Obtala - Forecasts and DCF model update

Obtala Limited is an Africa focussed forestry and agriculture company with a goal of becoming one of Sub-Saharan Africa’s largest sustainable food and timber producers.

  • Forecasts updated following Q4 statement and talks with management

    At the top line, for 2017 we have pared back our forecasts for the agriculture division due to the slower than expected year, which was affected by prolonged rains. We also modestly reduce forecasts in the forestry production and trading businesses. The overall effect is to reduce group revenue forecasts for 2017 from $10.2 million to $9.4 million. Due to higher costs we now expect an underlying pre-tax loss (excluding the gain made on the purchase of Woodbois) of $5.8 million, up from $0.3 million.

    For 2018 we also pare back our revenue forecasts across the divisions and look for $41 million at the group level, down from $45.9 million. Higher costs and investments take pre-tax profits down from $20.8 million previously to $7.1 million. We also update our model for the recent strengthening of sterling against the US dollar. Our forecasts for 2019 and beyond, used in the DCF analysis, are unchanged.

  • Despite the revision our target price only falls from 38.18p to 38.09p

    This is due to the lower forecast profits and negative exchange rate movements being offset by removing the loss making 2017 numbers from the DCF analysis and by adding additional funds received from preference share issues in H2 2017.

  • Shares now offering 185% potential upside following a recent pullback

    Currently trading at 13.375p, a c.15 month low, Obtala shares look significantly undervalued. Our DCF derived target implies upside of 185%. In addition, the recent preference share issues by subsidiary Argento value Obtala’s effective 57% stake at c.£44 million (c.15p per share). This is 12% above the current market cap and effectively values the acquired Woodbois business and agriculture operations at less than zero. We retain our Conviction Buy stance and look forward to seeing further progress across the three divisions over the current financial year.


    Obtala is a research client of Align Research. For full disclaimer information please refer to the last page of the full document. This investment may not be suitable for your personal circumstances. If you are in any doubt as to its suitability you should seek professional advice. This note does not constitute advice and your capital is at risk. This is a marketing communication and cannot be considered independent research.

Table: financial overview
Year to end Dec 2015A 2016A 2017E 2018E
Revenues ($m) 0.87 0.63 9.42 41.03
Pre-tax ($m) (14.78) (5.25) (5.79)* 7.11
EPS (c) (7.8) (1.84) (1.97)* 1.42
Source: Company & Align Research. *excluding gain on Woodbois purchase