broker Cantor Fitzgerald reiterates its ‘buy’ rating and 29p price target, implying potential for the shares to more than double.
HARVESTING GAINS
Key takeaways from the update include record quarterly CPO production of 16,398 tonnes, up 8.3% year-on-year and driving sales up the best part of 37% to €9.7m.
Significantly, record monthly CPO production was achieved in January, February and March. Furthermore, DekelOil tantalises with the news that ‘April production has continued strongly’ and is ‘well on track to exceed April 2016 production results’.
Admittedly, volatility in the CPO price is a risk to consider, yet Shares is sticking with our positive stance on DekelOil. Geared into growing global demand for vegetable oils including palm oil, the scarcity of expansion land in Indonesia and Malaysia means bidders' attentions are turning towards West Africa and the company could be a takeover target before too long.
‘Fresh fruit bunches (FFBs) collected were up almost 10% on Q1 2016. This is a relief following the drop in the availability of FFBs in Q4 2016 and it is good to see that this phenomenon has past,’ explains Cantor Fitzgerald analyst Adam Forsyth.
IMPROVING PRICES
Encouragingly, DekelOil’s average CPO price for the quarter was very strong at €736 per tonne. This is not only more than 38% higher year-on-year, but also well ahead of Cantor’s 2017 forecast of €717.
‘These high prices are good but have resulted in customers delaying purchases and as a result sales volume dropped slightly, down 1.7%, and inventory has risen’, explains Cantor.
Yet the broker explains ‘this would have been a 6.5% increase had 1,000 tonnes of stock pre-sold at March prices been included. New buyers are emerging in the country and it is expected that inventory levels will unwind at the beginning of the second half.’
CASH COW
Executive director Lincoln Moore comments: ‘Having recently gained a 100% ownership of Ayenouan, our shareholders stand to benefit fully from the operational progress being made on the ground, starting with the distribution of the maiden dividend.’
Following a refinancing and having taken full control of the rising profits stream at the Ayenouan mill, DekelOil plans to hit the dividend trail with imminent results for the 2016 calendar year. In fact, it intends to distribute a total maiden dividend of £500,000 in 2017 and could also please with special dividends going forwards too.
