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Dekeloil boosted by favourable dynamics amid New Britain Palm Oil bid

Yesterday's news of a takeover bid for New Britain Palm Oil (LON:NBPO) by Malaysian giant Sime Darby gave West Africa-focused DekelOil (LON:DKL) a boost.

Analysts say it also puts it right in the frame as a potential acquisition target.

Dekel shares rose as the news broke about the £1.1bn bid for New Britain, which has assets in Papua New Guinea.

New Britain is the world's leading producer of palm oil, a staple product in margarine and washing powder, but the whopping 85% premium demonstrated just how strong was the interest.

Speaking to Proactive, Lincoln Moore from DekelOil, which has a market cap of around £20mln, said the proposed Sime deal represents the latest in string of takeovers of AIM-listed palm oil companies

Asian Plantations was snapped up in a £120mln deal recently, while KL Kepong took a controlling stake in Equatorial Palm Oil last December.

This leaves Dekel as the only one of four palm oil companies remaining on AIM. The others are Anglo-Eastern, MP Evans and REA Holdings, and those all have assets in Indonesia, notes Moore.

The reason why the big Malaysian players have been looking to expand their asset base outside Malaysia and in places like West Africa is because there is no land left there.

In addition, there has been a draft bill from the Indonesian government to limit foreign ownership of palm oil assets to 40%, sending out the message to Malaysian companies that land is no longer available in the "backyard", observes Moore.

He says Dekel has built a significant platform in the Ivory Coast, where it owns 51% of a palm oil producing project, and is set for expansion.

"[Anyone] would have to offer a giant premium on where we are now because we have spent the money to get the mill up and running and we will have natural growth within our portfolio."

He says this production growth at the company over the next two to three years could see the company re-evaluated significantly.

Sime Darby and New Britain combined will own almost a million hectares, up from Sime Darby's current holdings of 864,000 hectares spread across Malaysia, Indonesia and Liberia. Around 80,000 hectares of New Britain's 135,000 hectares is already planted.

Broker Optiva Securities says there are favourable dynamics for DekelOil aisde from the Sime Darby deal.

"In our view, with suitable land for planting on the decline, it is becoming more expensive for larger palm oil companies to operate in South-East Asia.

“This will force palm oil developers to look elsewhere and West Africa will become an attractive area for strategic development."

The firm is in the process of becoming a cash cow in West Africa, says the broker, and is now producing commercial quantities of crude palm oil.

It forecasts underlying profits [EBITDA] of €1.92 mln in 2014, growing to €11.25mln in 2017 as DekelOil ramps up production and operates towards full capacity of 70,000 tonnes a year.

It estimates the firm will make around €7.08mln in 2016, and because it is a 51% owner of the palm oil project, profits of €3.61mln will be attributable to shareholders.

"Based on a p/e of 10, this would imply a potential price target of 2.58 cents. If we apply a currency conversion of £/€1.25, we arrive at a 2.1p per share," it added.

DekelOil shares were unchanged at 1.45p.

 

The opinions offered are not our own and the news section of our website is based upon pieces of interest and in no way act as advice or opinions of Optiva Securities, London. 

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