Analysis: FTN Cocoa, A Diamond In The Rough?

Going through the dailies yesterday, I came across an ad showing a “share resolution” in a little known company on the Nigerian Stock Exchange (NSE) called FTN Cocoa. The resolution stated  “That directors be and are hereby authorized to offer and allot up to 1,466,666,666 (One Billion, Four Hundred and Sixty-Six million, Six Hundred and Sixty-Six Thousand, Six Hundred and Sixty-Six) ordinary shares of 50 Kobo each at no less than Seventy-Five Kobo (75k) per share by the way of special placing to Transmar Commodity Group” Morristown, New Jersey, USA.

Assuming the resolution is passed, we expect FTN Cocoa to issue 1.46 billion new shares to Transmar bringing total issued share capital to 3.66 billion. This implies that Transmar will hold ~40% of the company. Founded 30 years ago, privately owned Transmar is an integrated cocoa processor with operations across Europe, Latin America and North America, as well as sales offices and representation globally. The group has been steadily increasing its investment in cocoa cultivation through various partnerships across Ecuador, Sierra Leone and Tanzania among others. (Source: International Cocoa Organisation).

Overall it appears changing dynamics in the global cocoa market over the last few years has had Transmar seeking additional sources of supply. Specifically, in July 2011, the President of Transmar was asked in an interview with Bloomberg about the rise in beans in that period due to short Indonesian supply which he responded saying “The trick is, how do you replace what used to be a cheapening agent that isn’t so cheap anymore? The first thing is you use more African beans.” However, in a more recent interview with Bloomberg in July 2014, the European unit of processor Transmar Group, Euromar Commodities GmbH, said it reduced output at its German factory in June because it could not find buyers for its powder even as demand for butter is strong.

Indeed the deal has been in the works for a while with FTN signing a 5 year strategic partnership with Transmar in 2013.

Financial performance at FTN Cocoa has been weak over the last three years with consecutive losses over the period. However the deal with Transmar could prove to be an inflection point. Notably, company also obtained a $17.5million financing from the African Export-Import Bank in March 2014, according to a presentation given by the bank.

We currently Do Not Cover FTN Cocoa but might be one to keep tabs on.

Figure 1: FTN Cocoa financial summary

Source: Company financials

This article was culled from ARM Research