By HotStockRockets | Saturday 6 January 2018
Disclosure: Financial Investigative Media Limited, which is not owned by Tom Winnifrith but by a trust for his dependants, owns shares in companies mentioned in this article. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from ShareProphets). I have no business relationship with any company whose stock is mentioned in this article.
Previously writing on Obtala (OBT) we noted its view that “in an environment of low interest rates with investors hunting for yield, there is an outsized opportunity to fund our trading business to many multiples of current revenue and profit levels”. There’s now a “Trade Finance Update”…
This is of $1 million of funding from directors of the company to “be put to work immediately whilst external trade finance is being finalised”. This is not coming cheap – 11.5% interest per annum and also follows it stated in October that an “immediate focus is to secure tranches of $25m in trade finance to fund the working capital required for accelerated growth trading revenues and profits”.
This sees the shares lower on the day, towards 13p – and comparing to approaching 18p when we wrote in October and more than 20p earlier last year. However, Obtala CEO, Paul Dolan, emphasises the company has recently “conducted in-depth analysis in order to understand where the true competitive advantage and highest margin opportunities are, in sourcing and trading African timber” and “we are close to the completion of due diligence with an external trade finance provider that can best support our working capital requirements, not only for timber trading but also from the increased levels of production we are expecting in both Gabon and Mozambique in 2018”.
In the final quarter of last year, share price targets of 36p, 37.5p and more than 38p resulted from research coverage – and, though clear caution needs to be paid to such house/paid-for research, there does looks to be particularly attractive upside potential from current levels on material funding being agreed and the timber potential starting to play-out. We’d certainly expect that would see the shares back towards 20p+ and that a 30p+ share price remains a not unrealistic target. There is clear risk, but the current trade-off sees our stance remain buy.
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