Align Research update note

Obtala Limited – Conviction Buy. Target price 38.18p

Step change in revenues evident following interims & Q3 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.

Interims show period of investment & Woodbois value made apparent

Obtala posted an operating loss of $3.8 million for the six months to 30th June 2017 but a statutory profit of $22.7 million following a gain on the acquisition of Woodbois. An independent valuation of the forestry and timber trading firm added $53.3 million to Obtala’s biological asset value. This compares to a revised purchase price for Woodbois of $12.2 million.

Q3 update shows further progress and additional funds raised

The three months to September 2017 saw the end of the forestry close cutting season in Mozambique, the first significant harvests from the agriculture division and the first contribution from the Woodbois acquisition. An additional $2 million has also been raised to support growth via a further preference share in the forestry subsidiary Argento Limited.

Corporate structure re-organised with new Boards appointed

Obtala will now report to the markets via the three divisions of Timber Trading, Timber Production (together the Forestry division) and Agriculture Production. To support this, new boards have been appointed to the Argento (forestry) and Montara (agriculture) subsidiaries.

DCF derived target price of 38.18p suggests 117% upside

Obtala is now seeing a step change in revenue and profit growth across the three divisions of the business. Nevertheless, the shares trade at a substantial discount to net assets, with the market cap c.90% covered by Obtala’s stake in Argento alone. Our DCF analysis suggests a target price of 38.18p, therefore we retain our stance of Conviction Buy.

To download the full note visit http://www.alignresearch.co.uk/cpt-company/obtala/