Shares in Obtala soared after the African timber-to-melons group said it had achieved record annual revenues, and said it was upbeat for 2018 prospects, thanks to headway doing its bit to fill a $91bn void in trade finance for Africa.
The London-listed group - which is considering an additional listing in Asia, to exploit what it termed “strong interest” from investors seeing exposure to African timber and agriculture markets – said in a trading update that it had achieved “record annual revenue” in 2017.
“All divisions”, from timber trading to farming, which saw its first airfreight of mangoes to Dubai, had contributed to the “momentum” in the October-to-December period which capped off the strong year, Obtala said.
Miles Pelham, appointed Obtala chairman two years ago, said that the result “merely represents the initial phase of growth for the company”, adding that he was “excited for what 2018 will bring and fully expect it to be another year of exponential growth for the group”.
North American demand
Such optimism was based on company developments including, in agriculture, improvements to its cold storage delivery chain, and in timber the ramp up to full operation of a sawmill in Mozambique which will, with annual capacity for 78,500 cubic metres of logs.
“The sawmill… will be one of the largest in Sub-Saharan Africa,” Optala said, noting timber export opportunities too.
“The strongest growth in demand for African hardwoods, including Okoume, the primary species produced in Gabon, has been from North America and we expect this trend to continue in 2018.”
African funding ‘gap’
However, the company flagged too the potential for further opportunities, such as in Gabon timber, which could be unlocked through greater access to trade finance, which has been squeezed by factors including the Basel III Banking Supervision measures aimed at helping avoid a repeat of the global financial crisis.
Indeed, the group revealed the hiring of a strategy manager, formerly of the private equity team at CDC, a major investor in developing country businesses, and of manager of strategy execution with experience of raising trade finance funds, with the aim of boosting Obtala’s access to finance.
The group last week - announcing that senior managers had put in $1bn of their own cash to boost Obtala’s financing, and boost the case for external funding over which the group is in talks – quoted an African Development Bank report in October which pegged at $91bn Africa’s trade finance “gap”, as of 2014.
“This despite the estimated default rate on trade finance transactions being half the average of all bank asset classes,” Obtala said.
‘Equipment finance over 20%’
Since the introduction of the Basel III, starting in 2013, “traditional banks are generally no longer providing commodity trade finance at affordable rates due to the greater amount of capital they must hold against commodity exposure”, Obtala added in last week’s statement.
What structured commodity trade finance is available is “typically priced at 12-18%, with equipment finance over 20% with less than one year duration”.
The Obtala senior staff priced their loan at an annual interest rate of 11.5%.
‘External trade finance key’
Broker VSA Capital said that “in terms of its timber trading operations, securing external trade finance remains the key factor” for Obtala.
“The recent securing of $1m loan capital from senior management is helpful, but we look forward to the securing of a larger external trade finance facility later this quarter in order to significantly scale this business,” VSA Capital said.
The broker, which pegs Obtala’s revenues for 2017 at $10.3m, restated a “buy” rating on Obtala shares, with a target price of 36p.
The London Stock Exchange quoted the shares at 14.25p in midday deals on Monday, up 11.8% on the day.