Olam

Olam: Acquired Titanium Holding co, a leading Nigerian biscuits and candymaker for US$167m. Titanium owns the 2nd largest biscuits and candy franchise with turnover of approx US$162m in 2011 and has mkt shares of 18% in biscuits and 28% in sugar candy in Nigeria. Mkt growth rates are approx 10-12% and 12-15% respectively with CAGR of 26% in rev over past 5 yrs. Titanium owns 3 biscuit and candy factories with a fleet of trucks and other logistics assets.

This may complement its earlier acquisitions in Nigeria which include a sugar processor, a wheat milling facility and a rice milling facility.

MS reiterates Overweight, acquisition is likely to be viewed positively due to:
1) being earnings accretive – estimate it to add 3-4% to F2013E earnings;
2) a good-quality business with zero debt and a strong track record and
3) deal transacted at a reasonable multiple of 8.1x EV/EBITDA, which is
23% lower than the previous transactions in the space. It also compares well with average Asia F&B multiple of 13.5x.

Macq reiterate Outperform, TP$3.10, a more palatable acquisition. More receptive to this deal which is immediately accretive to cash flow and earnings. Titanium has 17-18% EBITDA margins vs 5-6% at Olam. Olam expects a 29% equity IRR on this deal.

Deutsche has Buy rating, TP$2.90, acquisition will enable Olam to tap the fast-growing consumer market in West Africa.