Obtala Ltd (OBT)


Obtala Resources Plc: The Times They Are A-Changin’

Obtala Resources to some looks like your average run of the mill mining company on AIM. This couldn’t be further from the truth as upon closer inspection one can find a fully functioning vertically integrated agribusiness, timber and retail business. Kevin Milne, Executive Deputy Chairman was appointed to the Board in August 2015 as part of a wider push to strengthen the management team and to refocus the business going forward. The interim results announced in September portrayed a strong platform for growth reporting revenues of £2.3m, net profit of £3.02m with net assets of £95.8m. The company’s three core businesses cover farming, retail and timber and are purely focused on Africa which is set to take advantage of the continent’s unprecedented rates of growth fuelling growth in domestic consumer demand. The farming division operates a “seed to fork” strategy from horticulture to branded product ranges including dried fruit and chilli based sauces taking advantage of the whole value chain in food production. In Tanzania, 530 Ha are held under long lease agreements with 80 Ha currently cultivated with up to four crops per year per hectare. Earlier this year Obtala received the internationally recognised farm GLOBALG.A.P certification which allows them to overcome significant barriers to entry with many international food groups. GLOBAL.G.A.P is the internationally recognised standard for farm production which will support the company in broadening their partnerships with various trade partners as they look to develop more land. The retail division looks to capitalise on Africa’s emerging middle class, grown to some 400 million people. Six multi product department stores are currently operating in Lesotho with further in-country expansion planned for additional three to four units over the next 12 months. The division is well established and currently embarking on further improvements with enhancements to their ordering systems, stock management and cost control. There is future scope to roll out in Southern and East Africa where Obtala has an already existing presence. Under the company’s recent strategic review, there is a proposed spin out of their forestry division to be quoted on AIM. Africa accounts for 17% of Global forest cover but only 4% of global round wood and less than 2% of global sawn wood production. The company is, subject to local Government approval, completing the acquisition of 50 year leases for two new timber concessions totalling 35,000 Ha in Mozambique to bring the total forestry area to 314,965 Ha. Honour Capital prepared a valuation report in June 2014 which attributed a NPV to Obtala’s timber business of US$161m at a 12% discount based on a ten year cash flow model. The 2014 valuation was based on eleven concessions with a total land area of 279,965 Ha. This puts Obtala in a strong position to become a leading supplier in a market that is facing increasing global demand for high quality timber with new suppliers being curtailed by strict environmental and conservation laws. Obtala Resources has successfully repositioned itself as a socially responsible company which is debt free and diversified both geographically and by sector. It is trading at a deep discount to NAV and we believe the current management team in place are executing a strategy which will bring rapid improvements in the operational performance of their portfolio.
Obtala Resources Limited