Stock Name: Olam
Company Name: OLAM INTERNATIONAL LIMITED
Company Name: OLAM INTERNATIONAL LIMITED
| Research House: Nomura | Price Call: BUY | Target Price: 3.60 |
Shares of Singapore commodities firm Olam (OLAM.SI) fell as much as 6% on Tuesday on concerns a $740 million share placement would dilute earnings per share, but many analysts remain bullish about the firm.
Olam on Monday sold 94.4 million shares to institutional investors and an identical amount to Singapore state investor Temasek (TEM.UL) at $2.60 a share, which was a 8.4% discount from the weighted average price on June 3.
The firm will also sell 97.3 million shares to existing investors at $2.56 a share.
“Potential dilution had been an overhang on the stock for the last few months, and we think the market will now start focusing on core earnings delivery, which has been strong,” Nomura analysts Tanuj Shori and Tushar Mohata said in a note to clients.
“We reiterate Olam as a top pick,” they added, citing the firm's ability to undertake new capital expenditure without risk of further dilutions as well as earnings from a project in Gabon.
Nomura has a buy rating on Olam with a price target of $3.60 -- the same target set by JPMorgan, which on Tuesday reiterated its overweight call on the Singapore firm.
Deutsche maintained its buy recommendation on Olam, saying that despite the near-term dilution in earnings per share of around 12%, the longer term impact could be positive if management invested the money raised into projects that generated 10-15% return on capital.
Olam plans to use about half of the funds raised through the placement for potential acquisitions in the future, and about 30 percent for capital expenditure.
The firm could make investments in corporatized dairy farming in China, Russia or India, said Billy Wang, an analyst at IIFL.
“A lot of dairy farming in these countries is smallholder business and it creates a lot of problems for food safety regulation,” said Wang.
China, in particular, is offering incentives for companies to go into dairy farming so it will be able to hold them responsible for any food safety problems, he added.
Besides dairy farming, Olam could also make investments in the lucrative sugar and ethanol business in Brazil, IIFL said. The South American country's sugar plantations have seen a boom in recent years, helped by increasing demand from emerging markets and a shift towards biofuels.
At 10:38 a.m., shares of Olam were trading 3.5% lower at $2.73 with over 25 million shares changing hands.
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