Olam -- sell

Opportunity to get out of Olam!
I like Maybank KE's report today. Very brave

Olam’s share price has jumped 10.5% since announcing commencement of a share buyback programme last Friday. These are usually a positive sign, but the circumstances here are curiously unique.

 Given its high gearing ratio, Olam is essentially borrowing money to buy-back shares. Assuming a full exercise of its share buy-back mandate, this SG397m could represent an outlay similar to its entire dividend payout history since 2004 IPO.

 Ultimately, empirical evidence shows many companies never complete these programs. We think the market may have over-reacted on this news. Maintain SELL with TP pegged to 1.2x P/B.

FYI, a piece from Maybank KE.


Olam International (OLAM SP)          BUY


What's New
Olam announced that CFO Ravi Kumar has resigned to "widen his horizons and
pursue a career outside the Agri sector". Mr Kumar has led the Corporate
Finance and Treasury function for the company for almost twenty years and
played a significant role in its transition from a privately held entity to
a publicly listed Company since 2005.

On Olam's new CFO:
Olam's new CFO Shekhar Anantharaman has been with the company for 20 years
and will move into a new and enhanced role as Executive Director - Finance
& Business Development.  According to the company's annual report for FY11,
he has an interest of 16m shares in the company.

Comments: We believe the both the outgoing CFO and new CFO have interests
aligned to the company and there is no identifiable major issue moving
forward. Mr Ravi has mentioned that he is moving out of the Agri sector and
holds 2.8m (as of FY11) shares in the company. Maintain BUY with target
price of S$2.58, based on 15x average FY12/FY13 PE.

Yesterday, Olam bought back 18,706,000 shares, costing it about S$35 million. It's an eye-popping amount, by any measure. How many Singapore companies do that even in a year? The big problem, however, is that Olam is a highly geared company. It's using borrowed money.

The resignation of CFO was a trigger for a selldown in Olam.

Morgan Stanley report this morning has some clarity on the reason:


Why is the CFO leaving? Olam’s outgoing CFO, Mr. Krishnan Ravi Kumar, was also part of the management team at the luncheon. Ravi mentioned that the decision, while difficult, was a function of the attractiveness of the opportunity presented to him in terms of the role as well
as a step towards his career planning goals. Ravi will join a large telecom player based out of the Middle East.

Macquarie Equities Research July 5:

Earnings and target price revision

 We do not expect any changes to Olam’s intermediate financial targets as a result of this transition. The entire organization remains aligned to achieving these goals, both in terms of net profit (US$1bn by FY16) and free cash flow (positive by FY14).

Price catalyst

 12-month price target: S$2.40 based on a DCF methodology.
 Catalyst: We remain concerned that consensus FY12 net income looks ~25% too high. We expect clean net income, excluding all biological gains, of S$65m for FY4Q12, which is due to be reported in August. FY13 consensus looks fine to us though.

Action and recommendation

 Our medium-term estimates are a bit below Olam’s guidance. Still, we see a compelling growth trajectory from FY13 onwards. At current price levels, we think Olam shares offer attractive value, and should reward patient investors as new investments start to contribute

Bloomberg story gonna make life difficult for Olam.
Olam Plunges After Muddy Waters’ Block Questions Accounts

Olam International Ltd. (OLMIF) , the commodities trader part owned by Singapore’s state-owned investment company, plunged the most in four years after short seller  Carson Block said he’s betting against the shares because he questions the company’s accounting methods.
The supplier of 20 agricultural goods from cocoa to rubber  fell 21 percent in over-the-counter trading in  New York yesterday, according to data compiled by Bloomberg, after Block said the company is booking  profits on transactions before it’s clear how the deals will work out over time. Singapore-based Olam is “heavily” indebted and aggressive in how it reports what the company calls biological gains on investments, he told the Ira Sohn Investment Conference in London.