Olam share buyback may not benefit: Maybank

Stock Name: Olam
Company Name: OLAM INTERNATIONAL LIMITED

Research House: Maybank Kim Eng

Price Call: SELL

Target Price: 1.43

Commodity trading firm Olam International’s share buyback may not benefit shareholders, as it is highly leveraged, said Maybank Kim Eng.

Olam’s shares fell 1.4% to $1.78, but have jumped about 10% since the company announced its share buyback programme on June 8. They have lost about 16% since the start of the year, versus the Straits Times Index’s 5% gain.

“While such a move is usually a positive sign, the circumstances for Olam seem rather unusual. Other than to deter the short sellers, we do not think it is necessarily an enhancive step for shareholders,” said Maybank in a report.

The case for share buyback is stronger for companies with large idle cash positions, but Olam has a net gearing of 189%, Maybank said.

The brokerage has a sell rating on Olam shares with a target price of $1.43.