Our View: DekelOil has announced the completion of its kernel crushing plant ahead of our expectations.
DekelOil – Kernel crushing plant operational
DKL LN (1.05p, TP 1.75p), Market Cap: £16m (Corporate Stock)
Our View: DekelOil has announced the completion of its kernel crushing plant ahead of our expectations. The plant should grow earnings in line with our forecasts from FY2016 and the early start will create some modest marginal income, de-risking our FY2015 forecasts. More importantly the announcement shows that management are building a track record of delivering on expectations. We reiterate our BUY recommendation and target price of 1.75p.
- Kernel crushing plant starts commercial operations – DekelOil has announced that its kernel crushing plant has commenced commercial operations and sales following successful pilot testing. This is well ahead of our expectation of a January start.
- Sales of palm kernel oil and palm kernel cake commenced – Currently DekelOil sells palm kernels at around €180/t. The crushing plant will allow it to extract premium priced palm kernel oil which is currently selling for around €850/t. The remaining palm kernel cake sells for €150/t. With an oil extraction rate of 45% we estimate that the crushing plant will add almost €2m to revenue in FY 2016, an uplift of 8% on underlying revenue.
- Full production from crushing plant by start of January – Sales have already commenced but the plant will ramp up to full production over the next eight weeks. This period will provide income over and above our forecasts but it will be marginal during the ramp up period and we are leaving our FY2015 forecasts unchanged although these are now significantly de-risked.
- Our target price continues to offer significant upside – We value DekelOil at 1.75p based on a DCF using a WACC of 1.3% based on a cost of equity of 15%, cost of debt of 10.5% and a terminal growth rate of 1.5%.
- Clear sign that management can deliver – DekelOil has already shown that it can deliver with the on-time completion of the palm oil mill at Ayenouan. Today’s announcement continues that trend. Given that a key risk to our valuation is the delivery of the company’s growth plan we see today’s announcement as extremely reassuring.