Dekel Agri-Vision plc (LON:DKL) Executive Director Lincoln Moore caught up with DirectorsTalk for an exclusive interview to discuss their strong first half, palm oil prices, how they’re tracking against Arden Partners’ numbers and what investors can expect over the coming months.
Q1: A really strong first half for the palm oil business, can you just give us a summary of that?
A1: I think for Dekel Agri-Vision and what drives the results in the palm oil business is really two key factors, one is the quantity of production and one is the pricing and in a six month period, both have been in our favour.
So, we were produced 11% more than we did last year, so that’s been in the positive and really critically, we knew we had a great period of pricing obviously available to us and it’s pleasing to take advantage of that so like for like, nearly 36% up on the pricing.
I think people can look at these numbers and do the very quick calculations but in summary, we recently put out our December full year results, the revenue line was €22.5 million and if they do a quick calculations on these numbers, we’re not that far off that at half year.
So, it sets us up for a significant shift in revenue and profitability for 2021 versus 2020 so that’s fantastic.
Q2: The really significant CPO price increase from June, it was a great surprise. What drove the increase?
A2: A couple of factors, the price of international palm oil that we’ve been through the mid-part of the high season, trading at below the international price which was at levels of more like €950 a tonne. That was a local government initiative, which we supported to stabilize prices to some level which were just simply getting too expensive in terms of it being such a core product in the local population. So that provided, I guess, a ceiling of around about €800 through the majority of the high season.
Since then, that that’s now been released and you can say that we’ve stepped up considerably so averaging €800 a tonne up to the end of May, and then obviously with the pricing in June, up to €915, we’re now above the international process. That’s also because the local price always lags the international price by 4-6 weeks.
So, really great, we’d expect to see prices similar, around the €900 euros in July as well so really, really good for us, and I think as we move forward, the concession we gave on pricing in this hight station will be repaid at some point. So we, we believe, some downside protection if, it’s not to my expectation at this stage, but if prices did materially drop.
Q3: How do you see palm oil prices for the rest of the year?
A3: At the moment, they continue to trade or to stay in euros just to keep consistent internationally around €800 to €875, which in any event is fantastic prices and the highest would be the highest prices we’ve seen consistently over the period since we’ve been in production.
Asia is in the high season at the moment, small upticks in stock levels, but not dramatic, obviously they’re having some logistics and staffing issues, COVID related, and my view is we still haven’t seen a full demand rebound, particularly for the biggest buyer in India. Now, India is decreasing its levies on the import of palm oil which obviously clearly sends a signal that they’re looking to stock up. So I think, these countries, as I come out of the COVID phase, I think there’s going to be some robust demand.
So, most people have got a mini super cycle thought over the next two or three years, whether that means €700 to €1,000 is, I think, is the range. All those prices are very, very good but if we can deliver around that €800 over the next 12 months, that’d be fantastic.
So, that’s where we’re sort of sitting around those levels with a view that there isn’t tremendous downside side and a reasonably bullish.
Q4: Now, I see that Arden Partners released a fifth consecutive price upgrade. How do you think you’re tracking against their 2021 numbers?
A4: I had a close look at the changes, there’s a few changes we made at half year to reflect a couple of things, of course, the better palm oil prices is one of the changes.
The numbers I’ve got on the screen at the moment for 2021, €35.9 million revenue, that would of course be a record revenue number for us. It includes a little bit of the cashew revenue to come in the latter part of the year, but we’re very confident that we can achieve that number as well as the outcoming numbers on EBITDA. I know, obviously 2021, we’re covering almost the entire year or three quarters of the year of cashew without production so the overhead there of €1 million we’re carrying in 2021. Next year, of course, full year production so we’ll look at an uplift again.
So I think to summarise 2021,these numbers look solid to me and hopefully we can keep those price upticks continuing.
Q5: Just looking at 2022, how do you think you’ll compare against their numbers?
A5: Certainly looking for, again, I think a record revenue year in 2022 and that’ll be, of course, driven by the first full year of the cashew production.
I think, again, there’s potentially areas where we can be confident on those numbers, I think the pricing that we’re using for 2022 in the modelling is still €675 and at the moment, we’re we’ll over €800s. So if pricing maintains at the current levels, that will be very supportive.
On the cashew side, of course, we’ve tried to build some conservativism into the forecast being the first full year production, I think that main indicator that could drive it a higher is the current estimate of the split of whole versus broken cashews, which in the modelling is 60% whole, and we’d like to think we can go over 80% whole where there’s clearly better pricing for whole cashews rather than broken.
So, a couple of levers there that we think can give us some nice support so 2022 is looking for a material step up again and I’d be confident that these numbers can be achievable and hopefully beaten again next year.
Q6: Finally, what else can investors expect to hear over the next few months or over the next month from Dekel Agri-Vision?
A6: Clearly, the attention is all on closing out the construction and final commissioning of the cashews so I think we’ll come out in the next two or three weeks and give real exact guidance. We’re not far, challenges have been, and this is not just for us but any companies dealing with international logistics and procurement of certain items, particularly electrical equipment, more challenging than ever.
So, I think for us, the good thing is that the things that are more challenging to procure like electrical equipment can be brought in on planes so we’re not looking at shipment delays on that. We said in the preamble and the bottom of the announcements in Q3.
From our point of view, it makes very little difference if there’s a few weeks delay or it’s a few weeks early, what’s key in 2021 is that we have a nice 3-4 month period of production. We can around the mills for that period for when we hit the ground running in 2022, when we look to ramp up to full capacity.
So, that’s all looking in decent shape and we’ll keep investors informed over the next weeks so that’s obviously a big milestone for the company because it’s clearly going to lead to a huge up step in the revenue and profitability profile of the company.