Company Name: OLAM INTERNATIONAL LIMITED
| Research House: UOB KayHian | Price Call: BUY | Target Price: 2.38 |
Muddy Waters’ concerns on Olam could be overblown, UOB KayHian says; “we believe the report premised on Olam’s insolvency, which in our opinion is unlikely unless there is outright fraud.”
The house notes while the report says Olam needs to raise or refinance up to $4.6 billion over the next 12 months to stay solvent, this quite likely includes short-term revolving facilities of $3.7 billion and $1 billion for trade financing and capex respectively; “the question is whether such a measure is valid in the first place.”
It adds some issues, such as accounting re-statements, were addressed previously. While Muddy Waters values Olam’s equity at zero based on insolvency expectations, UOB KayHian believes Olam should be valued as a going concern; “there are issues highlighted regarding overpayment and misleading investors, which Olam should address in its response to the report. However, these issues alone are not likely to cause Olam face solvency issues.”
It expects near-term volatility in the stock, with trade rangebound until the issues are addressed comprehensively; “due to the complexities of the business, it could be a protracted process.” It keeps a Buy call with $2.38 target pending further developments. The stock is last down 1.9% at $1.53.
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