Obtala Resources(LSE: OBT) is one of the few direct plays on Africas rapidly changing economy.
A vertically integrated agribusiness, timber and retail company, Obtala is an odd collection of businesses. Although as a group, this motley collection of businesses spread across several countries, is starting to yield results.
For theyear ended31st December 2014, Obtalas sales increased by 271% to $2.63m. The groups gross profit margin hit 49.4%, and group cash leaped by 54% to $5.1m.
However, the group reported a loss of $21.6m for the period as it was forced to take a paper loss on the disposal of its share ofParagon Diamonds Limited. The sale of the Paragon holding was part of Obtalas strategy to concentrate its efforts on the building market,merging agribusiness and timber operations.
Bright prospects
Obtala may be a minnow at present, but investors shouldnt overlook the companys bright outlook.
Obtala is in the process of constructing an Africa-wide conglomerate, and, of course, this will take time. Nevertheless, last year the group made solid progress on its development plan.
For example, in late 2014 the companyconcept to enter the retail market under the African Home Stores banner.The company acquired a 72.69% controlling interest in Lifes Comfort Solutions Limiteda private Lesotho registered company, which operates five departmental home solution retail outlets. Since the acquisition, the group has opened one more store and is evaluating three more potential sites.
Meanwhile, inMozambique, Obtala is developing a timber business to provide materials for the countrysconstruction industry. This asset in itself is expected to be highly profitable for the company.
An independent report has placed anet present valueon the timber concessions of$161musing a 12% discount rate. Managementrecently announcedthat they were accelerating plans to increase timber production.
And Obtalas lastcore business is fruit and veg farming, as well as processing inTanzania. Obtala is currently awaitingto achieve certain levels of international food and safety accreditation and certification before it can commence the export of its products from this region.
The process should be complete this year.
Base to grow
Obtala is looking to growth through three primary markets above. This diversification, combined with the groups strong balance sheet should yield positive results.
Indeed, Obtalas strong balance sheet gives it a crucial advantage over many of its small-cap peers.
At the end of 2014 the group had a net cash position of $5.1m, enough to support operations for around two years long enough for Obtala to start generating cash from operations.
Moreover, Obtala has an asset rich balance sheet with no debt. Shareholder equity amounted to 93m or approximately 35p per shareat the end of 2014. So, at present levels Obtala is trading at a price-to-book value of 0.2.
Unfortunately,City analysts have yet to put together any earnings estimates for Obtala. As the company is loss-making, the only way to value the shares is to use book value.
On this basis then, Obtala looks undervalued.
The sky’s the limit
So overall, the sky’s the limit for Obtala butif you’re looking for other opportunities,The Motley Fool’s top analysts have recently identified a company that they consider to be one of the market’s“top small caps”.
All is revealed inour new free reportentitled“Is This Stock Tomorrow’s Big Winner?”
Just like Obtala, the company in question has a strong cash balance, provenadvantageand is supported by some of the biggest players in its industry.Our analysts reckon that the shares of this company could have a potential upside of 45%!
Don’t delay, download thefree report today— but hurry, it’s only available for a limited time.
Rupert Hargreaves has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don’t all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.