Olam pares losses; poorly understood business - HSBC

Stock Name: Olam
Company Name: OLAM INTERNATIONAL LIMITED
Research House: HSBC

Olam (O32.SG) is off 1.9% at $2.58 with 103 million shares traded, paring losses which took the stock down as much as 9.5% to a low of $2.38 earlier, with the company clarifying a report from CLSA yesterday that raised concerns questions over the sustainability of its earnings and its accounting. 

HSBC says yesterday’s research note seems typical of one on a complicated business that is poorly understood and “the clarification that the company has issued...shows that this is a company on top of their business - not one scrambling to cover problems...companies that cover up irregularities do not often do it with the speed and clarity that Olam has.” 

HSBC analyst Thilan Wickramasinghe notes that the stock’s 9% fall Tuesday was due to P&L and balance sheet concerns, raised by the CLSA report, and that if management’s indications that there is nothing amiss were true, then the price action was overdone. 

Wickramasinghe says HSBC’s positive outlook on Olam remains intact, and the house reiterates its Overweight call with a $3.63 target.