Agriterra, the oil company-turned-Africa agriculture group which took five years to achieve its first revenues, said it will "soon be profitable", despite reporting a more-than-doubling in annual losses.
The corn processor-to-cocoa group said that its losses for the year to the end of May soared to $6.22m, from $2.42m. Revenues were 1.8% higher at $13.8m.
However, the widened losses reflected the cost of an investment splurge on improving its Mozambique-based beef operations, including the construction of a dam to enable increased animal capacity, and on cocoa, in which Agriterra has bought a Sierra Leone-based trading operation, and is planning expansion into plantations.
"Investment in the capital and operating infrastructure has been significant, and the board believes it now has the foundation from which to raise profitability," Agriterra said.
"The board believes that Agriterra is approaching the point where it will soon be profitable on a sustainable basis."
"Importantly", the new financial year had already started well, with trading for the June-to-August period "significantly higher" than a year before.
'Last year of losses'
A profit would be the first for a company which started off as oil prospector White Nile, reporting the first of its unbroken string of annual losses in 2005, a trend which has continued since 2009, when it turned to Africa farming.
And the idea of a turn to profit gained support from London broker Peat & Co, which forecast Agriterra reporting its first earnings in its 2014 financial year, starting next June.
"The current year is the last year that we expect Agriterra will be making a loss at a group level," Peat analyst John Beaumont said.
For Agriterra's cattle and beef operations, "the long lead time is nearly over", with the business set to turn profitable, at the level of earnings before interest, tax, depreciation and amortisation (ebitda), in the current financial year "and grow strongly thereafter".
The corn business too should be ebitda positive, as the group's greater access to working capital, enabled by a windfall from its legacy oil operations, allows it to buy up more crop and operate its mills closer to capacity, so reaping economies of scale.
Cocoa will be the last division to turn profitable, thanks to the time needed for tree to produce, although with variable costs of some $800 a tonne, and a cocoa price of $2,400 a tonne, "the economics of growing cocoa are simply outstanding", Mr Beaumont said.
'Valuation is out of line'
His comments came in a note initiating coverage on Agriterra with a target price of 7.5p for its shares, which Mr Beaumont viewed as "a good opportunity".
"It is quite clear the market's current valuation is out of line," he said.
Nonetheless, Agriterra shares closed down 1.5% at 3.25p in London.
The group's small rise in revenues in the year to May, despite investment in cocoa and beef, reflected a slump of one-quarter to 28,822 tonnes in sales volumes at its corn milling operations, reflecting the strength of the Mozambican harvest, which cut demand for Agriterra's products.