Company Name: OLAM INTERNATIONAL LIMITED
| Research House: OSK-DMG | Price Call: BUY | Target Price: 1.97 |
OSK-DMG cuts Olam’s target to $1.97 from $2.20 after lowering FY13-14 earnings forecasts by 11% and 18% respectively on higher interest costs and likely weaker growth from a slower pace of acquisitions.
“With Olam having secured five-year tenor debt funding of US$750 million ($927 million), debt maturity is extended and liquidity improved. However, this comes with additional interest costs.”
It also shifted its target P/E to 10x FY14 EPS from 12x FY13 EPS previously, a discount to the historical average of 17x.
But it adds, “Temasek’s stake in Olam equity and in the Olam bonds will go some way to allay investors’ concerns on Olam’s gearing and liquidity.”
It expects fiscal-2Q13 results, due Feb. 7 post-market, should show continued good volume growth for the food business, but it expects weakness in the industrial commodity segment persisted as weak global economic growth likely limited demand for wood and cotton.
But it adds, “we remain positive on the long term prospects for Olam, and believe investor interest will return as earnings continue to grow.” It keeps a Buy call. The stock is flat at $1.64.
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