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By HotStockRockets | Saturday 13 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.
Obtala (OBT) has made a quarterly business update on the fourth quarter of 2017, with Chairman Miles Pelham emphasising “while the result will be a record year of revenue for the group, this merely represents the initial phase of growth for the company. I am excited for what 2018 will bring and fully expect it to be another year of exponential growth for the group”…
The update commences with “Q4 2017 momentum to result in record annual revenue for Obtala, with contribution from all divisions; forestry production, timber trading and agriculture”.
On the former it was noted that “the significant investments made in harvesting capacity have led to high levels of production despite the rainy season in Gabon (October-January) and Mozambique (from December). A total of 11,000m3 of logs were harvested and 3,500m3 of sawn timber produced in Q4 2017”, with a Gabon veneer factory and Mozambique sawmill on track to be operational within Q1 2018.
On timber trading it was stated “after talking to various potential partners, we moved forward with a trade finance institution that offered us the required flexibility to make best use of additional funds to grow the trading business. We will also be able to make use of the facility to manage increases in working capital expected from the forestry production division, especially as the new veneer factory comes online in Gabon”.
And on agriculture, “we continued to build strong foundations for the future of the agriculture business in Q4 2017, developing a clear edge through consistent cold chains, reliable logistics partners and controllable export routes as well as building track record and trust with customers. In 2018 we will leverage these capabilities to increase volumes and explore new global market demand potential for our produce, whether fresh, dried or crushed, to ensure we achieve the highest margins possible”.
The update does lack financial detail – though we also note “significant time and capital was invested in H1 2017 installing a new operating team in each business, rationalizing corporate structure and building the infrastructure required to operate at scale”. As such, we look for significant progress in 2018 anyway – and note brokers looking for a move into strong profitability and a share price of 36p+.
We consider material funding being agreed and the timber potential starting to play-out could be a particular spark from the current circa 15p – and note this latest update from the company also including “external trade finance facility on track for first draw down Q1 2018” and “management is still considering a dual-listing in Asia as we continue to see strong interest from Asian-based investors” . This all sees us target a swift return to 20p+ and our target remains c30p. The stance remains at buy.
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